Dispute Over Section 50 of CGST Act, 2017: Chargeability of Interest on Net amount or Gross Amount?

1. First of all, let’s start from the wording of Section 50 of CGST Act which is as follows:

“(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.

(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.”

On the above-mentioned wording it can be seen that assessee need to pay the interest on such amount which is due and what is due can be calculated very obliviously from the deduction of an In-put Tax Credit from the gross out put liability. Further, the most crucial question lies in this issue is why should a tax payer need to pay the interest on such amount which is already deposited in the pocket of the ex-chequer in form In-put Tax Credit?

2. In CGST Act, 2017 as well as in CGST Rules, 2017 which are the base pillars to avail the ITC specially the core Section which are 39, 41,49 and 16 of CGST Act, 2017 does not prohibit or put any kind of constraint to set off the ITC in case of delay of filling of return. Hence, it will be inappropriate to ignore the ITC while calculating the interest u/s 50.

3. What is a “TAX DUE” need to be ascertain only after considering the In-put Tax Credit or else the very purpose and object of GST Law would be defeated which is to square of the cascading effect. So, if an amount of TAX DUE will be calculated without taking any effect of In-Put Tax Credit then GST Law would be good for nothing and ultimately discourage the true and fair practise in the industry as a whole.

4. In the case of Megha Engineering Infrastructures Ltd Vs. Commi. Of Central Tax, in “point number 19” there were emphasised on Section 49 of CGST Act, 2017 for usage of In-Put Tax Credit only if it is available to Electronic Credit Ledger. Now the moot point is the case is of delay in filling of GSTR-3B and hence the ITC can not be shown in ECL without filling the return then how can department restrict the usage of ITC based on such absurd point. Hence, even in the normal trade practise and starting from the MODVAT of excise regime since 1989 and thereafter introduction of CENVAT in Cenvat Credit Rules, 2004 and in GST Law since 01st July 2017, consideration of ITC must be taken even before the same was shown in the Electronic Credit Ledger because only after which assessee can file the GSTR-3B and can reflect the figure of ITC in Electronic Credit Ledger.

5. As per Section 16(2) of CGST Act, 2017 lays down four condition to avail the ITC which are as under:

  • Possession of Tax Invoice
  • Assessee should receive goods or service
  • Tax must be paid to the government i.e. ex-chequer and
  • Assessee should file return u/s 39 of CGST Act, 2017.

Now the point of discussion is again on the same matter as we have discussed in above point number 4 i.e. how can one assume to have the credit of ITC in their Electronic Credit Ledger without filling the GSTR-3B return. So, it is almost like which came first, egg or hen? Hence government has to take some pragmatic view on this issue.

6. Now, let’s see the chronological order and scheme of an act for availment of an ITC as mentioned here under:

  • First entitlement to take Credit,
  • Second actual entry of credit in the electronic credit ledger,
  • Actual payment from out of such credit, comes last.

From the above points also, though the payment out of such credit comes last but while paying the tax one has to consider the available In-put Tax Credit though the same is not available in the Electronic Credit Ledger. So, if department emphasised to charge the interest on gross amount in case of delay of filling the GSTR-3B then it would be purely unfair as increase in financial liability should not be co-align with the mere procedural delay of filling the GSTR-3B.

7. Further and last in 31st GST Council meeting which was held in 22nd, 2018, in “point number 8” council have principally approved the following matter:

“Amendment of Section 50 of the CGST Act to provide that the interest should be charged only on the net tax liability of the tax payer, after taking into account the admissible Input Tax Credit, i.e. interest would be leviable only on the amount payable through the electronic cash ledger.”

Though the above proposition is still on the paper only and not yet amended the necessary provision and section of the CGST Act, but what is in principally approved by the Ministry of Finance should not be ignored like a trash.

Hence, from the above view point if at all any stand taken by the department based on the judgement of Hon. Telangana High court is fairly and equally challengeable.

The above draft though not sycophancy may whiff of the fresh air when enters into the mind of the department and may unlocks the closed windows of the brain.

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  1. Ravibabu says:

    Sir, We have already paid the paid the late fee for the subsequent period by month wise and again what is this interest charge u/s 50 of gst 2017
    please reply

  2. Seshadri v says:

    Dear Sir,
    We have received notices from GST officials(Karnataka) demanding us to pay interest for delay filing of GSTR3b (interest calculated on Gross liability). What shall we do ?

  3. Bhavesh GUpta says:

    Whether this amendment is retrospective in nature or not ?
    If I have not filed return previous to the period on which this amendment is made , so whether i need to pay on gross basis or net basis

  4. keshav Pandey says:

    Dear Sir,
    I have a doubt, is dept. has issued the notification for interest will calculate on only NET Tax Liability ?

    if yes,than please share with me

    i will be thank full to you..

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October 2021