This article is based on recent judgment passed by Honourable HC regarding interest payment u/s 50 of CGST Act,2017.

Recently one of the major High Court Judgment has been passed on payment of Interest under section 50 of CGST Act, 2017, which will impact almost all the taxpayers registered under GST. The Judgment has been passed by the Honourable Telangana and Andhra Pradesh High Court in M/s Megha Engineering and Infrastructures Ltd. v/s The Commissioner of central tax, Hyderabad, The Assistance Commissioner of central tax, Kukatpally and The Superintendent, O/O The Superintendent of central tax, Hyderabad on 18th April,2019, in which the honourable HC dismissed the writ petition filed by the petitioner regarding contention that interest is payable on net value of tax payable i.e. after adjusting ITC available for set-off.

Honourable HC consisting of two judges bench states that “the liability to pay interest under Section 50 (1) is self-imposed and also automatic, without any determination by any one. Hence, the stand taken by the department (i.e. interest is to be paid on Gross Value of tax payable without adjusting available ITC) that the liability is compensatory in nature, appears to be correct.”

Additionally, Honourable Bench states that “Until a return is filed as self-assessed, no entitlement to credit and no actual entry of credit in the electronic credit ledger takes place. As a consequence, no payment can be made from out of such a credit entry. It is true that the tax paid on the inputs charged on any supply of goods and/services, is always available. But it is available in the air or cloud”.

But I strongly believed that the Honourable HC missed some major facts in this case.

When a taxpayer is about to discharge its liability, he can use available ITC. But the major question is why this is allowed for payment, why don’t tax payer ordered to pay tax on gross value here. I will tell you why, because amount of available ITC is already paid by the taxpayer to its vendor and it is assumed that vendor discharge or will discharge its GST liability to the department. Have you ever seen any case or read anything that ITC will not available to the taxpayer if its vendor didn’t comply it’s all compliances? No! because Input tax Credit is based on Tax invoice, whether or not appeared in GSTR 2A (Read Press release by Govt. dated 18th Oct,2018). This implies that ITC is actually the amount which is already paid to the Govt. by the tax payer through different vendors irrespective of filling of their GST Returns. So, if it is so then Govt. is demanding interest on the amount which is already paid by the tax payer.

I believe Govt. should bring clarity on section 50 of the CGST Act, 2017 on this and save taxpayers from this financial  harassment. I also believe that most if the taxpayers in the country discharging interest u/s 50 of the CGST Act,2017 on Net tax payable. This recent judgment will negatively impact all the taxpayers especially taxpayers who are not able to file GST Returns on time due to bonafide reasons and bound to pay interest for such delay.

Please post your kind views on this.

You can also watch my You tube channel “GST SATHI” for GST updates and laws.

Disclaimer: The article is solely the opinion of the writer. It doesn’t constitute any legal opinion. One must refer legal consultant for legal advice on this matter. Any loss or harm or liability arising from following views mentioned in this article is not the responsibility of the writer.

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Location: Delhi, New Delhi, IN
Member Since: 16 Sep 2017 | Total Posts: 26
I am member of ICAI since Novemer, 2011. Having experience in Taxation and public speaking. i also posted few videos on you tube for GST. View Full Profile

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7 Comments

  1. S. Haldar says:

    Observations made by you in above matter is absolutely correct and I think the authority should come forward to explain why the interest on itc be paid in case of delayed filling of return. This is an Iinjusticethe to the genuine taxpayers.

  2. ABHAY PRAJAPTI says:

    I THINK THIS JUDGMENT WILL CREATS BIG COMPLICATION AND PROBLEMS FOR TAX PAYERS. THE AGGRIEVED PARTY SHOULD GO BEFORE HON’BLE S C IN THE MATTER AS ERLIEST POSSIBLE.

  3. HS Dimple says:

    I beg to disagree with your kind viewpoint, as section 16 of GST Act, 2017 clearly emphasizes that the ITC shall bee available to a taxpayer if four conditions are met. If you go through these four, you will get to know why I agree with the judgement and disagree with your kind thoughts. However, I shall welcome your further assumptions or presumptions.

  4. ANTONY K.V. says:

    I AGREE WITH YOUR POINTS AND THE GOVERNMENT SHOULD BRING AN EXPLANATION TO THIS SECTION, THAT THE INTEREST BE LEVIED ONLY ON THE NET TAX PAYABLE. THE TAX PAYERS ARE ALREADY LEVIED WITH LATE FEE FOR THE DELAY IN RETURN FILING. THE SMALL TAX PAYERS WILL HAVE TO SUFFER MORE BY THIS JUDGMENT. URGENT INTERVENTION BY THE GOVERNMENT IS EXPECTED.

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