Interest is meant to be levy on the delayed payment of amount. Payment of taxes like GST can be made out of two ways, one by utilising the credits and second by paying the balance liability in cash. Credit though have been paid to government, but utilisation of is by way of return can be delayed. Though one must appreciate the fact that interest shall be calculated on net tax liability i.e. on the liability which ought to have been paid in cash. In earlier laws like VAT, Service Tax, this methodology of paying interest had been opted.
But let us understand the methodology of levying interest under GST:
Section 50(1) – “Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall, for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent, as may be notified by the Government, on the recommendation of the Council.”
When the provision of the section is read ad literam, it clearly states that interest is to be levied on gross tax liability before utilizing any admissible Input Tax Credit (ITC). However, this definitely might not be the intention of the lawmakers.
This issue had been a lime light out of various issues arise under GST era. Below are the highlights of this issue as how this has been addressed and Pop up many times –
In section 50 of the Central Goods and Services Tax Act, in sub-section (1), the following proviso shall be inserted, namely:
“Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.”.
But this is not the end, please hold on to read the article till the end. Though the Madras high court had taken favourable view as described above, there still is some ambiguity in this issue.
The Finance (No. 2) Bill, 2019 was presented in Lower House of the Parliament on 05.07.2019 proposing, inter alia, to amend section 50 of CGST Act, 2017. The bill was passed in both Houses of the parliament and received the assent of the President on 01.08.2019. The clause (b) section 2 of Finance Act, 2019 mandated that “sections 92 to 112 and section 114 shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.
The Government has not yet notified section 100 of Finance Act, 2019 which inserted a proviso to section 50(1) of CGST Act, 2017 to provide for levy of interest on the portion of the tax that is paid by debiting the electronic cash ledger.
Though the Finance Bill has amended the provision of section 50, but this has not come into effect yet. Government is yet to notify the date from which this amendment will be effective.
Mr. A. K. Pandey, Special Secretary & Member, Government of India-Ministry of Finance-Department of Revenue-Central Board of Indirect Taxes & Customs in a letter vide F.No. CBEC-20/16/07/2020-GST dated 10.02.2020 – addressed to Prinicipal Chief Commissioner / Chief Commisoner drawn attention towards belatedly filed GSTR3B returns without discharging interest on GROSS LIABILITY. The letter also made reference to GSTIN wise list of registered persons generated and shared by The Principal Additional Director General (Systems) on 01.02.2020. The said report states that interest amount on Gross GST Liability to tune of Rs. 45,996 Crores remains unpaid to the Government. The said letter as clear as crystal stated interest shall be levied and collected on GROSS LIABILITY AND NOT ON THE NET CASH PORTION.
In continuation to this the CBIC through its official Twitter handle tweeted series of tweets on 15.02.2020, the same are reproduced hereunder:
It has now been clarified by CBIC that such amendment will be brought in with prospective effect.
Till the time this amendment is effective, the interest will be calculated on gross GST liability.
Though this will not be the intention of law makers, this will impact negatively to the taxpayers having pile of Input Tax Credit and inadvertently filed GSTR3B belatedly.
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