Kerala HC: Not Legal to Charge GST Interest for Failing to File GSTR-3B After GSTN Cancellation

The High Court of Kerala in the case of M/S. HILTON GARDEN INN Vs. THE COMMISSIONER OF KERALA GST has ruled that GST interest could not be imposed on the non-filing of GSTR-3B because of GSTN Cancellation.

The current writ petition seeks to overturn Exhibit P-14, which instructs the petitioner to immediately pay the interest due under Section 50(1) of the CGST/SGST Act, 2017. Failure to comply could prompt the respondent to take action under Section 79 of the CGST Act. The interest accrued, amounting to Rs. 5,30,919 between July 2017 and March 2018, relates to the delayed tax payment by the petitioner.

Initially registered under the Kerala Value Added Tax Act, 2003, and the Kerala Tax on Luxuries Act, 1957, the petitioner transitioned to becoming a dealer under the CGST Act, effective from July 1, 2017.

The petitioner managed multiple vertical businesses, each with separate GSTIN registrations as detailed in paragraph 4 of the writ petition. Hilton Garden Inn, the petitioner’s entity, obtained registration number GSTIN 32AAECM1840M3ZI on June 28, 2017. Interestingly, the same GSTIN was also issued to another company, The Muthoot Skychef (Airline Catering Unit), on July 25, 2017. The duplication of GSTINs led the petitioner to seek assistance from the GST Help Desk.

On July 26, 2017, The Muthoot Sky Chef applied for a new registration, and subsequently, on August 2, 2017, it was granted a new registration number, GSTIN – 32AAECM1840M7ZE. According to the petitioner, in July 2017, a GST payment of Rs. 29,24,100 was made on August 21, 2017, the last filing date for Form GSTR 3B. However, due to a technical glitch in the GST network, the payment made by the petitioner wasn’t reflected in the cash ledger within the return module. Consequently, the petitioner couldn’t complete the e-filing of the return on the same day, i.e., on August 21, 2017.

On August 24, 2017, the petitioner reached out via email to helpdesk@gst.gov.in, outlining the issue and requesting guidance or assistance in crediting the tax payment to the cash ledger and completing the return filing.

The petitioner received a response to their email on 05.10.2017, acknowledging a transaction of Rs.29,24,100 on 21.08.2017 against CPIN 17083200013355 dated 18.08.2017, credited to their cash ledger. However, the petitioner discovered their GSTIN had been cancelled on 24.08.2017 without prior notice.

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They promptly informed the concerned authority via email on the same day. Despite filing applications on 30.08.2017 and 26.09.2017 to reactivate their GSTIN, it was only on 15.11.2017 that the petitioner was directed to contact tax authorities for assistance with their grievance.

Due to the GSTIN cancellation on 24.08.2017, the petitioner couldn’t file returns for July 2017, even though they had already paid taxes on 21.08.2017. Subsequently, for August, September, October, and November 2017, the petitioner sought relief by filing W.P.(C) No. 41314 of 2017 in this Court. On 21.12.2017, the Court issued an interim order, instructing the respondent to promptly restore the petitioner’s registration or provide an alternative registration within a week.

Although no penalty was imposed for the delay in filing the return, interest has been charged by Exhibit P-14 due to delayed tax remittance after the return filing. The petitioner’s counsel argues that the cancellation of the petitioner’s GSTIN lacked due process and was restored only following an interim court order in W.P.(C) No. 41314 of 2017 dated 21.12.2017. As a result, the petitioner shouldn’t be held accountable for delayed GST remittance, as they couldn’t have paid the tax without access to the site for remittance. The online filing of returns and tax remittances solely occurs through the Goods and Services Tax Portal linked to the GSTIN. When the petitioner’s GSTIN was revoked, they lacked the means to pay the tax or file returns until access was restored per the interim order dated 21.12.2017 in W.P.(C) No.41314 of 2017. The petitioner’s counsel contends that any liability for interest, if applicable, should commence only twenty days after the GSTIN’s restoration and not for any other duration. The Department has the authority to levy interest for any delay occurring after the 20th day from the restoration of the GSTIN, which is on 12.01.2018. Thus, the demand for interest concerning the supposed delay in tax remittance from July 2017 to March 2018 is completely unjustified and should be invalidated.

Meanwhile, Mr. Akhil Shaji, the learned Standing Counsel, contends that according to Section 50 of the CGST /SGST Act, 2017, any individual obligated to pay taxes as per the Act and its corresponding Rules, yet fails to remit the amount owed to the Government within the stipulated period, is subject to interest charges of up to 18%. He further asserts that the petitioner, having collected taxes from their customers but not remitted this sum to the Government, utilized these funds for their own business purposes. Consequently, the petitioner is held accountable for interest on the delayed payment of the tax amount owed to the Government.

Yet, the statement submitted by the respondents asserts the cancellation of the petitioner’s GSTIN on 24.08.2017, restored only by 26.12.2017. It remains indisputable that in the absence of a GSTIN, the petitioner couldn’t have fulfilled tax payments or filed returns. The petitioner cannot be held accountable for the cancellation of their GSTIN on 24.08.2017. Upon the immediate cancellation of their GSTIN on 24.08.2017, the petitioner promptly contacted the GST authorities via email, notifying them of the cancellation. Despite the petitioner’s request, no action was taken until W.P.(C) No.41314 of 2017 was filed before this Court. It was only following the interim order issued by this Court on 21.12.2017 that the petitioner’s GSTIN was eventually restored. Subsequently, the petitioner filed returns for the period spanning from July 2017 to December 2017 and settled the taxes owed.

In light of this, the Court finds it grossly unfair to enforce interest, as per Section 50 of the Income Tax Act, 2017, against the petitioner for the delay in filing returns and tax payments during this period. The petitioner cannot be deemed at fault for not remitting the tax since doing so without a valid GSTIN was impossible. However, if the petitioner had failed to remit the tax after 26.12.2017, within twenty days following the restoration, they would then be liable to pay interest under Section 50 of the CGST/SGST Act, 2017.

Under these circumstances, this writ petition is resolved. The contested order is overturned, granting the authorities the freedom to levy fines for delayed GST payments starting from the 20th day after 26.12.2017, applicable up to December 2017. For the subsequent months, if any delay occurs, the petitioner is responsible for paying the interest. A fresh notice should be issued to the petitioner accordingly. Upon receiving the notice, the petitioner is required to remit the interest in case of any delay highlighted in the response affidavit.