Analysis of interest provision w.r.t. section 50(1) under Central Goods & Services Tax Act (CGST Act), 2017
The proviso to Sec 50(1) of the CGST Act was first introduced vide Finance (No. 2) Act, 2019 dated 1 August 2019. The relevant extract of the provisions are enumerated herein below :
“It states that the interest on tax payable in respect of supplies declared late in the returns after the due date, except where such return is furnished after the 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.”
Sequence of events
In this respect, the event/actions like standing orders, council meeting press releases, judgments, tweets and interpretations created big chaos and confusion in the taxpayer’s mind.
The sequence of events is as follows:-
1. On 4 February 2019, a Standing Order No. 01/2019 was issued by the Office of the Principal Commissioner of Central Tax (Hyderabad) stating that the interest to be paid on account of delay in filing of GSTR 3B Returns on both the cash & the ITC Component of the tax paid after the due date.
2. On 18 April 2019, the position was upheld in the order of Honourable High Court of Telangana in the Case of M/s. Megha Engineering & Infra Ltd. V/s. The Commissioner of Central Tax
3. On 1 August 2019, Finance (No. 2) Act, 2019 introduced the amendment to Section 50.
4. Notification No. 01/2020-Central Tax dated 1st January 2020 notified many sections of Finance Act, 2019, however, section 100 of the said act w.r.t the said amendment was in exception (i.e. not notified)
5. Further, the judgement of Madras High Court in case of M/s Refex Industries Limited vs assistant commissioner of CGST dated 06.01.2010 was passed in favor and held:
“The availability of ITC 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.
Levy of interest on delayed payment of GST Liability is purely compensatory in nature and accordingly is liable to be charged only on net cash payment and not on the gross tax liability retrospectively. Court mentioned in the judgment that since the amendment stands incorporated into the statute, it comes to the aid of the assessee. However, the same is not yet notified.”
6. On 15 February 2020, CBIC India vide the official Twitter handle of CBIC tweeted that the interest has to be collected on Net Basis. Read: CBIC justifies Interest on delayed payment based on gross GST liability
7. On 14 March 2020, the GST council has decided that interest on delayed payments of GST would be applicable only on the net cash tax liability. This change will apply on a retrospective basis with effect from 1 July 2017.
8. Notification no. 63/2020–Central Tax dated 25 August 2020 was issued to provide that section 100 of the Finance (No. 2) Act, 2019 shall come into force w.e.f. 1 September 2020.
9. Clarification from CBIC on 26th August 2020 has assured that Revenue will not make recoveries for the past period in accordance with the decision of the GST Council.
Notification no. 63/2020–Central Tax dated 25 August 2020 issued by the Central Board of Indirect Taxes and Customs (CBIC) appointing 1 September 2020 as the date on which provisions of section 100 of the Finance (No. 2) Act, 2019 shall come into force.
Vide section 100, a proviso had been inserted in section 50(1) of the Central Goods and Services Tax Act, 2017. As per the proviso, in case of belated filing of the return, interest shall be levied only on the tax liability paid in cash, i.e., the net tax liability after adjusting input tax credit available with the taxpayer. The said proviso was not made effective till date.
It is pertinent to note that the GST Council, in its 39th meeting held on 14 March 2020, had decided that the proviso will be given retrospective effect from 1 July 20172.
A Press Release dated 26 August 2020 issued by the Central Board of Indirect Taxes and Customs (CBIC), clarifying the applicability of Notification relating to interest provision under GST, in line with the GST Council decision in its 39th meeting held on 14 March 2020, wherein it was held that proviso will be given retrospective effect from 1 July 2017.
Further, vide the press release dated 26 August 2020, CBIC has clarified that the Notification dated 25 August 2020 gave effect to the proviso prospectively due to certain technical limitations and have assured that Revenue will not make recoveries for the past period in accordance with the decision of GST Council.
Key points for consideration
1. CBIC in wake of hue and cries from various sections of social media issued a press release clarifying the applicability of the notification issued. However, one must understand that the press releases are clarificatory in nature and the same have not legal framework, further they are not full proof evidence at the time of litigation(s). The question is here, whether the press release/clarification will prevail over the law & rules. Accordingly, if the answer is not affirmative, then the government has kept the umbrella of litigation opened in this case.
2. The proviso to Sec 50(1) of the CGST Act, covers only the cases of delayed filing the return for the and not the scenario where the tax liability of a month is reported in subsequent months. In this case, the government has not clarified this situation. The same would have a major impact on the taxpayers, since most of them have reported/amended the records at a later period of time, during the incubation period of the GST regime. The government must ensure to clarify the said ambiguity if they want to provide true relief to the taxpayers.
3. Refund the amount of interest already paid by the assessee prior to this notification or clarification. In this regard, it is pertinent to note that the tax compliant taxpayers, who had paid the interest cost to the government on a timely basis, must also be provided with relief and the amount of interest incorrectly extracted from them, should be refunded back to their electronic cash ledger on a timely basis.
The above relief should be provided, in order to avoid any unjustness and disparity between the taxpayers. Accordingly, the government must act upon immediately to provide clarification on refunds for the taxpayers for prior periods. Hence, it is requested to bring in necessary clarity in the GST law, since the existing ambiguity is leading to a state of inequality and disparity for those taxpayers who had discharged GST for prior periods.
The notification along with the press release clarifying the applicability is likely to provide much-needed relief to taxpayers who delayed return filing and had paid interest on net tax liability after adjusting input tax credit. However, there is a need to clarify the issues bumping up from the CBIC press release and notifications on a timely basis to ensure uniformity amongst the taxpayers and provisions of GST law.
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