It is stated that proviso to sub-section (1) of Section 50 of the Central Goods and Service Tax, 2017 (CGST Act, 2017) was amended to substitute retrospectively with effect from the 1’st July, 2017, vide section 112 of Finance Act, 2021, so as to charge interest on net cash liability with effect from the 1stJuly, 2017. Such amendment to Section 50 through Finance Act, 2021 has been notified to come into effect from 1st July, 2017. Interest shall be computed on the net tax liability to be debited from Electronic Cash Ledger after Input Tax Credit (ITC)is utilised.
Amendment through Finance Act, 2021 is as under-
112. 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 above amendment was to come into effect from a date to be notified later. It is stated that Sections 2 to 88 of Finance Act, 2021 has come into force on the 1st day of April, 2021 and Sections 108 to 123 of Finance Act, 2021 shall come into force on such date as the Central Government notify in this regard.
Now, above amendment in Section 50 through Finance Act, 2021 has been notified by the Government vide Notification No. 16/2021 – Central Tax dated 1st June, 2021 w.e.f. 01.06.2021.This notification seeks to appoint 01.06.2021 as the day from which the provisions of section 112 of Finance Act, 2021, relating to amendment of section 50 of the CGST Act, 2017 shall come into force.
Further, this proviso excludes the taxable persons where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, meaning thereby a taxable person against whom, any proceedings under section 73 or section 74 have been initiated are liable to pay interest on ‘Gross Liability of Tax’.
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.”
Please note that the Central Government, vide Notification No. 13/2017 CT dated 28.06.2017 has notified such rate as 18%.
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.
Under GST, payment of tax has to be accompanied by a return under section 39 of CGST Act, 2017.FORM GSTR 3B is a simple return form introduced by the CBIC which is to be filed by 20th of the following month. Wherein only total values for each field have to be provided, this value must be for the month for which return is being filed. However, FORM GSTR-3B can be submitted only after making payment of GST due. If the return is filed late, GSTN automatically reflects the late fee to be paid whereas interest has to be computed manually.
To come out this situation, the Government vide Section 100 of the Finance (No. 2) Act, 2019, inserted a proviso in Section 50(1) of the CGST Act, 2017 to provide that in case of belated filing of returns, interest shall be levied only on the taxliability paid in cash, i.e., the net taxliability after adjusting ITC available with the taxpayer. The said proviso was, however, to be made effective from a notified date. Now vide Notification No. 63/2020- Central Tax dated 25 August 2020, CBIC has notified the said amendment from1st September 2020.
It is worth noting that such amendment has been notified prospectively, and not retrospectively as recommended in the press release issued after the 39th GST Council meeting. GST Council in their 39th Meeting had recommended that the amendment to Section 50of CGST Act, 2017 should be done retrospectively from 1st July, 2017.However, the CBIC has issued apress release clarifying that the notification has been issued prospectively due to a technical limitation, and no recoveries would be made for the past period.
Remark:It is noted that corresponding retrospective amendment in Section 50 of CGST Act, 2017 which is to be brought in by the suitable legislation, now provided by Section 112 Finance Act, 2021, so as to charge interest on net cash liability with effect from the 1st July, 2017. Now, above amendment in Section 50 through Finance Act, 2021 has been notified by the Government vide Notification No. 16/2021 – Central Tax dated 1st June, 2021 w.e.f. 01.06.2021.
In order to attract section 50(1) of CGST Act, 2017, there must be a situation where there a liability to pay tax. In other words, if there is no liability to pay tax, no interest u/s 50(1) of CGST Act, 2017 should be payable. Suppose, the tax liability for particular tax period comes to Rs. 5 lakh and ITC available in Electronic Credit Ledger is Rs. 7 lakh, in this case there is no tax liability adjusting with ITC. If there is delay in filing of return, there will no interest u/s 50(1) of CGST Act, 2017. However, subsequently it was found that from out of Rs. 7 Lakhs, Rs.3 Lakhs was ineligible u/s17(5) of the CGST Act, 2017. Interest under section 50(1) of the CGST Act, 2017in this case shall be payable on Rs.1 lakh for the period of default.
Question unresolved: Suppose, the tax liability for particular tax period comes to Rs. 5 lakh and ITC available in Electronic Credit Ledger is Rs. 2 lakh and Cash Ledger Balance is Rs. 2 lakh. As we know that FORM GSTR-3B can be submitted only after making payment of GST due. There is insufficient balance to pay tax liability in both accounts. If the return is filed late, whether the interest under section 50(1) of CGST Act, 2017 shall be payable on Rs. 1 lakh or Rs. 3 lakh?
Please note that the interest liability under section 50(1), CGST Act, 2017 is attracted on the tax remained unpaid beyond the due date. As per my view, the tax remain unpaid beyond the due date is Rs. 1 lakh as there is balance of Rs. 2 lakhs in Cash Ledger Account which has been already deposited by the taxpayers.
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