This article has been written in the backdrop of the controversy which has arisen about interest on delayed payment of tax. The issue under controversy is whether the liability to pay interest under Section 50 of the CGST Act, 2017 (hereinafter referred to as the Act) is confined only to the net tax liability i.e. after adjustment of eligible input tax credit or whether interest is payable on the total tax liability including a portion of which is liable to be set-off against input tax credit. Notices are being sent to the taxpayers, who have delayed filing of their returns in Form GSTR – 3B, to pay interest on gross tax liability including interest on the ITC portion of the tax liability.
The liability to pay interest arises only when a taxpayer fails to pay tax to the Government within the due date of payment of tax. Section 49 of the Act deals with the provision relating to payment of tax. However, it does not provide any due date for payment of such tax. It only deals with the manner of payment of tax. However, it is section 39(7) of the Act which provides for the due date of payment of tax. It states that tax shall be paid to the Government not later than the last date on which the assessee is required to furnish return in terms of Section 39 of the Act. Therefore, it is obvious that due date of filing a return under 39 of the Act is the due date of payment of tax also.
Thus, the question remains is which is the return that needs to be filed in terms of Section 39 of the Act. Section 39(1) of the Act provides that every taxpayer except a few special categories of persons shall furnish a monthly return in such form and manner as may be prescribed. Rule 61 prescribes the form and manner of submission of monthly return. Sub-rule 1 of Rule 61 provides that the return required to be filed in terms of Section 39(1) of the Act is to be furnished in FORM GSTR-3.
When the GST law was introduced in July, 2017, it was decided to have three returns every month i.e. return for outward supplies (GSTR-1 in terms of section 37), return for inward supplies in terms of Section 38 (GSTR-2) and a consolidated return in FORM GSTR-3 in terms of Section 39. However, in order to ease the burden of the taxpayer it was decided to keep filing of Form GSTR -2 and Form GSTR 3 in abeyance. It was decided in the 18th GST Council meeting to allow filing of a shorter return in form GSTR-3B for the initial period of only two months. But filing of return in Form GSTR-3B has continued till date.
Notifications have been issued from time to time to the effect that due date of filing of return in Form GSTR -2 and Form GSTR 3 will be subsequently notified. Notification No. 11/2019-C.T. & 12/2019-C.T., both dated 7-3-2019 states that the time limit for furnishing the details or return, as the case may be, under section 39(1) of the Act, for the months of July, 2017 to June, 2019 shall be subsequently notified.
The question one may ask is whether the return being filed in Form GSTR-3B is a return in substitution of return to be filed in Form GSTR 3. Whether it can be said tobe a return required to be filed under Section 39 of the Act.
In our view the answer is ‘no’, for the following reasons: –
a) Rule 61(1) provides that the return required to be filed in terms of Section 39(1) of the Act is to be furnished in Form GSTR-3.
b) Return in Form GSTR-3B was introduced as a stopgap arrangement to ease the burden of the taxpayerstilla due date of filing return in form GSTR-3 had been notified. It was not intended to be a return to be filed in lieu of return in Form GSTR-3. Rule 61(5) states that where the time limit for furnishing of details in Form GSTR-1 under section 37 and in Form GSTR-2 under section 38 has been extended and the circumstances so warrant, the Commissioner may, by notification, specify the manner and conditions subject to which the return shall be furnished in Form GSTR-3B. It is thus, evident that return required to be filed in Form GSTR-3B is contingent upon extension of date of filing of return in Form GSTR-1 and in Form GSTR-2.
c) Notification No. 10 /2017 – Central Tax dated the 28th June, 2017 which introduced Rule 61(5) to require filing of return in Form GSTR-3B stated that it is a return in Jlieu of Form GSTR-3. However, the government on realising that return in Form GSTR-3B in not intended it to be in lieu of Form GSTR-3, rectified its mistake by retrospectively amending Rule 61(5) vide Notification No. 17/2017 – Central Tax dated the 27th July, 2017 by omitting the phrase “in lieu of FORM GSTR-3”.
d) Rule 61(6) provides that discrepancies, if any, between return in Form GSTR-3 and the return in FORM GSTR-3B with respect to tax liability or input tax credit will be rectified on the basis of return in Form GSTR-3.
e) Notification No. 11/2019-C.T. & 12/2019-C.T., both dated 7-3-2019 clearly state that the time limit for furnishing the return under section 39(1) of the Act, for the months of July, 2017 to June, 2019 shall be subsequently notified. In other words, it conveys that the due date for filing the return under section 39 has not yet fallen due.
In my view when the due date of filing of return under section 39(1) of the Act i.e. return in form GST-3 has not yet been notified than the due date of payment of tax has not yet been specified. Thus, there is no question of any liability on account of interest payable either on the net tax liability or gross tax liability. There can be a delay in payment of tax,if and only if, tax is paid after the due date. But since due date of payment of tax has not yet seen light of the day, there is no question of a delay with regard to payment of tax. Therefore, even though every person who is liable to be registered and who is effecting a supply requires to pay the tax,the due date of payment of liability for him has not arrived.
Telengana High Court has recently held in the case of Megha Engineering & Infrastructures Ltd. v. Commissioner of Central Tax reported in  104 taxmann.com 393 (TELANGANA): “until a return is filed as self-assessed, no entitlement to credit and no actual entry of credit in the electronic credit ledger takes place. It is only after a credit is entered in the electronic credit ledger that payment could be made. Once payment is made from such electronic credit ledger, the government gets a right over the money available in the ledger.
Since ownership of such money is with the taxpayer till the time of actual payment, because of the taxpayer’s delay in filing the return in this instance, the payment of the tax liability—partly in cash and partly in the form of a claimed input tax credit—was made beyond the period prescribed, and thus the liability to pay interest on the gross amount arose automatically. The taxpayer was thus liable to pay interest on the gross GST liability.”
This judgment was made to adjudicate on the issue about whether liability to pay interest in case of delay in filing the returns in GSTR – 3B Forms is on the gross tax liability or net tax liability.
However, the hon’ble court had no occasion to consider whether return in Form GSTR – 3B is a return in terms of Section 39 of the Act as no such argument was advanced before the Hon’ble Court.
Missing grounds and aftermath
In my opinion the following further arguments could have been made before the court: –
1) The Hon’ble Court observed that it is seen from Section 41 (1) that a person gets credited with the input tax, in his electronic credit ledger, only upon his filing of the return on self-assessment basis. Till a return is filed, no credit becomes available to his electronic credit ledger. It is only after a credit becomes available in the electronic credit ledger that the utilization of the same for payment of self-assessed out-put tax, arises under Section 41 (2). However, it was not brought to the notice of the court that,as per Section 2(117) of the Act, “valid return” means a return furnished under Section 39(1) on which self-assessed tax has been paid in full. Since a return in form GSTR-3B is not a return under section 39(1), it cannot also be said to be a return referred to in Section 41(1) which entitles a person to be credited with the input tax, in his electronic credit ledger. Further, Section 38 of the Act requires furnishing details of inward supplies in the prescribed form. Rule 36(2) states that Input tax credit shall be availed to a registered person only by furnishing details in FORM GSTR-2. Rule 60 requires furnishing of details of inward supplies for claiming input tax credit in form GSTR-2.Since no date has been prescribed for filing of GSTR – 2, there is absence of a proper mechanism in the law to claim input tax credit.Moreover, it has nowhere been prescribed in the Act and Rules that input tax credit will be available in the electronic credit ledger upon filing return in Form GSTR-3B. And consequently,it cannot be said that there is a default on the part of the tax payer.
2) Notifications have been issued from time to time requiring filing of the return in Form GSTR-3B by drawing power from section 168 of the Act read with rule 61(5). These notifications also prescribe due date of filing of return in FORM GSTR-3B and the due date of payment of taxes. However, section 168 is not designed to endow any such power. It merely provides a mechanism for central tax officers to issue such orders, instructions or directions to other central tax officers and all other persons employed as may be expedient for the purpose of implementation of this Act. At best,it is an inter-departmental administrative power. Thus, section 168 does not empower the Commissioner to issue notifications for the purpose of filing of a return. And accordingly, all such notifications which have been issued to provide for the filing of return in FORM GSTR-3B are ultra vires the Act and the due date for payment of tax prescribed in such notifications is invalid.
3) It is not the fault of the taxpayer that time limit u/s. 39(1) for filing a valid return in terms of Section 39(1), i.e. return in form GSTR-3 and return required to be filed in form GSTR-2 has not been notified and therefore such a person cannot be burdened with the liability to pay interest for delay in furnishing of return in Form GSTR-3B which is not even a “valid return” in the eyes of law. Where the law creates a duty or charge and the party is disabled to perform it, without any default on its part, and has no remedy over it, then the law in general will excuse him. Therefore, where the performance of the formalities prescribed by the legislature has been rendered impossible by circumstances over which the assessee has no control, such circumstances will be taken as a valid excuse for non-compliance.
4) Hon’ble Supreme Court in the case of Eicher Motors Ltd. v. Union of India [1999 (106) E.L.T. 3]had held that provision for facility of credit is as good as tax paid. Therefore, even if input tax credit is not made available in the electronic credit ledger before filing of the return, tax paid on inward supply shall be is as good as tax paid.In such a case no interest should be payable on the admissible input tax credit not credited to the electronic credit ledger for non-filing of the return. It is also an established principle of law that substantive rights cannot be denied for procedural infractions. Filing of return is a procedural requirement whereas the benefit of input tax credit is a substantive right.
5) It is also an established principle of law that interest is compensatory in nature.Supreme Court in the case of Pratibha Processors Union of India – 1996 (88) E.L.T. 12 (S.C.) held that essentially, interest is compensatory and different from penalty, which is penal in character. As per 16 of the Act, an assessee is entitled to take credit of input tax immediately on receipt of goods or services.Therefore, when there is eligible input tax credit, the assesse cannot be deemed to be in default.
Thus, notices demanding interest for delayed filing of return in Form GSTR-3B is improper and unstainable. People receiving such notices should take recourse to writ petitions challenging the validity of such notices.Since, the issue goes to the root of the matter, the question of law needs to be settled.
Adv. (CA.) Vinay Shraff and Adv. (CA.) Nipun Singhvi are practicing advocate at various Tribunals, High Courts and Supreme Court. They can be reached at firstname.lastname@example.org and email@example.com.