Aditya Singhania

Refund arising from payment of interest on Gross Tax Liability after retrospective amendment of interest on Net Tax Liability

The issue of charging interest on net tax liability has been a long-driven issue which was initially recommended by the Law Committee to make amendment in section 50 of the CGST Act, 2017 way back on December, 2018. However, it did not see the light of the day in CGST (Amendment) Act, 2018. It was through Finance Act, 2019 which inserted the proviso to section 50 addressing the issue, however, it was made applicable on prospective basis w.e.f. 1st September, 2020, due to which notices were issued for recovery of interest on gross tax liability for past periods aggrieved by which many Writ Petitions were filed for seeking relief. Nevertheless, after representation to the CBIC and on recommendation of 39th GST Council Meeting held in March, 2020, it was recommended for retrospective applicability of the same w.e.f. 1st July, 2017. Infact, Press Release dated 26th August, 2020 assured that no recoveries shall be made for the past period. In accordance with the decision taken in 39th GST Council Meeting, the proviso initially inserted vide Finance Act, 2019 was substituted vide a new proviso vide Finance Act, 2021 with retrospective effect from July, 2017. However, a notification was not issued to this effect in the GST law though the same was inserted vide Finance Act, 2021 on March 28, 2021, therefore, in order to finally burry the issues on net tax liability comes to an end with the Notification No. 16/2021 – Central Tax dated 1st June, 2021 issued under GST law with retrospective effect from July 1, 2017. With this notification issued on June 1, 2021, notices will not be issued for recovery on gross tax liability for any tax period. Further, taxpayers who had already paid interest on the gross tax liability would also be entitled to get refund of the such interest paid since July 1, 2017. It is worthwhile to note that section 54 of CGST Act, 2017 which deals with refund clearly stipulates for refund in case of ‘interest’ within the stipulated time period of 2 years from the relevant date in Form GST RFD-01.

Section 54 – Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed.

For the purpose of relevant date, Explanation 2(h) to section 54 also cannot be considered which states that “in any other case, the date of payment of tax.” Therefore, here it gets important to place reliance in the case of Schlumberger Asia Services Ltd. v. Commissioner of CE & ST, Gurgaon-I [2021] 127 taxmann.com 509 (Chandigarh – CESTAT) dated 24-5-2021 which while answering whether the refund claim filed by the appellant is barred by limitation or not has held that the amendment to Section 140 came after one year of the switching to the GST Regime on 30-8-2018 which is applicable retrospectively. In that circumstances how the appellant could have filed the refund claim within one year from 1-7-2017 till 30-8-2018, when there was no provision of law existed, when amendment itself takes on 30-8-2018, therefore, the relevant date of filing the refund claim shall be 30-8-2018 and within one year of the said date, the refund claim has been filed by the appellant. In that circumstance, I hold that the refund claim filed by the appellant is not barred by limitation.

Therefore, by placing reliance on the aforesaid judgement, it can be stated that the relevant date can be considered as 1st June, 2021 on which the retrospective amendment has been made in proviso to section 50 of CGST Act, 2021. Therefore, if taxpayer has already paid the interest on gross tax liability in the scenarios envisaged in the new proviso to section 50, then he needs to file application within 2 years from the aforesaid said.

Further, one must exercise caution in discharging interest on the gross tax liability where the invoices/debit notes of a certain tax period has been uploaded in the returns of the subsequent tax period. Infact, interest needs to be paid on gross tax liability where such return is furnished after the commencement of any proceedings under section 73 or section 74 in respect of the said tax period.

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Disclaimer: The views expressed in this article for the purpose of awareness and readers must refer the relevant Press Release, Notification, Resolutions, Orders, etc. of the Government before taking any action. The author is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in this article.

The author can be reached at [email protected]

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