The provisions for levying interest under GST Act are incomplete and hence ineffective.
Here we will discuss on the provisions laid down under GST Act for levying interest and its inapplicability as on date. Section 50 of the Goods and Service Tax Act deals with provision for levying interest. Interest can be levied at 18% or 24% through Section 50(1) or Section 50(3) respectively. Section 50 of the Goods and Service Tax Act has been reproduced below:-
“50. Interest on delayed payment of tax.—
(1) 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 per cent., as may be notified by the Government on the recommendations of the Council:
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.
(2) The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.
(3) A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty four per cent., as may be notified by the Government on the recommendations of the Council.”
It can be noted that Section 50(1) casts a liability of interest on the registered persons in the cases where he fails to pay the tax within the period prescribed. The word “prescribed” has been defined in clause 87 of section 2 of the GST Act, 2017 to mean prescribed by Rules made under this Act on the recommendations of the Council. Thus, the default for which interest is payable is non-payment of tax within the period prescribed under GST rules. No such period has been prescribed in the rules and therefore there was no default at the part of taxpayers which may cause any interest liability. Further, as per section 50(2), interest under sub-section (1) is to be calculated in the manner as may be prescribed. Whereas till now no such manner has been prescribed by any Rule under GST Acts. Therefore the provisions of sub-section (1) of Section 50 of the Act, providing for levy of interest, cannot be given effect to. In this connection, the decision of the Hon’ble Gauhati High Court in Santosh Kumar Harlalka Vs State of Assam & Ors, (1995) 2 GLR 95, decision of the Hon’ble Supreme Court in Govind Saran Ganga Saran vs. CST, others may be referred to which states that if a levy is not specified properly, it cannot be levied.
Section 50(3) states that if any assesse has contravened the provisions of section 42(10) or Section 43(10) then he shall be liable to pay interest at higher rate of 24%. Section 42 and Section 43 specifies the whole manner and mechanism for matching, reversal and reclaim of ITC and reduction in outward tax liability, respectively. Section 42, read with rules specifies as following:-
i. Sub-section (1) states that the inward supply on which input tax credit has been claimed by the recipient is required to be matched after filing of Form GSTR 3. It is also provided that where return in Form GSTR 2 has been extended, the matching claim of ITC shall also stand extended.
ii. Sub-section (3) states that the discrepancy found while matching the inward supply, which will be made after filing of GSTR 3, will be communicated to the recipient in Form GST MIS 1.
iii. Sub-section (5) states that the deficiency communicated under subsection (3) not rectified by the supplier, shall be added to the outward tax liability of the recipient while filing return in Form GSTR 3 of the succeeding month.
iv. Subsection (7) states that the recipient shall be eligible to reduce the output tax liability so added under subsection (5), in Form GSTR 3B, when the supplier declares the deficiency provided in Form GST MIS 2.
v. Sub-section (10) states that the recipient will be liable to pay the interest at a higher rate under Section 50(3) if he contravenes provision of sub-section (7) i.e. if the recipient has reduced the outward tax liability so added under subsection (5) and the supplier has not declared the deficiency in its return.
The whole process has been suspended by the Government since the implementation of GST Law in the country. It is kindly also be noted that the matching concept is to be followed after filing of Form in GSTR 3 which has not been rolled out. Rule 69 has through proviso stated that when time limit for furnishing of return in Form GSTR 2 has been extended, the date of matching relating to claim of input shall also stand extended accordingly. Since the date of filing of return in Form GSTR 2 has not been provided to the assesse, matching of Input Tax Credit is not sustainable. It is further noted that, as mentioned in sub-section (10), no amount has been added back to outward supply, after providing deficiency note, which has been reduced in its outward supply and attracts interest under section 50(3) of the CGST Act. Since the whole procedure has not been provided, no amount has been defaulted under section 42(10), the question of charging and levy of interest under section 50(3) of CGST Act, 2017 does not arise at all. Similar facts has also been with Section 43.
Therefore, it can be stated that the GST Law has not provided proper provisions for charging interest. Both the Section 50(1) and Section 50(3) is not complete to levy interest.
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