Interest on Delayed GST Payment Upheld by Madras High Court — Voluntary Payment After Departmental Intimation Does Not Extinguish Liability
Background and Context
The Madras High Court recently pronounced its ruling in Tvl. Noyyal Common Effluent Treatment Company Limited Vs Assistant Commissioner (ST), a matter that formed part of a consolidated batch of 250 writ petitions, of which 53 petitions were taken up for final hearing on the principal question of law — namely, the validity of proceedings initiated under Section 74 of the respective GST enactments.
The Court had simultaneously passed a common order in the matters of Turbo Energy Private Limited, Fastenex Private Limited, and Ispahani Estates Private Limited, which elaborately addressed the question of invocation of the extended period of limitation under Section 74. The present matter was disposed of in light of those findings, with certain additional directions specific to the petitioner's circumstances.
The Dispute: What Was Challenged?
The petitioner — a company engaged in the treatment of effluents discharged from dyeing units — challenged an impugned order dated 31.05.2024, by which the department confirmed the proposal set out in the Show Cause Notice issued in GST DRC-01 dated 28.03.2024.
The crux of the dispute revolved around an interest liability of ₹72,25,154 levied on account of belated payment of tax pertaining to the tax period 2017–2018.
Sequence of Events Leading to the Dispute
The following chronological chain of events is relevant to understand the context of the litigation:
- The petitioner had originally discharged its tax liability at the rate of 5%.
- The department, upon examination, found that the applicable rate was 18%, and accordingly issued an Intimation in GST DRC-01A dated 28.07.2020, pointing out the deficiency.
- Pursuant to this intimation, the petitioner made payment of the differential tax through multiple DRC-03 filings on various dates ranging from 26.11.2020 to 11.01.2022, as detailed in the table below:
| DRC-03 ARN | Date of Filing | SGST Paid (₹) | CGST Paid (₹) | Total (₹) |
|---|---|---|---|---|
| AD331120007198O | 26-11-2020 | 12,50,000 | 12,50,000 | 25,00,000 |
| AD331220001623Z | 04-12-2020 | 19,00,000 | 19,00,000 | 38,00,000 |
| AD330721003225Q | 14-07-2021 | 19,48,500 | 19,48,500 | 38,97,000 |
| AD330721001236N | 14-07-2021 | 2,50,000 | 2,50,000 | 5,00,000 |
| AD330921006877Y | 28-09-2021 | 2,185 | 2,185 | 4,370 |
| AD3301220039461 | 11-01-2022 | 20,20,717 | 20,20,717 | 40,41,434 |
| Total | 73,71,402 | 73,71,402 | 1,47,42,804 |
- After tax payments were completed, the department issued a Show Cause Notice in GST DRC-01 on 28.03.2024, followed by the impugned order dated 31.05.2024 in GST DRC-07, confirming the interest demand.
Petitioner's Arguments
The petitioner advanced the following contentions before the Court:
Prompt payment defence: The differential tax was paid immediately after the department flagged the discrepancy through the DRC-01A intimation dated 28.07.2020. Since the payment was made voluntarily and without delay post-intimation, proceedings under
Section 74were unwarranted.Wrongful invocation of Section 74: The petitioner contended that
Section 74— which deals with cases involving fraud, suppression, or wilful misstatement — was incorrectly invoked, since there was no allegation of any such mens rea.