It is stated that proviso to sub-section (1) of Section 50 of the Central Goods and Service Tax, 2017 (CGST Act, 2017) is sought to be amended to substitute retrospectively with effect from the 1’st July, 2017, vide Clause 103 of Finance Bill, 2021, so as so as to charge interest on net cash liability with effect from the 1st July, 2017.

Please note that this proposal will come into effect from a date to be notified later. It is stated that Sections 2 to 79 of Finance Act, 2021 shall come into force on the 1st day of April, 2021 and Sections 99 to 114 of Finance Act, 2021 shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

Such proposed amendment sought under Finance Bill, 2021 is as under

103. In section 50 of the Central Goods and Services Tax Act, in sub-section (1), for the proviso, the following proviso shall be substituted and shall be deemed to have been substituted with effect from the 1st day of July, 2017, namely:––

“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 payable on that portion of the tax which is paid by debiting the electronic cash ledger.

Please note that Section 50 of the CGST Act, 2017 provides for applicability of interest for default in payment of taxes within the stipulated time.

Section 50(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.”

It is stated that a registered person can make the payment of tax through Electronic Credit Ledger or Electronic Cash Ledger in terms of Section 49 of CGST Act, 2017. Usually, the balance in Electronic Credit Ledger is exhausted first before utilising the balance available in the Electronic Cash Ledger. In case a registered person does not have sufficient amount available in Electronic Credit Ledger to pay the tax dues for a particular tax period and also, the registered person does not have sufficient money for making deposit of balance tax amount in Electronic Cash Ledger. In such situation, GST common portal does not have a mechanism to allow a registered person to make part payment of taxes.

It is pertinent to mention that if department demand tax dues along with interest on the gross payments i.e. tax paid through Electronic Cash Ledger and Credit Ledger, it may be an unhealthy for a business.

To come out this situation, proviso to sub-section (1) has been inserted vide Section 100 of the Finance Act, 2019, under Section 50 of CGST Act, 2017 to provide that when a registered person has paid taxes through a return specified under section 39 of the CGST Act, 2017 belatedly, interest shall be applicable only on the net taxes paid through Electronic Cash Ledger and not on the gross taxes paid for such tax period.

But it is worthy to note that the said proviso was, however, to be made effective from a notified date and has been notified later i.e. 25th August 2020. In between, on 14th March, 2020, the GST Council, in its 39th meeting recommends that the amendment to Section 50 should be done retrospectively from 1st July, 2017.

The effect of proviso to sub-section (1) inserted vide Section 100 of the Finance Act, 2019 has been given effect from 01.09.2020 vide Notification No. 63/2020-Central Tax dated 25 August 2020. The amendment has been notified prospectively, and not retrospectively as recommended in the press release issued after the 39th GST Council meeting. Further, CBIC has issued a press release on 26th August, 2020 clarifying that the notification has been issued prospectively due to a technical limitation, and no recoveries would be made for the past period.

Remarks: It is noted that corresponding retrospective amendment in CGST Act, 2017 which is to be brought in by the suitable legislation, now provided by Clause 103 of Finance Bill, 2021, so as to charge interest on net cash liability with effect from the 1st July, 2017. But please note that the provision of this clause is not be notified yet. 

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.

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