Interest on delayed payment shall be levied on net tax liability.

Case Title: Rajkamal Builder Infrastructure (P.) Ltd. v. Union of India

Court: High Court of Gujarat

Petition No.: R/Special Civil Application No. 21534 of 2019

Date of Judgment: 23 March 2021

Relevant Section: Section 50, 75(12), and 79 of the CGST Act, 2017; Rule 142(1) & (5) of the CGST Rules, 2017

Category of Dispute: Interest on delayed tax payment; Legality of GST DRC-01

Facts of the Case (Paras 1–3)

1. The petitioner challenged the issuance of Form GST DRC-01 dated 19.07.2019, contending it was without legal authority since Rule 142(1) does not permit DRC-01 for demands under Section 50 of the CGST Act.
2. The petitioner also questioned whether interest under Section 50 should be charged on the gross liability or the net cash liability.
3. The Court had stayed further proceedings vide ad-interim relief on 05.12.2019.

Questions in Consideration (Para 4)

1. Whether interest under Section 50 of CGST Act, 2017 should be levied on gross tax liability or net tax liability?
2. Whether the issuance of Form GST DRC-01 under Section 50 is legal?

Observation of the Court

• Interest on Net Liability (Paras 5–6):
  The Court acknowledged the amendment to Section 50(1) proposed in Finance Bill 2021, with retrospective effect from 01.07.2017, clarifying that interest is payable only on the portion of tax paid through the electronic cash ledger. Hence, interest on gross liability is impermissible.
• Invalidity of DRC-01 under Section 50 (Paras 7–10):
  Rule 142(1)(a) permits issuance of DRC-01 only with notices under specific sections (like 73, 74, etc.), which does not include Section 50. Therefore, issuing DRC-01 under Section 50 is ultra vires.
• Proper Recovery Mechanism (Paras 11–18):
  The Court emphasized that interest recovery for self-assessed tax is governed by Section 75(12), and recovery should be under Section 79 using proper procedure. Rule 142(5) mandates Form DRC-07 for recovery orders, not DRC-01.

Judgement of the Court (Paras 19–20)

• The writ petition was allowed.
• The Form GST DRC-01 issued to the petitioner was quashed as being without authority of law.
• The respondents were granted liberty to initiate proceedings afresh in accordance with the law.

Between Fine Lines

The Gujarat High Court held that interest under Section 50 of CGST Act is applicable only on net cash liability post-Finance Act amendment. Further, it clarified that Form DRC-01 cannot be issued for interest recovery under Section 50 as it is not permitted under CGST Rules. Proper recovery must follow the procedure under Section 79 using DRC-07. Tax authorities must adhere strictly to procedural law before initiating coercive actions.

Summary of Referred Cases

Takeaway

“Form DRC-01 cannot be a tool for interest recovery: Rule of law prevails over coercive shortcuts.”