This is with reference to judgment of Hon’ble Telangana High Court in the case of M/s. Megha Engineering & Infrastructures Ltd. v. Comm. of Central Tax, wherein, the petitioner filed a writ petition against the demand of interest for delay in filing GSTR 3B returns, on the ground that interest is to be calculated only on the ‘net tax liability’, after deducting the ITC available from the total tax liability.
Section 50 of the CGST Act which is charging section of Interest under GST is being reiterated below:
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 recommendations of the Council.
Brief Facts
- The Assessee is engaged in manufacturing of MS pipes and in the execution of infrastructure projects and had been regularly filing GST returns. However, there was a short delay in filing of GSTR 3B for the period October, 2017 to May, 2018 and therefore, the Assessee filed returns after the due date along with applicable interest.
- The interest on such delayed filing of returns was calculated on net tax payable i.e. after deducting input tax credit available in the electronic ledger for the period October, 2017 to May, 2018. Accordingly, the Department issued letters to the Assessee demanding interest @18% u/s 50 of the CGST Act, 2017 on the gross tax liability instead of net tax liability.
- Aggrieved by the demand made by the Commissioner for payment of interest on the gross tax liability, the Assessee filed writ petition with the Hon’ble High Court.
Ruling
The Hon’ble High Court held that interest shall be payable on the gross tax liability and not on net tax liability on the basis of the following:
- As per section 49(2) of the CGST Act, only after the credit entry has been made in the electronic credit ledger, the said input tax credit becomes available for making payment to the Government; and
- Until a return is filed as self-assessed, (i) there is no entitlement to ITC and (ii) no actual entry of credit in the electronic credit ledger takes place and (iii) mere availability of credit will not tantamount to actual payment.
Basis of this judgment, it has been made clear that the legal position adopted where Interest needs to be deposited (suo-moto) on Gross Tax liability and not net tax liability unlike pre-gst era. The recommendation of GST Council in its 31st meeting needs to brought into effect vide amendment under GST act under section 50 i.e. Interest on “Net tax liability”. Till the amendment is being brought, the Interest needs to be paid on Gross Liability.
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