Section 50 of CGST Act 2017, deals with Interest on delayed payment of GST tax.

The same reads as under:

(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.

(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

The following proviso has been inserted to Section 50, as per Finance Bill 2019:

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.

Since a long time, there has been confusions and contradictions on how the Interest shall be calculated.

  • GST Council in its 31st meeting held on 22nd December, 2018 recommended that Interest on delayed payment shall be charged on ‘Net Liability’ of the taxpayer. However, the same was not made effective till date, by way of any circular / notification or amendment.
  • Telangana High Court, then in case of Megha Engineering & Infrastructures Ltd. v. Commissioner of Central Tax [2019], held that until a return is filed as self-assessed, no entitlement to credit and no actual entry of credit in Electronic credit ledger takes place. As a consequence, no payment can be made out of such a credit entry. Such tax becomes input tax credit only when a claim is made in returns filed as self-assessed. It is only after a claim is made in return that same gets credited in electronic credit ledger. It is only after a credit is entered in electronic credit ledger that payment can be made. Consequent to delay in filing of returns, payment of tax liability, partly in cash & partly in form of ITC was made beyond the period prescribed and thus, the liability to pay Interest on gross liability amount arose automatically.
  • Delhi High Court, then in the case of Landmark Lifestyle v. Union of India [2019], accepted the contention of assessee to pay tax on net liability and ordered that till the next hearing, no forceful action be imposed on the petitioner for the recovery of interest amount. Hence, HC granted stay on recovery of interest amount on gross GST liability where there was delay in filing of GST return. The matter was to be listed on 30th September, 2019.

This newly inserted proviso hereby clarifies that, Interest shall be levied @ 18% on NET tax liability, i.e. the amount of GST which has been paid thru Electronic Cash ledger, if supplies made during a tax period have been declared in return for said period, but furnished after the due date.

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April 2021