GST Transition Uncertainty No Shield Against Interest on Delayed VAT: Bombay HC On ENA Taxability

The Goa Bench of the Bombay High Court has upheld the levy of interest under the Goa Value Added Tax Act, 2005 (GVAT Act) on delayed payment of VAT arising from sales of Extra Neutral Alcohol (ENA), Rectified Spirit (RS) and High Bouquet Spirit (HBS) during the financial year 2019–20. The bench of Justice Bharati Dangre and Justice Ashish S. Chavan ruled that the alleged ambiguity following the introduction of GST could not absolve the taxpayer from statutory liability to pay interest on delayed tax remittance. United Spirits Ltd., engaged in the manufacture and sale of alcoholic beverages and industrial spirits, had effected local, interstate and export sales of ENA/HBS/RS during FY 2019–20. While the company filed its VAT returns within time, it did not discharge VAT liability on ENA/HBS/RS, contending that post-GST implementation from 1 July 2017, there was uncertainty over whether such goods fell under the GST regime or continued under VAT. During assessment under Section 29 of the GVAT Act, the Commercial Tax Officer determined that ENA/HBS/RS were taxable under VAT at 12.5%, and raised a tax demand of over ₹1.63 crore. Although United Spirits subsequently paid the tax amount, the department levied interest of ₹53.58 lakh under Section 25(4) of the GVAT Act for delayed payment. The company challenged the interest levy before the appellate authority, arguing that interest is compensatory in nature and cannot be imposed where tax was not deliberately withheld. It further contended that conflicting views of the GST Council, pending litigation, and the eventual amendment to the CGST Act in 2024 excluding ENA from GST demonstrated prolonged uncertainty. However, the appellate authority rejected the appeal, holding that once VAT liability existed, delay in payment automatically attracted statutory interest. Aggrieved, United Spirits approached the High Court, seeking quashing of the appellate order and a declaration that the levy of interest was unconstitutional and arbitrary. The court examined the statutory framework under the GVAT Act and the post-GST constitutional scheme. The Court noted that although ENA/HBS/RS were removed from Schedule C of the GVAT Act with effect from 30 June 2017, they were not brought under GST. Consequently, such goods continued to be taxable under Section 5(1)(e) of the GVAT Act at the residual VAT rate of 12.5%. The Bench observed that deletion of an entry from Schedule C did not render the goods non-taxable. Until ENA was expressly brought within GST, VAT liability subsisted. United Spirits had, in fact, collected VAT from buyers in several transactions. The company was fully aware that ENA remained within the VAT/CST regime, as evident from its earlier litigation and the State’s Office Memorandum dated 21 April 2021. Rejecting the plea of ambiguity, the Court held that Section 25(4) of the GVAT Act mandates interest wherever tax due is not paid within the prescribed time, regardless of intent. Interest, the Court clarified, is a statutory consequence and not a penalty dependent on mens rea. The Bench further held that revised returns filed beyond the statutory limitation had no legal effect, and delayed voluntary payment of tax could not erase the period of default. The Court also referred to the Constitution Bench judgment of the Supreme Court in State of U.P. v. Lalta Prasad Vaish & Sons (2024), which clarified that ENA and rectified spirit fall within the scope of “intoxicating liquor” and can validly be regulated and taxed by States under Entry 8 of List II of the Constitution. Concluding that there was no illegality or arbitrariness in the levy of interest, the High Court dismissed the writ petition and upheld the orders passed by the assessing and appellate authorities. Case Details Case Title: United Spirits Ltd. Versus Additional Commissioner of State Tax-II & Appellate Authority, South Goa Case No.: Writ Petition No.229 Of 2025 Date: 23/12/2025 Counsel For Petitioner: Rohan Shah, Senior Advocate Counsel For Respondent: Devidas J. Pangam, Advocate General Click Here To Read Order Read More: Calcutta HC Restores GST Appeal Dismissed on Delay, Grants Relief to Senior Citizen Taxpayer Subject To Rs. 15K Cost

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