Format for reply to the Notices from GST Department for Interest over Gross Liability

To,
The Officer
Central GST and Central Excise
Range- __ , Division-___
Kolkata Commissionerate

Address :

GSTN               : 

Reference      :    

DIN                  : 

Period             : July’ 2017 to Dec’ 2019

Subject           : Reply to the above said notice.

Dear Sir,

Please refer to above. Kindly note that we have been issued a demand notice stating that there was a delay in filing of GSTR 3B for the period of July’2017 to Dec’2019 and accordingly we are liable to pay interest under section 50 of the CGST Act, 2017.

The amount of interest liability as determined by the authority is as below:

Sl No. Year Interest on Cash Payment Interest on ITC
1 2017-18 14,802 4,67,146
2 2018-19 76,530 24,94,932
3 2019-20 (upto Dec’2019) 49,745 1,99,558
Total 1,41,077 31,61,637

Kindly note that the aforesaid interest liability has been demanded on the basis of provisions of section 50(1) of the CGST Act, 2017 which is as below:

“50. (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”

With respect to the contention of the authority to levy interest on the tax liability paid by the utilization of Input Tax Credit assessee would like to draw the consideration on the following factors:

GST Council in its 31st meeting held at New Delhi gave in principle approval to the following amendments in the GST Acts:

1. Creation of a Centralised Appellate Authority for Advance Ruling (AAAR) to deal with cases of conflicting decisions by two or more State Appellate Advance Ruling Authorities on the same issue.

2. Amendment of section 50 of the CGST Act to provide that interest should be charged only on the net tax liability of the taxpayer, 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.

Aforesaid decisions of the Council were duly circulated to the stakeholders vide Press Release dated 22th of December, 2018. Henceforth, it is very much clear that the interest u/s 50(1) of the CGST Act, 2017 is to be levied only on the cash payment made to clear the tax liability.

  • Insertion of proviso to sub-section (1) of section 50 of the CGST Act, 2017 :

Honourable Finance Minister in its Union Budget 2019-2020 presented on the July 5, 2019, had proposed for the amendment in the section 50(1) of the CGST Act, 2017 “which provided for the charging of interest only on the net cash liability” to avoid the undue hardship to the fellow assessee registered under GST regime.

In accordance with the said proposal, proviso was inserted after sub section (1) of section 50 of the CGST Act, 2017 which is as follows:

“50. (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:

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. 

From the above mentioned amendment, it is very much clear that the government intends to levy the interest under section 50(1) of the CGST Act, 2017 only on the component of tax liability which has been paid by cash only.

Henceforth, the contention of the authority to collect interest on the tax liability paid off using input tax credit is bad in law and harsh to the assessee.

  • Madras High Court has held that GST Interest on Net Tax Liability vide judgement dated 06/01/2020:

Honourable Madras High Court in response to the Writ petition Nos. 23360 and 23361 of 2019 & WMP Nos. 23106 and 23108 of 2019 Refex Industries Ltd. vs. Assistant Commissioner of CGST & Central Excise has upheld the fact that interest u/s 50(1) of the CGST Act, 2017 is to be levied only on the tax liability that has been paid using the electronic cash ledger.

Relevant extracts of the judgement is as below:

“The use of the word ‘delayed’ connotes a situation deprival, where the State has been deprived of the funds representing tax component till such time the Return is filed accompanied by the remittance of tax. The availability of ITC runs counter to this, as it connotes the enrichment of the State, to this extent. Thus, Section 50 which is specifically intended to apply to a state of deprival cannot apply in a situation where the State is possessed of sufficient funds to the credit of the assessee. In my considered view, the proper application of Section 50 is one where interest is levied on a belated cash payment but not on ITC available all the while with the Department to the credit of the assesse. The latter being available with the Department is, in my view, neither belated nor delayed.”

 “The above proviso, as per which interest shall be levied only on that part of the tax which is paid in cash, has been inserted with effect from 01.08.2019, but clearly seeks to correct an anomaly in the provision as it existed prior to such insertion. It should thus, in my view, be read as clarificatory and operative retrospectively.

Learned counsel for the petitioners also draws my attention to the decision of the Telengana High Court in the case of Megha Engineering and Infrastructures Ltd. V. The Commissioner of Central Tax and others (2019-TIOL- 893), where the Division Bench interprets Section 50 as canvassed by the Revenue. The amendment brought to Section 50(1), was only at the stage of press release by the Ministry of Finance at the time when the Division Bench passed its order and the Division Bench thus states that ‘unfortunately, the recommendations of the GST Council are still on paper. Therefore, we cannot interpret Section 50 in the light of the proposed amendment’. Today, however, the amendment stands incorporated into the Statute and comes to the aid of the assessee.”

Accordingly, the ground on which Telengana High Court held that interest u/s 50(1) of the CGST Act, 2017 is to be levied on the gross liability of tax doesn’t stands good after the inclusion of proviso after sub section (1) of section 50 of the CGST Act, 2017.

Henceforth, the contention of the authority is invalid in law.

  • Stay Order of Delhi High Court :

Honourable High Court in its judgement in the case of M/s. Landmark Lifestyle v/s. Union Bank of India [2019] 105 taxmann.com 354 (Delhi) and others has granted stay on recovery of interest amount on gross GST Liability where there was delay in filing of GST Return.

Relevant extracts of the judgement is as below:

“Section 50 of the Central Goods and Services Tax Act, 2017/ Section 50 of the Delhi Goods and Services Tax Act, 2017 – Payment of tax – Interest on delayed payment – Whether where petitioner-assessee contended that calculation of interest payable for delayed payment of GST as determined by revenue was erroneous as same had been calculated even on amount constituting input tax credit which is in fact to be adjusted against tax liability, no coercive action was to be taken against petitioner for non-payment of interest amount till next date of hearing – Held, yes [Para 4]”

Para 4 – Till the next date, no coercive action be taken against the Petitioner for non-payment of the interest amount.

Henceforth, the contention of the authority to claim interest on tax liability paid through utilization of Input Tax Credit, is not in accordance with the decisions passed by the GST Council as well as the relevant pronouncements made by the Hon’ble High Courts.

Assessee would like to request before the authority to kindly revise the demand notice considering the above grounds.

Thanking you,

Yours faithfully

Assessee Name.

(Authorised Signatory)

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Qualification: CA in Practice
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Location: HOWRAH, West Bengal, IN
Member Since: 02 Feb 2019 | Total Posts: 2

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8 Comments

  1. CA Mayank Shah says:

    Well drafted representation ! It appears that department would send taxpayers to courts on this matter. A joint writ petition by trade and professionals urgently required.

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