Interest on delayed payment of GST | Section 50 | CGST Act 2017

Simplified GST series- Section 50/CGST Act 2017

Section 50- Interest on delayed payment of tax (GST)

(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 recommendation 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 tax was due to be paid.               

Analysis-   This section lays down the provisions for payment of interest under the Act for delayed payment of tax

Section 50 (1)- Interest  is payable for the period for which there is a delay in payment of tax in full or part.

Now what will be rate of interest??

18% rate of interest was notified vide Notification No. 13/2017-C.T., dated 28-6-2017, for payment of interest under Section 50(1) of the CGST Act.

Now phrase ‘’on his own’’ means that interest liability is automatic. The taxpayer is obliged to pay interest immediately on defaulting the payment of tax on due date. 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. Although no separate method has been prescribed for calculating interest, the relevant rules make it abundantly clear that Interest is to be paid on per day basis, for the period of delay from the due date of payment of tax.

(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.

Analysis- Meaning of undue – In context of GST law, anything done with respect to claiming of input tax credit (“ITC”) or/and while calculating output tax liability which is not acceptable or reasonable as per provision(s) of law would be termed as “undue”.

Meaning of excess –Any claim of ITC or/and any reduction in output tax liability which is in excess of the permitted limits as per the provision(s) of GST law would be termed as ‘Excess’.

√ Sections 42 and 43 of the Act clearly indicate that if, the undue/ excess claim of ITC or reduction in output tax liability is not fixed within the time limit prescribed under Section 39 (9) of the Act, and then Interest under section 50(3) @ 24% will be applicable.

√ Time limit u/s 39(9) earliest of following-

• the due date for furnishing of return for the month of September, or due date for furnishing of return for the second quarter following the end of the financial year to which such details pertain
• Actual date of furnishing of relevant return.

√ Section 50(3) refers to Sections 42(10) and 43(10) which deal with matching, reversal and reclaim of ITC and output tax liability through FORM GSTR-1, 2 and 3 but GSTR-2 and GSTR-3 have been deferred so CAN WE SAY SECTION 50(3) inapplicable ???

√ Now Section 50 (1) imposes interest only on the portion of the unpaid tax but the GST portal is designed in such a manner that it will not accept the return in FORM GSTR-3B, unless the entire tax liability is met (paid) by the taxpayer. So, even if the taxpayer has ITC to the extent of 95% of the total liability, he cannot file the return unless the remaining 5% is also paid, though this restriction is not imposed by law.

√ Important issue- Gross or Net-

•  The legislation effective from 1st July 2017 did not provide the needed clarity on whether the levy of interest is on gross liability or net liability remaining after setting off the ITC.
• In the 31st GST Council meeting held in New Delhi on 22nd December 2018-

‘Amendment of Section 50 of the CGST Act to provide that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e., interest would be leviable only on the amount payable through the electronic cash ledger.’’

• Amendment was inserted through the Finance Act, 2019 enacted on 1st August 2019, but the same is not yet notified.
• Proviso was inserted which is follows-

“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.”.

• Gujarat High court judgement in the case of Megha Engineering & Infrastructure Limited (Writ Petition No. 44517 of 2018) delivered on 18th April 2019 was the first ever decision in this regard. Writ against levy of Interest on gross tax liability was dismissed by stating that no claim to ITC can be made unless the returns are filed.
• Delhi High Court in the case of M/s. Landmark Lifestyle (Civil Writ Petition No. 6055 of 2019 and Civil Miscellaneous No. 26114 of 2019) and the Gujarat High Court in the case of Amar Cars Private Limited (Special Civil Application No. 4025 of 2020) granted stay on recovery of interest on gross tax liability until further orders.
• Madras High Court in the case of Refex Industries Limited (Writ Petition No. 23360 and 23361 of 2019 & Writ Miscellaneous Petition Nos. 23106 and 23108 of 2019), that Interest is applicable only on net cash liability retrospectively.
• Amendment would be retrospective- reaffirmed by the GST Council

The GST Council in its 39th meeting held on 14th March 2020 in New Delhi held that Interest is payable retrospectively on Net cash liability i.e. w.e.f. 1st July, 2017.

So ‘’ALL WELL THAT ENDS WELL’’ Interest is payable retrospectively.

I hope provisions of Section 50 explained by me in simplified manner

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