GST: Interest on differential output liability declared in subsequent months

I. Introduction

Proviso to section 50(1) allows taxpayer to pay interest on the cash portion of his delayed payment. An exception is carved out that interest is payable on the gross amount if the return is filed after the initiation of proceeding by the Department u/s 73 or 74. The reasoning behind this provision is that the ITC balance was available with the tax payer and by delayed filing of the return (GSTR 3B) and delayed off setting of the liability, the Govt. is not deprived of the funds for the intervening period.

II. Provisions of sec 50 (1) :

Relevant portion is reproduced below:

Section 50. Interest on delayed payment of tax.-

(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..

Thus, it can be observed from the above that in order to avail the benefit of interest on cash portion only, the following conditions should be satisfied :

a. Supplies made in a particular tax period (say Sept 2022) are declared in the return for the same period (Sept 2022)

b. The return is filed beyond due date.

c. The return is filed before initiation of any proceedings u/s 73 or 74.

d. The return referred to is return u/s 39 namely GSTR 3B.

Thus, if any of the above conditions is not fulfilled, then the benefit of the proviso is not available and interest is payable on gross liability.

III. Interest payable if the output liability of a tax period is declared in a later month’s GSTR3B:

1. Example : GSTR 3B filed for Sept 2022 with the following figures :

2. In the above example, suppose the tax payer subsequently realizes that he forgot to report some B2C sales and output GST of the same was say Rs. 20.

3. Now while filing GSTR3B of Oct 2022, the tax payer adds the output liability of Sept 2022. The figures are as under :

4. Now, as per the proviso, the output liability of Rs. 20 relating to Sept 2022 attracts interest as the discharge of this liability is done late. Instead of paying through the GSTR3B of Sept 2022, it is discharged through the GSTR3B of Oct 2022. Thus it is approximately one month late. And interest will be payable on this liability of Rs. 20.

5. Interestingly, in Sept 2022, the tax payer had a balance of ITC Rs. 50, which was sufficient to cover the missed out liability of Rs. 20. Therefore, ideally no interest should be payable. However, the proviso allows the relief only if the liability is declared in the same tax period. Therefore, even if the balance in ITC is available, the tax payer has to pay interest.

6. Recently, this was observed in a case where the taxpayer declared correct output liability in GSTR1 but declared less liability in GSTR3B because of typing mistake. Later, in the next month, after realizing the mistake, he paid it through next month’s GSTR3B. But this caused a difference in GSTR1 v/s 3B for the previous month. And the taxpayer clarified about the differential payment but the Dept. asked interest on the gross amount even if the tax payer had sufficient balance in the ITC of the previous month. Of course, this relates to previous financial years where GSTR3B was not auto populated. Now, this risk is less as the GSTR3B is auto populated. However, still, there is a chance of missing some B2C sales both in GSTR1 and GSTR 3B. In such case, if the assessee pays it late, he has to pay the interest on differential amount even if there was sufficient ITC balance available in the month to which the liability relates.

IV. Conclusion

1. The tax payer should take care while reporting output liability correctly. Particularly B2C. Because, otherwise he may have to unnecessarily pay interest even on the ITC portion. And this interest is a cost caused by the mistake only. It is in a sense unjust. It is only the price of mistake, even when the Govt. was not deprived of the funds.

2. The Govt. should consider some relaxation on this front. There is difficulty in drafting this in Law as this would be a complicated matter. However, a general relief may be provided in the section and the manner of computation may be left to the assessee and the officer.