Interest levy in case of delayed payment of GST – Whether to be charged on Gross or Net ??

Amongst the many questions and complications in respect of GST compliance which the people are facing, one of the basic and important conundrum is ‘Interest levy in case of delayed payment of GST – Whether to be charged on Gross or Net ??’

➡ First of all let’s start from the wordings of section 50(1) of CGST Act, 2017 which is as follows –

“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 percent,  as may be notified by the Government on the recommendations of the GST Council.”

➡ Now, this section nowhere clarifies whether Interest is to to be levied on Gross Liability unpaid or Net Liability unpaid. This eventually led to the case of Megha Engineering Infrastructures Ltd. vs. Commissioner of Central Tax, which led to huge rounds of discussion amongst the Taxation community as to whether GST to be now on paid on Gross Liability unpaid.

➡ Finally, to provide some way out to the discussion on the same, the Government vide section 100 of the Finance Act(No.2), 2019 introduced a proviso in section 50 of CGST Act, 2017 which read as 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.”

This clarified the thought that interest is to charged on Net GST Liability to be paid unless the return filing is in response to Show Cause Notice (i.e. section 73/74).

➡ However, these provisions i.e. section 92 to 112 of the Finance Act(No.2), 2019 which dealt with GST provisions will be effective only once notified in Official Gazette which the Government did not come out with until the end of 2019.

➡ Finally, on 01.01.2020, the CBIC came out with its notification 01/2020 stating that “the provisions of sections 92 to 112, except section 92, section 97, section 100 and sections 103 to 110 of the Finance(No. 2) Act, 2019 (23 of 2019), shall come into force.”

➡ Thus, proviso to section 50 of CGST Act, 2017 which was introduced by section 100 of the Finance Act is not yet notified. Hence, as on date the proviso is not effective being in the list of sections of Finance Act yet to be notified.

➡ Thus, even though the Government took measures to clarify the same and introduced requisite provision in the Finance Act, however not notifying the same till date keeps the Question still unanswered – “Whether interest in case of delayed payment of GST to be paid on Gross or Net Liability ??”

Notification No. 01/2020-Central Tax Dated: 01.01.2020

Finance (No. 2) Act, 2019 [No. 23 of 2019]

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13 Comments

  1. ankit3210 says:

    CBIC has clarified vide a Press release dated 26.08.20 that even though the amendment in Section 50 will be made effective from 1st September, no recoveries for the past period shall be made on gross liabilities in accordance with the recommendations of the GST Council in its 39th meeting.

  2. ankit3210 says:

    Notification No 63/2020-CTR states that Interest on GST to be levied on Net liability w.e.f 01st Sep 2020.

    On 14 March 2020, in 39th GST Council meeting it was recommended that Interest for delay in payment of GST to be charged on the net cash tax liability w.e.f. 01.07.2017 (Law to be amended retrospectively).

    However GST council’s recommendation didn’t go hand in hand with Govt’s aim to recover the revenue loss

  3. ankit3210 says:

    Dear Readers,
    Finally the issue has been resolved in today’s 39th GST Council meeting. Interest for delay in payment of GST to be charged on the net cash tax liability w.e.f. 01.07.2017 (Law to be amended retrospectively).

  4. Atul Agarwal says:

    So at present what should we do?
    In case if deptt. Ask for payment of interest on delayed payment of tax in case of revocation of cancelled GSTIN.

    1. ankit3210 says:

      At present, since the proviso to sec 50 has not been notified, the Dept will ask the assessee to pay on Gross taking into consideration the decision of Megha Engineering Infrastructures Ltd. vs. Commissioner of Central Tax

      1. CA. Madhukar N. Hiregange says:

        The revenue would also be aware of the amendment, therefore may not issue any notice. If it does then due process of comprehensive reply etc would have to be followed.

        1. ankit3210 says:

          Thank you so much Sir for your valuable inputs.
          Dear Readers,
          This opinion of Madhukar Sir be considered as a reliable solution in case of this conundrum.

        2. ankit3210 says:

          Matching with your opinion placed by you Sir, we have a latest High Court reference.

          Delhi High Court issued notice on a writ petition filed by Maple Logistics Pvt Ltd challenging Section 50 of CGST Act insofar as it requires payment of interest on gross tax payable without adjustment of ITC.

          During the admission stage, the department highlighted the proviso inserted to Section 50 of CGST Act vide Finance Act, 2019. However, keeping in mind that the said amendment is not yet notified and it is not clear if the said amendment will be implemented retrospectively, the court was pleased to issue notice and grant stay.

        3. ankit3210 says:

          In a latest order dated 10th Feb, 2020 issued to GST Commissioners in respect of collection of interest on delayed payment from assessees, Interest u/s 50 of GST Act is asked to applied on “Gross tax liability” i.e. tax liability paid belatedly either in Cash or through ITC.

    2. ankit3210 says:

      Delhi High Court has issued notice on a writ petition filed by Maple Logistics Pvt Ltd challenging Section 50 of CGST Act insofar as it requires payment of interest on gross tax payable without adjustment of ITC.

      During the admission stage, the department highlighted the proviso inserted to Section 50 of CGST Act vide Finance Act, 2019. However, keeping in mind that the said amendment is not yet notified and it is not clear if the said amendment will be implemented retrospectively, the court was pleased to issue notice and grant stay.

    3. ankit3210 says:

      In a latest order dated 10th Feb, 2020 issued to GST Commissioners in respect of collection of interest on delayed payment from assessees, Interest u/s 50 of GST Act is asked to applied on “Gross tax liability” i.e. tax liability paid belatedly either in Cash or through ITC.

    4. ankit3210 says:

      Finally the issue has been resolved in today’s 39th GST Council meeting. Interest for delay in payment of GST to be charged on the net cash tax liability w.e.f. 01.07.2017 (Law to be amended retrospectively).

    5. ankit3210 says:

      CBIC has clarified vide a Press release dated 26.08.20 that even though the amendment in Section 50 will be made effective from 1st September, no recoveries for the past period shall be made on gross liabilities in accordance with the recommendations of the GST Council in its 39th meeting.

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