Interest on Delayed GST Payment Justified: Madras High Court Ruling Explained

In a recent and significant judgment, the Madurai Bench of the Madras High Court upheld the levy of interest on delayed GST payment under Section 50(1) of the CGST/TNGST Act, 2017 read with Rule 88B of the CGST Rules, 2017. This ruling came in the case of G.P. Construction, where the petitioner challenged the imposition of interest and penalty despite payment of tax, albeit late.

Let’s break down what the case was about and what this judgment means for taxpayers and businesses.

Background of the Case

G.P. Construction, the petitioner in this matter, had paid the GST amount due, but not within the stipulated deadline. The department later issued a demand notice levying both interest and a penalty on the delayed payment.

The petitioner argued that:

• The tax amount had already been paid.

• The interest and penalty imposed were excessive and unjust.

• The reply to the show cause notice (SCN) had not been properly considered by the authorities before passing the order.

The Department, on the other hand, maintained that:

• There was a clear delay in tax payment.

• Interest under Section 50(1) is automatically attracted for late payment.

• The petitioner had an alternative remedy through appeal.

Court’s Findings and Verdict

Justice C. Saravanan, after hearing both parties, ruled as follows:

✅ Interest Levy Is Valid

The court noted that the petitioner had indeed delayed the tax payment. Therefore, interest under Section 50(1) of the CGST/TNGST Act read with Rule 88B was rightly levied. The Court emphasized that the interest liability arises automatically when there is a delay in payment of tax, regardless of the reason behind the delay.

Key Takeaway: Interest on late GST payments is mandatory and non-discretionary. Even if the tax is eventually paid, interest is payable for the delayed period.

❌ Penalty Needs Reconsideration

However, the Court took a lenient view on the penalty of ₹5,72,052/- imposed under Section 73(9) read with Section 122(2)(a) of the Act. It observed that the penalty might not be justified, especially since the taxpayer had already paid the tax amount.

The Court allowed the petitioner to challenge the penalty by filing an appeal before the Appellate Authority under Section 107 of the CGST Act.

📅 Relief on Appeal Filing

The High Court also directed that if the petitioner files the appeal within 30 days of receiving the order and deposits 10% of the disputed penalty, the Appellate Commissioner should hear the case on merits without raising any objection regarding limitation.

Implications for Taxpayers

This judgment serves as a clear reminder to businesses and taxpayers:

• Timely payment of GST is crucial. Even minor delays can lead to automatic interest liabilities.

• Interest under Section 50(1) is not subject to departmental discretion and will apply if there’s any delay in tax payment.

• Penalties, however, may be challenged, especially when taxes have been paid and procedural lapses are not severe.

• Proper response to show cause notices is essential, and authorities must consider them before finalizing orders.

Conclusion

The Madras High Court's decision provides clarity on the interpretation of Section 50(1) and reinforces the importance of compliance with GST timelines. While the ruling underscores the non-negotiable nature of interest on late payments, it also shows a balanced approach by offering relief on the penalty subject to appeal.

Businesses must treat GST deadlines seriously, ensure timely filings and payments, and maintain clear documentation in case any notice or penalty is challenged later.

FAQs

Q1. Is interest under Section 50(1) mandatory even if the tax is paid later?
Yes, the Madras HC confirmed that interest is automatically applicable on delayed payments.

Q2. Can penalties under Section 73 be challenged?
Yes, if the taxpayer has valid grounds, penalties can be challenged through an appeal under Section 107.

Q3. What is Rule 88B of the CGST Rules?
Rule 88B outlines the method for computing interest on delayed GST payments under the CGST Act.

Q4. How much must be deposited before filing an appeal on penalty?
The petitioner must deposit 10% of the disputed penalty amount to file an appeal under Section 107.

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