Every legislature which contain the provisions for collection of taxes, duty or other amount also contains the provisions for interest on late payment or non-payment of such amount. Just like other legislatures, GST act also contains the provision for levy of interest on delay or non-payment of GST. However, quantum of interest to be levied is under dispute from first day of introduction of GST in India. Dispute is whether GST will be charged before adjusting ITC (on Gross Liability) or after adjusting ITC (Net Liability). To resolve this issue few rulings are pronounced and changes are proposed. Following is the detailed discussion respectively.
Section 50 of CGST Act, 2017 provides for levy of interest on late or Non-payment of tax. Interest shall be charged on late or non-payment of tax or Excess claim of input tax credit.
Government has notified the rate of interest in various cases by issuing notification No. 13/2017- Central Tax dated 28th June, 2017. Government notified the rates for Delay/Non-payment of tax, Excess claim of input tax credit and Delay payment of refund by department.
Provisions: Date of payment of tax by taxpayer
As per sub-rule 3 to Rule 85 “Electronic Liability Register” payment shall be made by debiting the electronic credit ledger, electronic cash ledger and by crediting electronic liability ledger.
Hence as per provisions without debiting electronic cash ledger or electronic credit ledger it cannot be said that payment has been made. Hence as per provisions Interest shall be charged on Gross liability i.e. without adjusting ITC.
Example: Let’s suppose outward liability of GST is Rs. 5,000 and the input tax credit of Rs. 6,000. Due date for payment is 20-April-2020 and GSTR-3B is filed on 20-June-2020.
Although ITC available is more than outward liability, taxpayer will have to pay interest on Rs. 5,000 from 21-April-2020 to 19-June-2020.
What happened in last 3 years
From the first day of introduction of GST in India, provisions for charging interest on gross liability is being incorporated in the Act itself. On receiving demand notices from the department to pay interest on gross tax liability, various petitions requesting the amendments in the provisions for charging interest on Net liability i.e. after adjusting input tax credit were made. Following steps have been taken by Government so far:-
1. Recommendation of charging interest on Net liability in 31st GST council Meeting dated 22/12/2018: In 31st Meeting charging interest on net liability was proposed, However to make a proposal applicable/effective notification must be issued by the Government. But till date no notification has been issued.
2. Decision of Telengana High court in case of M/s. Megha Engineering & Infra Ltd. V/s Commissioner of Central Tax: As per the judgement no ITC available if return not filed hence Interest mandatorily payable on gross liability.
3. Interim order of Telangana High Court in case of Raghava Constructions V/s Union of India: High court issued interim order for stay on collection of interest on gross liability. Delhi, Karnataka and Gujarat high courts are of the same view and have granted interim order stating that interest in to be paid on net liability.
4. Amendment in Section 50 of CGST through Finance Act, 2019: Section 100 of Finance act, 2019 provides for amendment in section 50 of CGST Act, 2017 and introduced proviso to section 50 which provides that interest shall be charged on that portion of tax that is paid by debiting the electronic cash ledger. However, no notification has been issued to make this amendment effective.
5. CBIC order to Principal commissioner/commissioner: A letter circulated on social media dated 10/02/2020 by CBIC to principal commissioner/commissioner to recover approx. Rs. 46000/- crore against interest on Gross liability.
6. Clarification by CBIC on official twitter account: CBIC on 15/02/2020 tweeted on official twitter account that act will be amended prospectively and till the date of amendment interest shall be charged on gross liability only.
7. Recommendation of charging interest on Net liability in 39st GST council Meeting dated 14/03/2020: In 39th GST council meeting it was proposed that Interest for delay in payment of GST is to be charged on the net cash tax liability retrospectively w.e.f. 01.07.2017. This was a very welcome step for the taxpayers but no notification substantiating the same has been issued yet.
GST was introduced as one nation one tax but there are lot of confusions till date. The working of GST Council proactively on various issues has not ruled out the complexity in law as different decisions have been taken by the authorities in regard to the same litigating matter. It is imperative to say that the law evolves over the period of time. As the 3rd anniversary of the GST Act is here, it can be said that the law is just learning to walk.
Since no notifications are being issued to levy interest on net liability, interest shall be charged on gross liability until the council decisions are being made effective.
CA Robin Garg- Contact: [email protected]
The views expressed in this article are strictly personal and for information purpose only. It should not be relied for any legal dispute.