Delayed GST payment: Interest to be charged on net tax liability from September 1  

Hello friends greetings for the day, in the current article we will discuss about interest on delayed payment of tax. We will also discuss about the confusion regarding notification No 63/2020-Central Tax to be prospective from September 1st 2020 or retrospective from July 1st 2017 as decided in 39th GST Council meet.

INTEREST ON DELAYED PAYMENT

As per section 50 of CGST Act 2017, 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.

Rising interest rates

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

As per section 50(1) read with notification no 13/2017 is can be said that if any supplier who is liable to pay tax under this act but fails to pay tax to the government. Supplier has to file GSTR 3/ GSTR 3B and last date to file is 20th of the next month so he has to pay the tax to government before or upto the date of 20th of next month. However, if supplier is not able to pay the tax uptu the prescribed time limit then he is liable to pay interest at the rate of 18% for period for which tax or any part remains unpaid.

However earlier the Interest was charged on gross basis it means that interest was charged on gross without taking into effect the Input tax credit, to ease-out the hardship felt by the Industry at large the proviso has been inserted. Proviso to sec 50(1) says that interest needs to be calculated on the portion of tax that is paid through cash ledger it means interest has to be calculated on the amount of cash ledger which is “Net GST “ liable to be paid after deducting eligible Input tax credit. There is an exception when this will not hold good. In case the return has been furnished after the proceedings have been initiated under Sections 73 or 74 (demand notice) for the relevant period, interest shall be imposed on the gross tax liability.

Presently, the interest is not auto-computed on the GST portal and must be manually declared by the taxpayer. Some of the taxpayers had paid interest on the net tax liability instead of gross. Accordingly, the authorities issued notices last year based on the directions of the CBIC’s Chairman.

Case laws related to Interest on delayed payment

1. M/s Refex Industries Limited- Madras HC held that interest could only be imposed on the overdue cash component of GST liability and not on the ITC. Meaning thereby Interest should be charged on Net basis.

2. M/s Megha Engineering & Infrastructure Limited- Telangana HC has taken an altogether different stand it stated that until a GSTR-3B is filed by self-assessment, the taxpayer is not entitled to such input tax credit in the electronic credit ledger. Accordingly, the interest must be paid on gross tax liability.

Applicability from September 1st 2020 or July 1st 2017

As it was decided in the 39th GST Council meet on 14.03.2020 and affirmed through a press release that interest for delay in payment of GST to be charged on net tax liability with effect from July 1st 2017 and amendments would be introduced retrospectively. However as per the recent notification introduced on August 25 notified September 1st 2020 as the date from which interest would be charged on net tax liability. There was lot of confusion hence later on CBIC came with the clarification that notification has been issued prospectively due to certain “technical limitations” and it was assured that no recoveries would be made for the past period and decision of 39th GST council meeting will prevail. The press release said and I quote ”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 prospectively due to certain technical limitations”.

CONCLUSION

It can be noted that as of now the effective date is September 1st 2020 because officers will work as per the notifications issued on ground and not as per the assurance given by CBIC. There is a need of legal amendment to provide extra comfort to the Industries at large otherwise Interest on delayed payment of GST @18% will be a huge burden for the last 3 years (Since Inception of GST).

It is hopeful that the upcoming session of Parliament will provide a way forward and reduce the Burden.

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Author can be reached at abhutpurv@gmail.com for any queries, issues & recommendations relating to article.

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