BLUESTAR MALLEABLE PVT LTD Vs. The State of Jharkhand

The case revolves around a dispute between the petitioner and the respondent authority regarding the reversal of State Goods and Services Tax (SGST) Credit and the subsequent imposition of interest. The petitioner initially sought clarification regarding the reversal of SGST Credit amounting to Rs.3,11,43,255 and the absence of interest payment on this reversal. In response, the respondent authority directed the petitioner to pay interest amounting to Rs.72,49,126 in connection with the irregularly taken credit.

Simultaneously, the petitioner applied for a refund of excess amount in their electronic cash ledger. Although the refund was sanctioned, it was adjusted against the interest demanded by the respondent authority. Dissatisfied, the petitioner challenged this adjustment in appeal, which was subsequently dismissed.

The petitioner contended that the interest levied under Section 50 of the JGST Act, 2017, being compensatory in nature, should not be imposed if Input Tax Credit (ITC) was not availed twice. They also argued that proper procedures for realization of interest were not followed by the respondent.

The court examined the matter and referred to relevant legal precedents, including the case of Mahadeo Construction Co. Vs. Union of India. It emphasized that the liability of interest under Section 50 of the JGST Act is not automatic and must be calculated and intimated to the assessee. If the assessee disputes the liability or calculation of interest, adjudication proceedings under Section 73 or 74 of the Act must be initiated.

The court noted that quantification of interest liability requires consideration of objections raised by the assessee, as unilateral quantification is not justified, especially when the assessee disputes the quantum or period of liability. It clarified that while the liability to pay interest is automatic, quantification of such liability requires an arithmetic exercise after considering objections raised by the assessee.

In conclusion, the court upheld the petitioner’s contention that interest cannot be levied without initiating adjudication proceedings. It emphasized the need for a fair assessment of interest liability, considering objections raised by the assessee. Therefore, it ruled in favor of the petitioner and directed the respondent authority to reevaluate the interest liability in accordance with the principles outlined in the judgment.

The court, upon reviewing the order in the case of Mahadeo Construction, determines that if an assessee contests the liability of interest under Section 50 of the JGST Act, the revenue must adhere to the specific procedures outlined in Sections 73 or 74 of the JGST Act. In this particular case, the petitioner responded to a notice issued on 6th November 2018 by raising objections regarding non-payment of interest. Despite the petitioner’s objections, the respondent department reiterated its stance and demanded payment of interest without following the prescribed procedures under Sections 73 or 74. Therefore, the issue at hand aligns with the precedent set by the court in the Mahadeo Construction case.

Considering the facts presented and the legal precedent, the court concludes that intervention is necessary in both writ applications. The letter issued by respondent No.3 on 6th November 2018, demanding payment of interest, and the subsequent order dated 28th January 2019, rejecting the petitioner’s objections, are deemed null and void. Additionally, the appellate order is also invalidated.

The matter is remanded to the revenue department for the initiation of fresh proceedings regarding the liability towards interest under Section 50 of the JGST Act, in compliance with the provisions of the law as stipulated in the JGST Act. It is emphasized that following the correct procedure, a fresh refund order should be issued accordingly.

With these directives and observations, both writ applications are allowed.

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