Calculation of interest on delay filling of GSTR 3B on delayed tax payment

Liability to pay interest on delay filling of GSTR 3B on delayed payment of GST to be calculated on net cash component after adjusting Input Tax Credit and not on Gross amount

1. In this Article an attempt has been made by the author to examine the scope of the delayed filling of Return GSTR 3B under Goods and Services Tax by six months or more and required to pay Interest under Section 50 of Central Goods & Services tax Act,2017 on delayed payment of tax.

2. To examine the scope of liability to pay interest under section 50 of Central Goods & Services tax Act,2017 in case delay filling of return under Goods and service tax we shall discuss whether interest will be calculated on the cash portion (after adjustment of Input Tax Credit) or on the gross liability.

3. It is pertinent to note that the budget declaration under clause 99 of Finance Bill, 2019 have notified and came into effect on 01.08.2019 which amend section 50 of CGST Act, 2017 which inter-alia states as under:

Section 50: 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 there under, 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 provision of section 39, except where such return is furnished after commencement of any processdings 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.

4. It is pertinent to note that a new proviso is being inserted in section 50(1) of the CGST Act after amendment, so as to provide for charging interest only on the net cash tax liability, except in those cases where returns are filed subsequent to initiation of any proceedings under section 73 or 74 of the CGST Act.

5. Hence, it is advisable that interest component shall be charged on the amount adjusted after Input Tax Credit, ie., debiting the electronic cash ledger and not on the gross liability. To justify the said view i would like to refer following judicial precedents as given here under:

(A) Hon’ble High Court of Madras in the matter of Commissioner of CGST v. M/s. Daejung Moparts Pvt. Ltd. [W.A.Nos.2127 and 2151 of 2019] dated 23.07.2019 dismissed the Letter Patent Appeal filed by the department and upheld the order of single bench, whereby assessee was directed to pay interest consequent to delay in filing of Return, only on net tax liability (after deduction of Input Tax Component). (B) Also in case of Hon’ble Supreme Court in the case of Eicher Motors Ltd. v. Union of India [1999 (106) E.L.T. 3] had held that provision for facility of credit is as good as tax paid. Therefore, even if input tax credit is not made available in the electronic credit ledger before filing of the return, tax paid on inward supply shall be is as good as tax paid. In such a case no interest should be payable on the admissible input tax credit not credited to the electronic credit ledger for non-filing of the return. It is also an established principle of law that substantive rights cannot be denied for procedural infractions. Filing of return is a procedural requirement whereas the benefit of input tax credit is a substantive right.

6. In a nutshell, it shall be advisable to file GSTR 3B after adjusting Input tax credit component and not on Gross liability. It is also an established principle of law that interest is compensatory in nature. Supreme Court in the case of Pratibha Processors Union of India – 1996 (88) E.L.T. 12 (S.C.) held that essentially, interest is compensatory and different from penalty, which is penal in character. As per Section 16 of the Excise Act, an assessee is entitled to take credit of input tax immediately on receipt of goods or services.Therefore, when there is eligible input tax credit, the assessee cannot be deemed to be in default.  By: CS Komal Garg(B.Com,CS,LL.B)Email id: cskomal1996@gmail.com