A peculiar situation is prevailing in the country as far as the GST Act is concerned. The Finance Minister as the Chairperson for the GST Council in a Press Conference has stated that the interest would be charged on the net tax liability and this would have a retrospective effect. From the words of the Finance Minister it can be understood that levy of interest on gross amount of GST payable under section 50(1) of the CGST Act 2017 has been rectified/removed and only net tax liability alone would count for levying the interest. This has been notified by the GST Council in the 39th GST Council Recommendations. On the question of Law and Procedures , the whole Nation has been waiting for the date on which the notification would be issued to give effect to the amendment made to section 50 of the CGST Act in 2019 and to elect the date to take effect.

In fact the Hon’ble High Court of Orissa in the case of Prasanna Kumar Bisoi Vs  Union of India directed the GST department to dispose of the representation filed by the Petitioners keeping in view of the decision taken in the 39th Meeting of GST Council as expeditiously as possible.

The Hon’ble High Court of Andhra Pradesh and Telangana State have also granted stay where Dr M.V.K. Moorthy, Senior Counsel has appeared and contested that the levy of interest on gross tax amount is illegal and more so the levy would in other word prejudice the input tax credit which is lying with the Government in the electronic credit ledger. The Hon’ble Courts have granted absolute stay and the matters are pending.

Now on 25-08-2020, a notification was issued by the CBIC byway of a Notification No. 63/2020-Central Tax, the contents of the notification is extracted hereunder:

G.S.R. ….(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 1st 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.

From this , it is clear that notification No. 63/2020-Central Tax says that it is a prospective amendment which comes to operation from 01-09-2020 and does not come into operation retrospectively i.e. from 01-07-2017. Though this notification issued by the CBIC, which is contrary to the recommendation made by the GST Council as further announced in press release where it is said that the relevant date from which the notification will come into operation will be specified.

It is quite obvious that if the notification of CBIC i.e. Notification No. 63/2020 is to be considered as prospective only, the department or the union is accepting that the levy of interest on gross tax liability without deducing the input tax credit to taken from the electronic credit ledger available therein which is amenable to adjustment by the departmental authorities with considering the orders of the various High Courts which stayed the interest on gross levy of tax as unjust and improper.

However I opine that the GST Council or the Ministry of Finance will come with a notification saying that the levy of interest has to be considered on net tax payable and that would be applicable from 01-07-2017 with an errata else there will be a continuous battle between the tax payers and the union and the battle before the various High Courts would be a laughingstock and the courts would however be in position and exercise the discretionary power to grant stay of the Notification No. 63/2020. The present notification No. 63/2020 dated 25-08-2020 w.e.f. 01-09-2020 would clearly and virtually amount to a wholesome retention of tax payers money as tax unlawfully and illegitimately without off setting the paid tax as ITC against the output tax liability to determine the actual net liability. Collection of amount of interest on gross tax  liability sans input tax credit lying to the credit of the tax payer on  his payment in electronic credit ledger from 01-07-2017 till 31-08-2020 would be unworthy of the administration of fiscal law infringing the constitution. Any number of WPs would  flood the constitutional courts in the country for advancing a claim against the revenue for payment of interest on such ITC flowing the factum of payment of tax.

These are my views expressed on the Notification No. 63/2020-Central Tax dated 25-08-2020 and any opinions on the above subject are welcome.

*Author Mr. M. V. J. K. KUMAR, is Senior Standing Counsel for Central Excise, Customs & Service Tax at High Court of Hyderabad.

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October 2021