Maansarovar Motors Private Ltd. Vs Assistant Commissioner (Madras High Court)
Conclusion: Every person who is liable to pay tax in terms of the Act shall remit the tax either in cash or by way of adjustment of credit available in the Input Tax Credit (ITC) register. Where delay is made in remitting the tax, no interest under section 50 of CGST Act, 2017 would be chargeable in case payment of tax was made through input tax credit.
Held: Section 50 stated that every person who is liable to pay tax in terms of the Act shall remit the tax either in cash or by way of adjustment of credit available in the Input Tax Credit (ITC) register. In cases of delay in such remittance, interest is liable to be paid for the period of delay. While the levy of interest on remittances of tax in cash is not in question, the authorities had proceeded to levy interest on remittances of tax by adjustment of available ITC and this was the subject matter of challenge. Assessee contended that (i) the credit was available even prior to the arising of the output tax liability and hence the question of delay did not arise(ii) no opportunity was granted prior to raising of the impugned demand and consequential proceedings (iii) interest was a measure of compensation and since ITC was already available in the electronic ledger, there was no question of the same being due to the revenue (iv) the proviso to Section 50 which stated that interest should be levied only on that part of that paid in cash had been inserted to set right an anomaly and was therefore retrospective in operation. Reliance was placed on (i)Eicher Motors Ltd. Vs. Union of India [(1999) Union of India [(1996) 88 ELT 12] (iii) Refix Industry Vs. Assistant Commissioner of CGST order dated 06.01.2020 in W.P.No.23360 & 23361 of 2019. Revenue argued that Section 16(2) entitles a person to take credit of input tax and Section 41(1) provides for a credit entry in the electronic credit ledger, which is provisional in nature. Since Section 41 provides that the entitlement to credit is only with the filing of return on self-assessment basis, this entitlement cannot be availed of till such time a return is filed by an assessee. After a return is filed and the credit is availed by entry in the register, the assessee can proceed to utilize the same against output tax liability. In fact, the question of payment of interest arose only in the satisfaction of the tax computed under that return, belatedly and either by cash or by reversal of ITC. It was held that notwithstanding that the proviso had been stated to be effective only from 01.09.2020 by Notification No.63 of 2020 dated 25.08.2020, the resolution of the GST Council dated 22.12.2018 introducing the proposal for amendment of Section 50 to allow payment of interest on net cash liability, taking into account admissible credit that amount payable through electronic cash ledger (ii) the GST Council meeting dated 21.06.2019 wherein the recommendation was made to amend Section 50 vide Section 100 of Finance (No.2) Act, 2019 to provide for charging interest on net cash liability (iii) the Council in its meeting on 14.03.2020 recommending charging of interest on net cash tax liability with effect from 01.07.2017 and accordingly, retrospective amendment of the Act from the aforesaid date (iv) the press release of the Council post the 39th meeting also dated 14.03.2020 allaying apprehensions of the tax payers that the amendment of Section 50 would be prospective, setting out clearly as a trade facilitation measure, the assurance that the insertion of the proviso would be retrospective, applicable with effect from 01.07.2017 (v) the fact that close on the heels of Notification No.63 of 2020 dated 25.08.2020 stipulating the effective date as 01.09.2020, the CBIC issued a press release assuaging apprehensions by stating that the prospective notification was only on account of technical limitations. The Board had extended a waiver of recovery for the past period in line with the decisions of the Council and Notification dated 18.09.2020, that cemented the long line of assurances of the GST Council and the Board in letter and spirit. A direction was issued to the appropriate authority to compute the interest liability for belated remittances of cash and refund the balance of the amount collected from assessee within a period of four weeks from date of uploading of this order. AO were at liberty to raise fresh demands relating to interest on delayed remittances of tax by cash, in accordance with law.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
This batch of writ petitions revolves around the interpretation of Section 50 of the Central Goods and Services Tax Act, 2017 (in short ‘Act’), particularly the effective date of application of the proviso inserted
vide Section 100 of Finance (No.2) Act of 2019.
2. Section 50 of the Act states that every person who is liable to pay tax in terms of the Act shall remit the tax either in cash or by way of adjustment of credit available in the Input Tax Credit (ITC) register. In cases of delay in such remittance, interest is liable to be paid for the period of delay. While the levy of interest on remittances of tax in cash is not in question, the authorities have proceeded to levy interest on remittances of tax by adjustment of available ITC and this is the subject matter of challenge before me.
3. The petitioner’s argue that (i) the credit was available even prior to the arising of the output tax liability and hence the question of delay does not arise(ii) no opportunity was granted prior to raising of the impugned demand and consequential proceedings (iii) interest is a measure of compensation and since ITC is already available in the electronic ledger, there is no question of the same being due to the revenue (iv) the proviso to Section 50 of the Act which states that interest shall be levied only on that part of that paid in cash has been inserted to set right an anomaly and is therefore retrospective in operation. Reliance is placed on (i)Eicher Motors Ltd. Vs. Union of India [(1999) Union of India [(1996) 88 ELT 12] (iii) Refix Industry Vs. Assistant Commissioner of CGST order dated 06.01.2020 in W.P.No.23360 & 23361 of 2019.
4. Per contra, the revenue argues that Section 16(2) entitles a person to take credit of input tax and Section 41(1) provides for a credit entry in the electronic credit ledger, which is provisional in nature. Since Section 41 provides that the entitlement to credit is only with the filing of return on self-assessment basis, this entitlement cannot be availed of till such time a return is filed by an assessee. After a return is filed and the credit is availed by entry in the register, the assessee can proceed to utilize the same against output tax liability. Reference is made to Section 49, which deals with payment of tax, interest, penalty and other amounts to support the aforesaid argument emphasizing that it is only when a credit entry is made in the electronic credit ledger that the entitlement to avail the same arises. This argument does not advance the case of the revenue as all the petitioners before me have filed their returns under the Act. In fact, the question of payment of interest arises only in the satisfaction of the tax computed under that return, belatedly and either by cash or by reversal of ITC.
5. Reliance is placed on a decision of the Telangana High Court in Megha Engineering and Infrastruacture Ltd. Vs. Commissioner of Central Taxes, Hyderabadin W.P. No. 44517 of 2018. Since the effective date of Section 100 was not notified when the decision in Refix Industries (supra) was rendered and has been notified now vide Notification No. 63 of 2020 dated 25.08.2020, as being 01.09.2020, the decision in Refix Industries (supra) is said to be of no benefit to the petitioners. Reliance is also placed on a Clarification issued by the Central Board of Excise and Customs bearing No.20/16/07/2020-GST dated 10.02.2020 to the effect that liability to interest would arise on total amount of tax liability as revealed in the GST return.
6. Learned Senior standing counsel for the revenue would, however, acknowledge that the clarificatory Press Release of the CBIC dated 26.08.2020 has protected the interest of the assessees by stating that no recovery of interest shall be made even for the earlier periods. He would also state that though Circular F.No.CEBC/20/1/8/2019-GST dated 18.09.2020 has more or less settled the issue as regards the recovery to be made for the past periods, some shadows still remain on the legal issues concerning the determination of effective date of the proviso.
7. Section 50 is extracted below:
Interest on delayed payment of tax-
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.
“ 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.”
(2) The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.
(3) A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council.
8. The issue before me has seen a checkered history. Section 50 was part of the original enactment, w.e.f. 01.07.2017, sans, of course, the proviso thereto that stood inserted vide Section 100 of the Finance (No. 2) Act, 2019.
9. I would first refer to the 31st Goods and Services Tax Council Meeting (GST Council)/Council held on 22.12.2018 that discussed the proposal for amendment of Section 50 so as to provide for payment of interest on net cash liability alone, that interest be charged only on net tax liability of the tax payer after taking into account admissible credit i.e., amount payable through electronic cash ledger. The Amendment Act, specifically Section 100 thereof, inserted a proviso to Section 50 that reiterated the above position. However, the date of notification of Section 50 was not specified and left to be indicated at a future date.
10. I may at this juncture note that the GST Council is chaired by the Hon’ble Union Finance Minister and comprises representatives of the Centre, the States, the Council Secretariat, officials of the Goods and Services Tax Network and Members of the Central Board of Indirect Taxes (CBIC)/Board. Thus, the Centre, State and the Board have come to a common and unanimous conclusion which is reflected in the minutes of the meeting.
11. The 39th GST Council meeting held on 21.06.2019 made recommendations to amend Section 50 vide Section 100 of Finance (No.2) Act, 2019 to provide for charging interest on net cash liability and the Council in its meeting on 14.03.2020 recommended charging of interest on net cash tax liability with effect from 01.07.2017 with a retrospective amendment of the Act from the aforesaid date. On 14.03.2020, the Council issued a press release wherein, under the head ‘Measures for trade facilitation’, it was stipulated categorically that interest for delay in payment of GST would be charged only on net cash tax liability with effect from 01.07.2017 and that the proviso to Section 50 would be retrospective, with effect from 01.07.2017.
12. On the heels of the aforesaid recommendation came Notification No.63 of 2020-Central Tax dated 25.08.2020, which stated that the proviso would operate with effect from 01.09.2020. Naturally, this resulted in a barrage of apprehension and doubts from taxpayers. The CBIC reacted promptly and vide press release dated 26.08.2020, issued on the very next day after the aforesaid Notification, clarified that the Notification had been issued only on account of and to get over certain ‘technical limitations’ and the decision of the GST Council in the 39th meeting would be give full effect. The press release is extracted below:
Press Release
CBIC
26.08.2020
Interest on delayed payment of GST:CBIC
New Delhi: The Central Board of Indirect Tax & Customs (CBIC) today clarified that the Notification No. 63/2020-Central Tax dated 25th August 2020 relating to interest on delayed payment of GST has been issued that prospectively due to certain technical limitations. However, it has assured that no recoveries shall be made for the past period as well as by the Central and State tax administration in accordance with the decision taken in the 39th Meeting of GST Council. This will ensure full relief to the taxpayers as decided by the GST Council.
CBIC explanation came in response to an assortment of comments in the social media with respect to Notification dated 25th August 2020 regarding charging of interest on delayed payment of GST on net liability (the tax liability discharge in cash) w.e.f. 1st September 2020.
13. Barring one matter in this batch, all writ petitions challenge action taken by the Central GST Authorities levying interest on tax paid by reversal of ITC. In one matter alone, the challenge is to recovery taken under the Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act). Learned Special Government Pleader would adopt the submissions of the Central authorities and state that the position of the State Government is in line with the view expressed by the Centre in press release dated 26.08.2020.
14. It is thus clear that there is a meeting of minds of the Centre, the State of Tamil Nadu and the Board to the effect that the proviso to Section 50 is operative effective 01.07.2017, and no interest is liable to be levied on tax remitted by reversal of available ITC.
15. While this is so, the GST authorities have adopted a contradictory stand by issuing orders, styled as notices, levying interest for allegedly belated remittance of tax by reversal of ITC. No opportunity appears to have been granted in most of the matters calling for explanation from the assessees prior to raising of the impugned demands of interest and coercive recovery action by attachment of bank accounts have been resorted to by the respective Assessing Officers.
16.Though cumbersome and adding to the volume of this already long order, I extract my order in the case of Refix Industry Vs. Assistant Commissioner of CGST in full (order dated 06.01.2020 in W.P.No.23360 & 23361 of 2019), wherein I had had occasion to deal with this very issue for the sake of completion:
The petitioners are registered as assessees under the provisions of the Central Goods and Service Tax Act, 2017 (in short ‘CGST Act’). The petitioners have admittedly filed Returns of income belatedly for the period 2017-18. Communications dated 07.05.2019 (in W.P.No.23360 of 2019) and 15.05.2019 (in W.P.No.23361 of 2019) computing the delay in filing of Returns and consequently the interest to be remitted on the tax accompanying the Returns were issued by the 2nd respondent in the following terms:
W.P.No.23360 of 2019:
