In past few days there has been lot of debate on which amount, interest under section 50 of the CGST Act shall be levied i.e on Net tax liability (tax paid by cash) or on Gross tax liability in case of delayed payment of tax.

Before going head, let us read the section 50. Section 50(1) of the CGST states 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.”

Further proviso to s.50(1) inserted vide Finance (no. 2) Act, 2019 from the date to be notified which read as 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.”

Interest on delayed Payment on Gross Liability

Almost considerable time has elapsed since insertion of proviso to S.50(1), however the same is not being notified yet.

Recently, the department has started issuing notice to taxpayer for payment of interest calculated on gross tax liability. Also, CBIC, in its series of tweet, has justifies the same on the ground that, pending the notification, GST laws permits the calculation of interest in case of delayed payment on gross tax liability and also relied on the judgement of Telangana High Court decision in case of Megha Engineering & Infrastructure Limited where in it was held that interest u/s. 50(1) was chargeable on the gross tax liability. The said judgement was pronounced before proviso to S.50(1) was inserted by Finance (no. 2) Act, 2019.

However, Recently, Madras High Court in its judgement pronounced on 06.01.2020 in case of Reflex Industries Limited (TS-89-HC-2020(MAD)-NT), has held that interest u/s. 50(1) is chargeable on net tax liability i.e on tax payment in cash after the netting of the ITC available and not on Gross Tax liability.

It is imperative by the CBIC to justify the charging of interest on gross tax liability, where even in erstwhile statutes, the interest was charged in net amount and not gross amount.

To avoid blocking of tax money in prolonged litigation, government should issue notification to aforesaid amendment retrospectively at earliest.

We hope that Government would walk on one of the important themes of its Economic Survey 2019 – 20 that the nation must respect businessmen as they create wealth and also jobs, which is the need of the hour and essential for boosting economic growth in sustained manner.

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  1. raunak says:

    Sir, If have availed less ITC in 3B for a month inadvertently by mistake than what was actually available to me as per the Invoices and as per the 2A also. Then can the interest liability be calculated on the net liability after reducing the ITC which was available in 2A or it would be done by what i have availed in 3B.
    Eg: Output tax – 100, Itc availed wrongly less – 10. Itc as per 2A – 90. Then can i pay interest on 10 Rs (100-90) or do i have to pay interest on 90 only. As in the next months i have excess credits and i am ending up paying unnecessary the interest just due to a mistake in feeding
    Is there any way out sir

  2. Sudharsanam says:

    We have paid the GST amount on time, but we there is a delay in submitting GSTR3b, as per sec 50 of cgst they say interest is applicable.

    Is there any way out

    1. S. RAJINI DEVASENA says:

      sir, even if you have paid, the payment will remain in your ECL(Electronic Cash Ledger)but not paid to the govt. account unless you file the online return where you actually debit the tax paid and render it as a tax to govt. hence just payment will not mean that duty is paid. hence please see the date of debit of the cash on filing alone your debit record becomes successful that the gov. takes your money as tax paid in cash. hence the cash paid in a challan is not a tax paid unless it is debited and also filed. even if debit marked, if the return is not filed, you do not allow the duty to be taken by the gov. hence date of filing becomes the date of payment of any duty / tax.

      1. Mariappan says:

        Sir, can you please quote the section or notification, because as per sec 49 -explantion (a)- the date of credit to the account of the Government in the authorised bank shall be deemed to be the date of deposit in the electronic cash ledger;

    2. mariappan says:

      Sec 49 and explanation (a)the date of credit to the account of the Government in the authorised bank shall be deemed to be the date of deposit in the electronic cash ledger;

  3. SHAMSUDHIN says:

    But the Parliament received assent of President on the Finance (No.2) Act, 2019 on 1st Aug 2019 and the same is published in Gazette of India. Is a Notification is necessary once the assent for the Finance Act containing the Proviso of Section 50(1) of CGST got from the President?

  4. V. Subrahmanyam says:

    This article gives complet picture interest on delayed payment against liability Of tax on. Thanks for the same it is very useful to all assesses

  5. Prasanth R says:

    Good Article. The concept of gross liability is not specifically mentioned anywhere in Section 50 of the CGST Act.CBIC Department should take necessary steps to avoid the confusion as the departments started issuing notices to the vendors charging interest against the ITC availed also.

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January 2021