Interest recovery without a show cause notice

Interest recovery without a show cause notice: 

The validity of Interest recovery without a show cause notice. Interest in GST has a journey of controversies. The calculation of interest at gross amount was a bone of contention earlier. Then it saw many courts. Opposition from taxpayers for such a harsh provision. Then the council clarified that it needs to be on-net retrospectively. Now during this process of collecting interest aggressively. Department started with the attachment of bank accounts. No SCN, No opportunity of being heard. Direct proceedings. They had a plea that interest is a clear liability of the taxpayer. When you are filing a late return. You are making belated payment of tax. Interest is automatic. But the courts had their own interpretation. Today we will discuss the view taken by various courts on this issue.

Important judgments covering the issue of whether interest recovery without a show cause notice is tenable?

There are various judgments in this regard. Let us discuss the crux of those cases.

Mahadeo Construction Co. at Chhatarpur, Palamau through its partner Anil Kumar Singh  Versus  The Union of India

In this case of Jharkhand high court, this issue is discussed in detail. If the liability of interest is automatic there is no requirement of SCN. But on perusal of section 50 of the CGST Act, it is observed that the quantum of interest is required to be calculated. Without such calculation the department cant initiate recovery proceedings. The dispute is not on the liability of interest but on the calculation. Department is required to provide the fair calculation taking into account the ITC claimed by the taxpayer. In this case, show cause notice is a requirement. Section 79 proceedings cant be initiated without a show cause notice. You can download the copy of the judgement from here.

THE SUPERINTENDENT OFFICE OF CENTRAL G.S.T VERSUS M/S. LC INFRA PROJECTS PVT., LTD

In this case notice was not issued. Bank account was attached without a show cause notice. It was held thaT

“Before penalizing the assessee by making him pay interest, the principles of natural justice ought to be complied with before making a demand for interest under sub section (1) of Section 50 of the GST Act. Consequence of demanding interest and non-payment thereof is very drastic.

13. Therefore, the learned Single Judge rightly held in paragraph 6 of the impugned judgment that issuance of show Cause Notice is sine qua non to proceed with the recovery of interest payable in accordance with sub section (1) of Section 50 of the GST Act.”