Arjun (Fictional Character): Krishna, What’s the issue of Interest under GST is going on? Why GST taxpayers now are on roads to oppose such draconian interest levy?

Krishna (Fictional Character): Arjuna, The Issue of interest levy under GST is for periods- from 01st July 2017 to effective date of amendment to section 50 of CGST Act as per Union Budget 2020. As the amended section 50 of CGST Act, now levies interest on Net Amount. However, the GST department wants Interest to be charged on gross amount for above period and whereas taxpayers and various courts want it on Net Amount. The amendment should be from 01st July 2017 i.e retrospectively. This is the crux of the total issue which is fueled by the CBIC chairman’s letter dated 10th February 2020 to Tax Officers to collect Interest on Gross Amount to the tune of Rs 45,996/- Crores. Lets understand from basic !!!

Arjun: Krishna, when is interest levied under GST and who is liable to pay it?

GST Taxpayers

Krishna: Arjuna,

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.

2. A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction.

3. The interest 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.

Arjun: Krishna, What are rates for payment of interest?

Krishna: Arjuna,

1. Every person who is liable to pay tax in accordance with the provisions but fails to pay such tax shall pay interest at such rate not exceeding 18 per cent.

2. A taxable person who makes an undue or excess claim of input tax credit shall pay interest on such undue or excess claim, as the case may be, at such rate not exceeding 24 per cent.

Arjun: Krishna, How would interest be calculated for delayed payment of tax as per Section 50 of CGST Act?

Krishna: Arjuna, As per Section 50 of CGST Act, interest is to be calculated on net liability and not on gross liability based on Refex Industries Judgement of Madras High Court and various other High Courts. But departments wants to calculate interest as follows-

For an example: If taxpayer files GST return for the month July 2019 in December 2019 and

1. If output liability is Rs. 1,00,000/- and ITC is 75,000/- but still taxpayer is liable to pay interest on Rs, 25,000/- for 5 months on (Net Basis) and whereas GST Department wants to levy interest on Rs 1,00,000/- (Gross).

2. If output liability is Rs. 50,000/- and ITC is 75,000/- then no liability to pay tax is created and no interest is leviable on the basis of Net Liability since the taxpayer has no liability for payment of tax as per the taxpayer. Whereas the GST Department wants to levy interest on Rs 50,000/- (Gross).

These are the cases, which is draconian, and the matter of dispute, and those taxpayers who have filed late returns are suffering now.

Arjun: Krishna, Is this action of GST department to levy interest on Gross liability justified?

Krishna: Arjuna, In Pre-GST Era- the indirect tax laws charged interest on Net Liability and also there are various Supreme Court judgements in cases of pre-GST era which supports charge of Interest on Net Liability.

As per Madras High Court– Any person charges interest where he is ‘deprived’ or where the payment is ‘delayed’. Charging of Interest on gross liability is not justified since the government is nots ‘delayed’ on the accumulated ITC but only on the “cash payment“ by the taxpayer. Further the intention of statute of GST is to remove cascading effect. Thus the amendment must be retrospective from 01st July 2017 for levy of interest on Net Liability. No recovery on gross basis shall be made without giving notice and reasonable opportunity to the taxpayer. One sided action of department is unjustified.

Arjun: Krishna, What should the taxpayer learn from this?

Krishna: Arjuna, The union budget 2020 as brough proposal to amend section 50 of CGST Act and to charge interest on Net Liability is no doubt a welcome change but it should have been done with retrospective effect and also GST council has recommended it much much earlier since it is grave injustice for those taxpayers. Thus all Trade Unions, Tax Associations should Arise and Fight against Injustice of Interest Charged.

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  1. Hariharan says:

    Sir excellent write up. Sir it is the letter of Member,CBIC not chairman and the proposed amendment in section 50(1)was proposed in the Union budget 2019(clause 100) and not in 2020. As per Hon’ble Supreme court decision in the case of Sulochana amma vs Narayana nair, any oppressive amendment is prospective and beneficial amendment is retrospective

  2. S MANOHARAN says:

    we should start All India Tax payers association to object un justice matters by gst and it They think that they are lords and the tax payers are beggers

  3. G V DESAI says:

    Very valid point , Government mut consider this and grant proper relief to business people with restrospective date 01/07/2017 . This is not a concession but justice set right the wrong thing in Act . I welcome this decision.

  4. Unni Krishnan v says:

    It’s also relevant that Finance bill has proposed retrospective amendment to transit provisions on ITC, empower ing to issue time limits for filing declaration Trans 1 etc.
    On same lines this clause on interest can be given retrospective effect.
    No justification for different policy ..

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January 2021