> Legal language of the section 50 of CGST Act, 2017:
(1) Every person who is liable to pat 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 with in the period prescribed, shall for the period for which the tax or any part thereof remain 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.
[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 payable on that portion of the tax which is paid by debiting the electronic cash ledger.]
(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) *[Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four percent. As it may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed. ]
*Proposed to substituted vide clause 110 of the Finance Bill, 2022 (notification pending) before it was read as:
(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.
> Manner of computation of interest under section 50(1) of CGST Act :
Section 5(2) of the CGST Act states that the interest under section 50(1) of the CGST Act shall be computed from the day succeeding the day on which such tax was due to be paid. Thus, calculation of the interest will be done from the next day of the due date of tax payment till the actual date of payment of tax.
Example:
The IGST of Rs. 1,00,000 to be deposited in cash of M/s ABC Enterprises for the month of April 2022 was due on 20.05.2022, but M/s ABC Enterprises deposited the same on 18.06.2022.
In this case interest to be deposited Rs. 1430 (i.e. 1,00,000 x 18% x 29 days/ 365 days)
Note:
1. There is no specific provision in GST for payment of interest on the interest amount due.
2. Liability of interest can be settled only from balance in electronic cash ledger it cannot be settled with balance in electronic credit ledger.
> Whether interest is leviable on gross liability or net tax liability:
Since the implementation of GST, there has been a debate as to whether interest on delayed payment of GST would be calculated on gross GST liability or on net GST liability. Bare interpretation of Sec 50 of the CGST Act, gave an impression that taxpayer must pay interest at 18% on gross liability.
Proviso to Sec 50(1) w.e.f. 01.07.2017:
To provide clarity on above issue, a proviso was inserted in sec 50(1), vide the finance Act, 2019 notified vide notification no. 63/2020-central tax dated 25.08.2022 w.e.f. 01.09.2020, to provide for computation of interest on net tax liability i.e. the amount left after adjusting available input tax credit from gross tax liability which was later substituted vide clause 112 of the Finance Act, 2021 dated 28.03.2021 notified vide notification no. 16/2021- central tax dated 01.06.2021 retrospectively w.e.f. 01.07.2017.
> Whether interest is leviable on credit available but not utilised?
As seen supra that, primarily and broadly, sec 50 of the CGST Act provides for the payment of interest in the following two circumstances only:
1. Where a person liable to pay tax, but fails to pay the same [Sec 50(1)],
2. Where a person makes an undue or excess claim of input tax credit under the provisions relating to matching and mis-matching of input tax credit [Sec 50(3)]
Thus, prima facie for laving interest, one has to fall under either of the above cases, discussed as under along with other provisions w.r.t. ITC availed but not utilized:
It has been proposed vide clause 110 of the Finance Bill 2022, to substitute sec 50(3) retrospectively w.e.f. 01.07.2017 to clarify that interest would be leviable only when ITC has been utilised and not merely availed and that 18% for wrongly utilised ITC not 24% would be charged.
It is stated that where the ITC has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding 24% as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed.
Further, it has been proposed to amend notification no. 13/2017- central tax, notification no. 6/2017- integrated tax, notification no. 10/2017- union territory tax, all dated 27.06.2017, retrospectively w.e.f. 01.07.2017 vide clause 116, 118 and 121 of the Finance Bill, 2022 respectively, to notify the rate of interest on delayed payment of GST from 24% p.a. to 18% p.a. under section 50(3) of the CGST Act read with section 20 of the IGST Act & Sec 21 of the UTGST Act.
> Mere reflection of credit in electronic ledger is not sufficient for invoking interest liability:
Similar case for recovery of interest under sec 73 of the Bihar Goods and Service Tax Act, 2017 for wrongly availed transitional credit was examined by the Patna HC in M/s Commercial Steel Engineering Corporation Vs State of Bihar [2019 (28) G.S.T.I. 579 (Pat)], wherein ITC was reflected in the electronic credit ledger but was not used for netting off any outward tax liability. Held that the interest under sec 73 of the CGST Act read with sec 50 is recoverable only when some positive act of utilisation of ITC is shown by the Department and mere reflection of credit in electronic ledger is not sufficient for invoking interest liability.
Note: The above decision of the Patna HC emphasize on the positive act of the taxpayer as per which availed coupled with utilisation is significant to even categorize the case under wrong availment of ITC under sec 73 of the CGST Act, and consequently, no interest liability arises if ITC is not used.
CRUX: it may be concluded to say that there might not be any interest liability w.r.t. to the input tax credit erroneously availed but not utilised.
Author Bio
Fake invoice ITC availed but not utlize interest to be paid or not?
whether interest is payable when difference in gstr 1 to 3B is paid through credit ledger balance?
In GST audit certain credit proposed for reversal and reversed the same from the available credits.
but, interest is demaded for such credits which are not utilised as of end of the financial years ie., 31st Mar fo respective years.
Yr input pl
Hi Sir, My Self Raghavendra in 2018-19 audit i have a stock difference of Rs.25000 tax and same Rs.25000 Penalty, on that time i paid the Amount of RS.50000 through Electronic credit ledger but failed to file DRC-03. now i got notice from Department pay the Interest and Penalty including last 3 years means tax Rs.35000 and Penalty Rs.35000. (amount taken just Example basic) should i pay tax Rs.35000 and Rs.35000 penalty or ask for Disallowed the Extra Rs.20000. please help me
Sir,
As per wording of S.50(1), the interest liability u/s 50(1), CGST Act, 2017 is attracted on the Tax remained unpaid beyond the due date. Since the word “remained” has been used after the word “tax”, it goes to conclude that the legislature’s intention is to recover interest on the net tax liability. The term ‘Tax remained unpaid’, cannot be interpreted to mean “tax chargeable under this Act” (i.e., gross tax liability on output supply), ignoring the basic cannons of interpretation of Taxing Statute that “every taxing statue including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly per SC case :(2018) 30 J.K.Jain’s GST & VR 105 Commissioner of Customs v. Dilip Kumar and Company. It is settled proposition of law that taxing statutes are to be interpreted literally per SC case :(20117) 28 J.K.Jain’s GST & VR 162 State of Karnataka v. M.K. Agro Tech Pvt. Ltd. and nothing could be added to what is stated in the statute itself per SC case :(2011) 16 J.K.Jain’s Vat Reporter 120 Eureka Forbes Limited v. State of Bihar and Ors.. The court only interprets the law within the four corners of the Act and cannot legislate it under the disguise of interpretation.
As against this, oroviso inserted in S.50(1) which`provides charging of interest on Net Tax Liability u/s 50, CGST Act, 2017 by substituting proviso to sub-section 1 retrospectively, w.e.f. 1.7.2017.
This proviso excludes the taxable persons where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, meaning thereby;
“that the taxable persons where such return is furnished after commencement of any proceedings under section 73 or section 74 are liable to pay interest on Gross Liability of Tax.”
The introduction of the proviso in S.50(1), CGST Act, 2017, w.e.f. 1.7.2020 is contrary to the Specific language employed by the legislature in S.50(1), CGST Act, 2017.
The various cases decided in this regard, by different High Courts in favour of the Taxable Persons, are as under;
Prasanna Kumar Bisoi v. Union of India (2020) 34 J.K.Jain’s GST & VR 159 (Orissa), KLT Automotive and Tubular Products Ltd. v. Union of India (Bom) (2020) 34 J.K.Jain’s GST & VR 423, Maansarovar Motors Pvt. Ltd. v. Assistant Commissioner (Mad) (2020) 34 J.K.Jain’s GST & VR 411, Refex Industries Ltd. v. Assistant Commissioner of CGST & C/E (Mad) (2020) 33 J.K.Jain’s GST & VR 139.]
In our view, the legitimate clear interpretation of S.50(1) as mentioned above should be taken into account.
CA Om Prakash Jain s/o J.K.Jaln, Jaipur
Tel 9414300730