Interest on delayed payment of GST A Critical Analysis

Many articles and webinars are prepared for interest levy and mainly focus is kept on interest on gross liability or net liability, however my concern is with regard to duration of tax unpaid for which interest is to be paid and manner of calculation of interest. When you go through the provisions of Section 50 which deals with the chargeability of interest on delayed payment, which are reproduced below.

50. (1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under, 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.

(2) The interest under sub-section (1) 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.

(3) 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, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council.

We are not going through the rate of interest applicable for different instances of delayed payment under GST laws. Our concern is restricted to

i) what is the due date of payment of tax and ?

ii) what would be constitute the payment of tax ?

iii) what is the period for which tax remains unpaid ?

iv) When due date is extended whether tax payment date is also extended ?

To answer the above questions sub-section 2 of section 50 is relevant which has two limbs

i)  The interest under sub-section (1) shall be calculated, in such manner as may be prescribed

ii) from the day succeeding the day on which such tax was due to be paid

It is strange to know that there is no rule prescribed in GST rules for calculation of interest.

Payment of tax as per rule 85(3) be considered only when electronic cash ledger or electronic credit ledger of the registered person is being debited. Mere, credit entry in cash ledger or credit ledger will not tantamount to payment of tax. As there is no method prescribed for calculation of interest, it is to be done bonafidely and using method of simple interest calculation.

Now come to our questions, what is the due date of payment of tax ? The same is answered in section 39(7) which read as under.

(7) Every registered person, who is required to furnish a return under sub-section (1) or sub-section (2) or sub-section (3) or sub-section (5), shall pay to the Government the tax due as per such return not later than the last date on which he is required to furnish such return.

Meaning thereby is that tax should be paid before filing of GSTR-3B. It is pertinent to note that taxes can not be paid before filing of GSTR-3B as offset of tax liability is done simultaneously filing the GSTR-3B return. Therefore payment of tax and filing of return are synchronized. Therefore date of filing of return of GSTR-3B is date of payment of tax itself. In short last date of filing of GSTR-3B is due date of payment of tax.

The next question is what constitute the payment of tax ? The same is answered above as offset of liability by debiting the cash ledger and credit ledger is payment of tax and date of debit in these ledger will constitute the date of payment asper Rule 85(3).

The final question is relevant to what is the period for which tax remains unpaid ? It is the same period for which GSTR-3B has been delayed from its due date. Combined reading of Rule 85(3) and procedure laid down by GSTN system is upholding this interpretation.

Now one most important point is also relevant for FY 2017-18 for which GSTR-3B due dates have been extended upto 31-03-2019. Whether a taxpayer who has paid tax of FY 2017-18 in FY 2018-19 and filed GSTR-3B in FY 2018-19 itself would be liable for interest u/s 50 ? My answer is big no because rule 85(3) is considering the date of payment as date of debit in credit or cash ledger. It is irrelevant when we have added the amount in credit and cash ledger. The due date for payment of tax of FY 2017-18 for output tax liability forming part of GSTR-3B is on or before 31-03-2019 asper section 39(7). Therefore no liability of interest will arise on output tax liability of FY 2017-18 if it has been captured in GSTR-3B completely and filed before 31-03-2019 with offset of liability with correct input tax credit or cash ledger.

The above is my personal opinion for making the readers acquainted with the provisions and reader can go through the relevant provisions before taking any decision with respect to above matters. No liability whatsoever is cast on me.