Interest on late Payment of GST on Net Liability w.e.f. 01.07.2017

GST Act was first introduced in India w.e.f. 01^st July, 2017 for the purpose of uniform indirect tax mechanism all over India. Main purpose of Goods and Service Tax, 2017 is “One Nation One Tax”. From the very first day there is controversy that “whether interest on delayed payments of GST need to pay on Gross Tax Liability or Net Tax Liability i.e. Liability paid through cash ledger”.

The taxpayers contended that interest on delayed payment of GST should be levied on the net tax payable i.e. amount debited from electronic Cash Ledger whereas the department contended that interest should be levied on the gross amount of tax payable. A number of litigations came over the legal domain on this issue and many are still pending. However, this controversy has now been settled after the much awaited Notification No. 63/2020- Central tax dated 25^th August, 2020 by CBIC.

The Central Board of Indirect Tax and Customs (CBIC) has notified the Proviso to Section 50(1) of CGST Act, 2017 vide Notification No. 63/2020- Central tax dated 25^th August, 2020.

Text of Notification No. 63/2020- Central tax dated 25^th August, 2020 is as follows:-

MINISTRY OF FINANCE
(Department of Revenue)
(Central Board of Indirect Taxes and Customs)
New Delhi

Notification No. 63/2020–Central Tax

Dated: 25th August, 2020

G.S.R. 527(E).—In exercise of the powers conferred by sub-section (2) of section 1 of the Finance (No. 2) Act, 2019 (23 of 2019), the Central Government hereby appoints the 1^st day of September, 2020, as the date on which the provisions of section 100 of the Finance (No. 2) Act, 2019 (23 of 2019), shall come into force.

[F. No. 20/06/09/2019-GST]

PRAMOD KUMAR, Director

Provisions of section 100 of the Finance (No. 2) Act, 2019 (23 of 2019):-

Through this provision Section 50 of CGST Act, 2017 was amended by inserting the proviso to section 50(1) of CGST Act, 2017 from the date on which government notify in this regard. Section 50 of CGST Act,2017 talks about in case of late payment of GST the Interest is charged on gross amount instead of net amount. Now the government has notified vide Notification No. 63/2020- Central tax dated 25^th August, 2020 that with effect from 01^st September, 2020 interest will be charged on the net tax liability i.e. tax paid through debiting the electronic cash ledger.

Extract of Provision to Section 50(1) as inserted vide section 100 of  Finance (No. 2) Act, 2019 (23 of 2019) and as notified by CBIC with effect from 1st day of September, 2020 vide Notification No. 63/2020- Central tax dated 25^th August, 2020–

Amendment of section 50

100. In section 50 of the Central Goods and Services Tax Act, in sub-section (1), the following proviso shall be inserted, namely :––

“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.” 

Press Release of CBIC after 39^th Meeting of GST Council dated 14^th March 2020:-

• Press Release of 39^th Meeting of GST Council stated that “Interest for delay in payment of GST to be charged on the net tax liability w.e.f. 01-07-2017” i.e. retrospective effect. But now the Government notified the provision form prospective effect i.e. 01^st September, 2020 which is against the decision of GST Council.
• Further on 21^st August, 2020 Hon’ble Orrisa High Court in the case of Prasanna Kumar Bisoi Vs Union of India directed GST department to dispose of the representation filed by the petitioner keeping in view the decision taken in the 39th meeting of GST Council, as expeditiously as possible. And this will leads to battle between the taxpayers and department. Therefore, Government needs to make a clarification and clarification is made by CBIC through press release dated 26.08.2020

Text of the press release dated 26.08.2020–

The Central Board of Indirect Taxes & Customs (CBIC) today clarified that “the otification No. 63/2020- Central tax dated 25^th August, 2020 relating to interest on delayed payment of GST has been issued prospectively due to certain technical limitations. However, it has assured that no recoveries shall be made for past periods as well by the Central and State tax administration in accordance with the decision taken in the 39^th Meeting of GST Council. This will ensure full relief to the taxpayers as decided by the GST Council”.

CBIC explanation came in response to an assortment of comments in the social media with respect to Notification dated 25th August 2020 regarding charging of interest on delayed payment of GST on net liability (the tax liability discharged in cash) w.e.f. 1st September 2020.

Therefore, Interest shall be levied at net liability i.e. Liability discharged through Electronic Cash Ledger with effect from 01^st July, 2017.

Conclusions: –

Interest will be calculated on Net Tax Liability with effect from 01^st July, 2017 keeping in mind the press release dated 26.08.2020.

Formula for Calculation: –

Interest = [Tax on Outward Supply- ITC on Inward Supply]* [Rate of Tax i.e. 18%]* [date of payment- due date of payment]