Crux Of Matter
The industry needs to be vigilant in ensuring timeliness in the filing of GSTR-3B since delays in filings have implications of interest on gross GST liability.Â
Basis the judgement given by Telangana & Andhra Pradesh High court, the liability to pay interest under Section 50 of the CGST Act, 2017 will NOT be limited to the net tax liability; instead, interest would be payable on the gross tax liability that is including the portion which is available for set-off against ITC.
The disappointment here arises from the fact that the GST Council in December 2018, confirmed the amendment of Section 50 of the CGST Act thereby allowing interest to be charged only on the net tax liability that is after taking into account the appropriate input tax credit. However, the referred approval by GST council is not being translated into a relevant amendment in the GST Act; consequently, the judgement was given based on the law that prevailed as on date of the review.
3 POINT Analysis:
To understand the judgement we need to understand three aspects namely:
1. The procedure for filing of returns and payment of tax
the eligibility and conditions for taking the input tax credit and
The wording of Section 50
As per Section 39 andÂ Section 40 of the CGST Act, 2017, every registered person is required to furnish a return for every Calendar Month or part thereof. This return should be filed electronically and should ensure that it has relevant contents for the data about inward and outward supplies of goods or services, ITC availed, Tax payable, Tax paid etc.,Â
The return should be filed on or before the 20th day of the following calendar month. The registered person should pay the tax liability as mentioned in the return before the last date of furnishing of such return.
Section 16 of CGST Act, 2017 specifies the conditions to be fulfilled before taking ITC. The four conditions stipulated are
1) Possession of a tax invoice or debit note issued by a supplier registered under the Act;Â
2) Receipt of the goods or services;Â
3) Tax charged in respect of such supply should have been paid to the Government. This payment could be either in cash or through the utilisation of ITC; andÂ
4) Filing of the return under Section 39.
As per section 41 of CGST Act, every registered person should make a self-assessment of the eligible input tax credit. The self-assessed ITC gets provisionally credited to electronic credit ledger of the registered person. As per section 49 of CGST Act, this credit can be utilised only for payment of self-assessed output tax as per the return.
Thus, the electronic credit ledger gets credited with the input tax only upon the filing of the return on a self-assessment basis. Therefore, if the return is not filed then relevant credit entry of input tax shall not be made. Moreover, if there is no credit entry of the input tax,Â then corresponding utilisation of the same for paying the output tax does not arise at all.Â
As per Sec 50 of CGST Act, if a person fails to pay the tax or any part thereof to the Government within the period prescribed, then he should on his own pay interest. The liability to pay interest arises without any assessment and is self-imposed and automatic.Â
In the world of ” Financial Banking”, whenever any customer of a bank puts money in his account, the amount becomes available to the bank the moment it is deposited in the bank. However, the fact in this situation is that the availability of money by the bank does not mean the availability of cash for the benefit of the bank, and therefore the bank cannot appropriate the amount for itself. Analogous to above, the input tax credit on the goods or services received or availed, cannot be made available to the person unless there is a credit entry into the electronic credit ledger, the tax liability is paid, and return is filed.
The input tax credit on the goods or services received or availed, cannot be made available to the person unless there is a credit entry into the electronic credit ledger and the balance tax liability has not been paid out of the same. Therefore the outcome of delay in filing of returns for whatever reasons is that the payment of the tax liability partly in cash and partly in the form of a claim for ITC was made beyond the period prescribed.Â
Therefore, the obligation to pay interest under Section 50 (1) arises automatically.Â
Thus if the return is not filed in time, there is no question of availing ITC, and consequently, the GST liability is at gross, and therefore, the interest gets levied on Gross GST Liability.
If you have failed in compliances, then note that “Failure is simply the opportunity to begin again, this time more intelligently”.Therefore revamp your systems and process, and make them robust to fulfil compliance & business requirements.