Interest on entire net tax liability or on amount deposited after due date of GST return

Whether there should be interest on entire net tax liability or should be on the amount which were deposited beyond due date of filing GST return?

1. Section 50 of CGST Act is about interest on delayed payment of Tax. Section 50 says – Interest on delayed payment of tax.— (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:

[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.]

(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.

2. The section can be divided as following for the ease of understanding

(a) Person should be liable to pay tax

(b) Person should have paid the tax within prescribed period

(c) Person fails to pay the tax or any part thereof to the Government

3. As per section 50(1) interest liability will be triggered if tax is not paid within the period prescribed. Section 39 of CGST Act is related with Furnishing of returns. Section 39(7) says ―Every registered person, who is required to furnish a return under sub-section (1) or sub section (2) 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.

4. Section 50(1) says that interest will be applicable only if the liable person fails to pay the tax or any part thereof to the Government within the period prescribed. Further interpretation of this section reveals that there are chances of failure in payment of whole tax or a part there of.

5. As per section 50(1) interest liability will be triggered if tax is not paid within the period prescribed. As per section 39(7) the tax is required to pay on or before the last date of filing return. As return GSTR 2 and GSTR 3 is not working, Government provided GSTR 3B in lieu of GSTR 3 and last date of filing GSTR 3B is 20^th of the successive month.

6. In case of GSTR 3B, There is no liability of interest under section 50(1) if the liable person pay due tax on or before 20^th of the successive month.

7. That liability of payment of GST amount is calculated in following manner

Total output GST liability   xxxxx

Less – Total input Tax Credit  XXXX

Net GST liability to be paid in cash XXXX

8. Section 49(1) of CGST Act says ―Every deposit made towards tax, interest, penalty, fee or any other amount by a person by internet banking or by using credit or debit cards or National Electronic Fund Transfer or Real Time Gross Settlement or by such other mode and subject to such conditions and restrictions as may be prescribed, shall be credited to the electronic cash ledger of such person to be maintained in such manner as may be prescribed.

9. Section 49(3) stipulates ― The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fee or any other amount payable under the provisions of this Act or the rules made thereunder in such manner and subject to such conditions and within such time as may be prescribed‖

10. Section 49(6) of CGST Act says ―the balance in the electronic cash ledger or electronic credit ledger after payment of tax, interest, penalty, fee or any other amount payable under this Act or the rules made thereunder may be refunded in accordance with the provision of section 54.

11. Section 54(10) says ― where any refund is due under sub section (3) to a registered person who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any court,
Tribunal, or Appellate Authority by the specified date, the proper officer may

(a) Withhold payment of refund due until the said person has furnished the return or paid the tax, interest or penalty as the case may be

(b) Deduct from the refund due, any tax, interest, penalty, fee or any other amount which the taxable person is liable to pay but which remains unpaid under this Act under the existing law.

12. Rule 87 prescribes the manner in which Electronic cash ledger will be maintained. Rule 87 (1) says ” The electronic cash ledger under sub-section (1) of section 49 shall be maintained in form GST PMT -05 for each person liable to pay tax, interest, penalty, fee or any other amount, on the common portal for crediting the amount deposited and debiting the payment therefrom towards tax, interest, penalty, fee or any other amount. Rule 87(2) says ” Any person or a person on his behalf, shall generate a challan in Form GST PMT 06 on the common portal and enter the details of the amount to be deposited by him towards tax, interest, penalty, fee and any other amount. Rule 87(6) says ” on successful credit of the amount to the concerned Government Account maintained in the authorized bank, a challan identification number shall be generated by the collecting bank and the same shall be indicated in the challan.

13. A combined reading of section 49(1), 49(3), 49(6), 54(10) with rule 87(1), 87(2) and 87(6) clearly says that every deposit shall be credited in electronic cash ledger which is maintained by the Government on behalf of the tax payer. Once transferred, the amount lying in Electronic cash ledger will be utilized only for the restrictive usage and tax payer won‘t have right to utilize the same in any other manner or get the same refunded without paying due taxes and others . Proper officer has been empowered to deduct the due tax, fee, interest or any amount from the refund due.

14. Provision of section 50 says [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.]

15. Under GSTR 3B GST liabilities are offset at the time of submission of return by which electronic cash ledger are debited along-with input tax credit lying in electronic credit ledger. GSTR 3B cannot be filed if the total liabilities are not saddled with electronic cash ledger and electronic credit ledger. Thus there is no concept of failure in payment of “part tax‖ as envisaged in section 50(1). Also this is violation of Article 14 as Government is not treating equally the person having balance in electronic cash ledger with the person having balance in electronic credit ledger. Both the ledgers are maintained by the Government itself and there is strict control over the usage of these funds. There are almost common provisions towards utilization of these funds.

16. The law has explicitly provided that assessee‘ s liability shall be discharged after debit to cash/credit ledger. However the amount deposited through GST PMT 06 should be considered as payment gets strength from various other instances in the Act itself wherein deposit in electronic cash ledger is directly or indirectly coloured as sufficient discharge of tax liability:

(a) As per section 27(2) a casual taxable person is required to make an advance deposit of tax in an amount equivalent to the estimated tax liability. The said compliance or liability is considered as discharged merely depositing the amount in electronic cash ledger. Therefore, as per provision of section 27 read with Rule 13, ― Advance deposit of Tax‖ is to be made by virtue of depositing fund in electronic cash ledger is treated at par with Advance tax payment

(b) As per section 53A of the Act , where any amount is transferred by the assessee from CGST electronic cash ledger to SGST/UTGST electronic cash ledger, the Government is required to transfer to the State/UT tax account, an amount equal to the amount so transferred. Irrespective of filing of return, with switch of balances in electronic cash ledger, the Government is mandated to undertake the actual fund transfer of equivalent amount to the respective State/UT. Thus exploitation of funds is triggered on deposition of amount in electronic cash ledger and not after filing of return.

(c) For provisional release of seized goods under section 67(7) of the CGST Act, the taxable person deposit the tax and penalty through GST PMT 06 in electronic cash ledger from the bank account to the Government account and the goods is provisionally released immediately treated as tax and penalty deposited

(d) As per section 77 of CGST Act and section 19 of IGST Act, interest is not required to be paid in case assessee pays wrong taxes considering a transaction as inter/intrastate earlier and later correcting the same to be other one. The intention behind not charging the interest on an incorrect transaction, is nothing else than the fact that actual payment has already been done, although in wrong head. This saving provision highlights the actual form of payment which is bank payment and not the allocation under any specific head.

17. In the matter of M/s Vishnu Aroma Pouching Pvt Ltd vs Union of India, Hon‘ble Gujrat High Court has allowed the appeal and held ” It is further the case of the petitioners that the entire tax liability of August 2017 having been discharged by 19.09.2017, the petitioner proposed to furnish GSTR 3B on 20.09.2017, but the common portal was not running properly due to heavy load because millions of registered persons were trying to upload their returns and the common portal, which was introduced only in July 2017, was not capable of taking such a huge load. Consequently, the petitioner‘s efforts to upload GSTR 3B on 20.09.2017 failed. On the next date, that is 21.09.2017, the system crashed. Due to this unfortunate turn of events, the system accepted the petitioners GSTR 3B on 21.09.17 but the information and details in all the columns of this return were shown “zero” despite the fact that the tax liability for the month in question had been duly paid by the petitioner.”

Court has permitted the petitioner to file manually GSTR 3B for August 2017 with correct and true details and the respondents were directed to accept and acknowledge such GSTR 3B manually filed by the petitioner for August 2017. Petitioner was not fastened with any interest liability on account of delay in filing the return but in time deposition of fund in electronic cash ledger.

18. Hon‘ble Supreme Court in the case of Pratibha processors 1996 (S.C.) held at para 13 as “In fiscal Statutes, the import of the words — “tax”, “interest”, “penalty”, etc. are well known They are different concepts. Tax is the amount payable as a result of the charging provision. lt is a compulsory exaction of money by a public authority for public purposes, the payment of which is enforced by law. Penalty is ordinarily levied on an assessee for some contumacious conduct or for a deliberate violation of the provisions of the particular statute. Interest is compensatory in character and is imposed on an assessee who has withheld of any tax as and when it is due and payable.  The levy of interest is geared to actual amount of tax withheld and the  extent of the delay in paying the tax on the due date. Essentially, it is  compensatory and different from penalty– which is penal in character.” Once the fund abandons the bank account of assessee, assessee loses the opportunity to earn any accretion from the said sum. Under no circumstances it can be considered a case of withhold of payment where in fact assessee has deprived himself from all the associated benefit immediately upon transferring the amount to electronic cash ledger.

19. In the matter of M/s Refex Industries Limited Hon‘ble Madras high court has held “The specific question for resolution before me is as to whether in a case such as the present, where credit is due to an assessee, payment by way of adjustment can still be termed ‘belated‘ or ‘delayed‘. The use of the word ‘delayed’ connotes a situation of deprival, where the State has been deprived of the funds representing tax component till such time the Return  is filed accompanied by the remittance of tax. The availability of ITC runs  counter to this, as it connotes the enrichment of the State, to this extent.  Thus, Section 50 which is specifically intended to apply to a state of deprival cannot apply in a situation where the State is possessed of sufficient funds to the credit of the assessee. In my considered view, the proper application of Section 50 is one where interest is levied on a belated cash payment but not  on ITC available all the while with the Department to the credit of the  The latter being available with the Department is, in my view,  neither belated nor delayed. hat interest is compensatory in character and  is imposed on an assessee who has withheld payment of any tax as and  when it is due and payable.

20. That section 50(2) says ” 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. Prescribed has been defined under section 2(87) as “prescribed means prescribed by rules made under this Act on the recommendation of council”. As of now no rules has been prescribed for the purpose and manner in which the interest under section 50 should be calculated. Article 265 of the constitution of India also says “No Tax shall be levied or collected without authority of law”. Even though section 50 gives authority to the revenue to levy and collect the interest on late filing of return but till the rules are not provided to carry out the operation of law then the law cannot be made operational. Mere providing rate of interest doesn‘t empower revenue to levy and collect interest on delayed payment of tax.

21. In the matter of Mahadeo Construction Co. Vs Union of India (2020) 116 com 262 (Jharkhand) and in the matter of Assistant Commissioner of CGST & Central Excise vs Daejund Moparts P Ltd (2020) 116 taxmann.com 372 (Mad.) It has been settled that though the liability of interest under section 50 is automatic, quantification of such liability shall have to be made by doing the arithmetic exercise, after considering the objections of the assessee. By these wordings honourable court has set out the primary requirement of quantification of interest liability before going into the recovery proceeding in accordance with and the manner provided by the section 50(2) read with prescribed rule which is yet to be notified by the Government.

22. In the matter of M/s Flair Writing Industries Ltd V/s union of India constitutional validity of section 50 of the CGST Act 2017 has been challenged in Hon‘ble Gujarat High Court. It has been argued that the council thought fit to recommend the Government to levy interest only on the net cash liability irrespective of classification of the tax payers. Such mandate from the GST council could not have been overlooked or restricted by the Parliament. It has been further argued that first proviso is manifestly arbitrary as its create differently treatment between two classes of persons (i) who self-assessed payment of tax after duly filing of the tax returns pursuant to the investigation and (ii) who fails to file a return in time and pays tax on account of delayed in filing of return in terms of section 39(1) of the CGST Act. Notice has been served on respondents on 11.02.2021. The proviso relating to the ― shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger is constitutionally not valid having element of unreasonableness of this provision. These provisions being irrational and arbitrary and therefore are in violation of Article 14 of the constitution.

23. There was similar provision is the erstwhile Excise Law in which PLA account was similar of Electronic cash ledger and RG 23 Part II was similar to Electronic Credit ledger. The Central Government in the Central Excise Law Manual , chapter 3 part V has clarified in clause 3.3 as under

“There is an explanation to sub rule (1) of rule 8 that the duty liability shall be deemed to have been discharged only if the amount payable is credited to the account of the Central Government by the specified date. It is being interpreted that it refers to deposit of duty amount by the focal point banks into the account of Government. This is not the intention. Once the assessee has deposited a cheque in the bank designated by the Central Board of Excise and Customs, the date of presentation of the cheque shall be deemed to be the date on which the duty has been paid subject to realization of cheque.

24. I strongly feel that there is a requirement of addition of word ― interest will be calculated on the amount of electronic cash ledger which has been deposited in electronic cash ledger after due date of filing return” to avoid litigation as it has never been the intention of the revenue to be benefited by way of unjust enrichment.