Refex Industries Limited VS The Assistant Commissioner of CGST

The petitioners are individuals or entities registered under the Central Goods and Services Tax Act, 2017 (CGST Act). These petitioners have admitted to filing their income tax returns for the financial year 2017-18 late. Consequently, the relevant tax authority, referred to as the 2nd respondent, issued communications on May 7, 2019, for one petition (W.P.No.23360 of 2019) and on May 15, 2019, for another petition (W.P.No.23361 of 2019). These communications detailed the computation of the delays in filing the returns and the corresponding interest that needed to be paid on the tax dues associated with the late returns.

In essence, the notifications from the tax authority addressed the procedural and financial implications of the late submissions, including the calculation of the overdue interest. The petitioners, therefore, faced the challenge of addressing the interest liabilities stemming from their delayed compliance with the statutory deadlines set by the CGST Act. This situation raised questions about the appropriate handling of such delays and the enforcement of related financial penalties under the tax regulations.

The petitioners are registered assessees under the Central Goods and Services Tax Act, 2017 (CGST Act), and they have filed their income returns late for the fiscal year 2017-18. As a consequence, the authorities issued notices on May 7, 2019 (for W.P.No.23360 of 2019) and May 15, 2019 (for W.P.No.23361 of 2019), which calculated the delay in filing returns and determined the interest that needed to be paid on the taxes accompanying these late returns. These notices were issued by the second respondent.

Following these calculations, demand notices were sent to the banks holding the petitioners’ accounts, instructing them to recover the interest arrears from the petitioners’ bank balances. The petitioners contested this, arguing that they had ample Input Tax Credit (ITC) available with the Department. Therefore, they asserted that any interest should only be applicable to the cash component of the tax that was remitted late. Specifically, the cash component amounted to Rs.1,21,701 for the petition in W.P.No.23360 of 2019 and Rs.1,25,750 for the petition in W.P.No.23361 of 2019. The petitioners’ contention was that the interest should not be levied on the entire tax amount, given their available ITC.

The petitioners, who are registered under the Central Goods and Services Tax Act, 2017 (CGST Act), have been facing issues related to the belated filing of their income tax returns for the fiscal year 2017-18. Communications were sent on 07.05.2019 and 15.05.2019 by the second respondent, detailing the delays and computing the interest due on the tax that was filed late. Following this, demand notices were issued to the petitioners’ banks to recover the interest arrears from their account balances.

The petitioners contested these notices, arguing that they had adequate Input Tax Credit (ITC) available with the Department. They asserted that interest should only be levied on the cash component of the tax that was remitted late. Specifically, they stated that the interest amounted to Rs.1,21,701 for one petitioner (W.P.No.23360 of 2019) and Rs.1,25,75 for the other (W.P.No.23361 of 2019), which was paid on 14.06.2019. The total tax payable was Rs.3,94,49,225 for W.P.No.23360 of 2019 and Rs.2,74,71,771 for W.P.No.23361 of 2019. Of this, Rs.19,55,634 in W.P.No.23360 of 2019 and Rs.12,19,151 in W.P.No.23361 of 2019 were paid in cash, while the remaining amounts, Rs.3,74,93,591 for W.P.No.23360 of 2019 and Rs.2,62,52,620 for W.P.No.23361 of 2019, were settled through the available ITC.

The petitioners have challenged the actions taken by the authorities to recover the interest through coercive measures in the current writ petitions. They seek relief from these proceedings, arguing that the interest should only be applied to the cash component of their tax payments, not the ITC.

The petitioners in this case are registered under the Central Goods and Service Tax Act, 2017 (CGST Act) and have filed their income returns belatedly for the fiscal year 2017-18. Subsequent to the late filing of these returns, the relevant authorities sent communications on 07.05.2019 (for W.P.No.23360 of 2019) and 15.05.2019 (for W.P.No.23361 of 2019), detailing the computation of delay and the interest due on the late payment of taxes. These communications were issued by the second respondent, and the banks were subsequently issued demand notices to recover the arrears of interest from the petitioners’ bank balances.

The petitioners contested these actions, arguing that they had ample Input Tax Credit (ITC) with the Department. They claimed that interest should only be payable on the cash component of the tax that was remitted late, not on the entire tax amount. Specifically, they stated that they had remitted the cash component of Rs.1,21,701/- (in W.P.No.23360 of 2019) and Rs.1,25,75W.P.No.23361 of 2019), while the rest of the tax due, totalling Rs.3,94,49,225/- for W.P.No.23360 of 2019 and Rs.2,74,71,771/- for W.P.No.23361 of 2019, was paid using their available ITC. The amounts remitted in cash were Rs.19,55,634/- (in W.P.No.23360 of 2019) and Rs.12,19,151/- (in W.P.No.23361 of 2019), with the rest of the tax being covered by ITC.

The petitioners have raised several grounds in their objections, including a claim of violation of the principles of natural justice, but the central legal issue they are contesting is whether interest should be levied on the ITC, which was consistently available with the Department and used to settle the tax dues for the period from August 2017 to March 2018.

This matter is not entirely new, as a similar issue was previously addressed in W.P.No.15978 of 2019. In that case, a learned single judge, on 13.06.2019, ruled that the petitioner should remit only the tax amount on the cash component of the demand that was belatedly paid and directed the Department to consider the representation of the petitioner, indicating no liability for interest on the ITC available with the Department.

The petitioners’ challenge revolves around the application of interest on the ITC and whether it is justified under the circumstances described, leading them to seek relief through their current writ petitions.

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