To,

Resp Sir,

Ref: Your Notice No

Sub:  Payment of interest on the delayed payment of tax liability. reg.

With reference to above, I would like to inform you that,

1] I have received your above mentioned notice asking me to pay interest on gross tax liability as given in that notice for delayed filing of GSTR 3-B Return.

2] I would like to draw your attention on provision of Sec. 50 & 49 of CGST Act, as below.

3] The Section of 50 of CGST Act 2017 specify that:

[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 eithteen 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.

4] The Section 49 of CGST Act, 2017 specify that:

[1] Every Deposit made towards tax, interest, penalty, fee or any other amount by a person by NEFT etc shall be credited to electronic cash ledger.

[2] The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger ……..

[3] the amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made there under in such manner and subject to such conditions and within  such time as may be prescribed.

[4] The amount available in the electronic credit ledger may be used for making payment towards output tax under this Act or under the Integrated Goods and Service Tax Act in such manner and subject to such conditions and within such time as may be prescribed.

So by reading Sec 50 and 49 together, the clear picture is as below:

A] Every Deposit towards tax, interest, penalty, fees or any other amount by a person shall be credited to Electronic Cash ledger.

B] This Amount available in electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act.

C] The Input Tax Credit as self assessed in the return shall be credited to his electronic credit ledger.

D] The amount available in the electronic credit ledger may use for making payment towards output tax under this Act or under the IGST act …

E] 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 eithteen per cent, as may be notified by the Government

So from the above, it is pertinent to note that the word ‘Tax’ used in the provisions of Sec 50 [1] for levy of interest and the word ‘Tax’ is used in Sec 49[3] for utilization of amount in Electronic Cash ledger. But in Sec 49[4] for utilization of amount available in electronic credit ledger, the word used ‘output tax’ and not used word; ‘Tax’.

Again in Sec. 50(1), the word used ‘Tax’ and not ‘Total Tax Liability’, so interest should be calculated on net tax amount which is to be paid in cash.

So it is quiet crystal clear that the intention of the legislature is to levy interest only on the Tax amount [arriving after claiming Input Tax Credit from Output Tax liability ] which is to be paid in cash through NEFT etc mode.

If the intention of the legislature to levy interest on gross Tax liability then it would have specifically mentioned as it mentioned in Sec 49 [4] that amount in electronic credit ledger may be utilized for payment of output tax liablility only

Again in Sec 50[3] there is separate rate of interest for excess claim of Input Tax Credit that is maximum 24 %. But there is no such separate rate for extra tax liability. So it clearly shows that Sec 50 [1] relates to interest on late payment of Net tax liability to be paid in Cash. And Sec 50[3] relates to interest for excess claim of Input Tax Credit.

So as per my opinion, interest u/s 50 has to be calculated on the amount of net tax which has to be paid in cash.  And this view holds good so GST Council in its 31 st meeting has given in principle approval for amendments in Sec 50: which is as below:

Amendment of section 50 of the CGST Act to provide that 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.

So it is quiet clear that interest u/s 50 of CGST Act 2017 has to be charged on net tax liability after taking in to account admissible input tax credit.

For your kind consideration, I am enclosing herewith copy of your notice and copy of press realease by GST council.

Thanking you,

Note: This draft is for the purpose of academic discussion  We are not liable in case any damage is occurred or if the different views are taken by authorities. One may add or delete any content in this draft as per his view.

Compiled by : CA Shirish J Vinchurkar , Chalisgaon [ Maharashtra ]

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