Central Board of Indirect Taxes and Customs i.e., CBIC issued Notification Number 63/2020 – Central Tax dated 25th August 2020 regarding effective date of notification from 01-Sep-2020 with respect to section 100 of the Finance (No.2) Act, 2019 (23 of 2019) which inter alia discusses about levy of interest under section 50 of CGST Act is on Gross or Net tax Liability.
Before going to the background once we will recapitulate the exact wordings of the CGST Act 2017.
As per Sec 50(1) of CGST Act 2017 , Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under, but fails to pay the tax or any part thereof to the Government within the period prescribed time , 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.”
As per section 50(2), The interest shall be calculated from the day succeeding the day on which such tax was due to be paid (notification no 13/2017 – Central Tax dated 28th June 2017)
Hence it is clear that section 50 of CGST act, does not stipulate assessee to pay interest on Gross Liability. At the same time Section 50 does not expressly provided that interest is payable on Net Tax liability which created lot of confusion and debate over a period.
The Saga Continues:
The 31st GST Council meeting recommended changing this Law to provide that only the net liability of a taxpayer would hereafter be subjected to interest. This amendment to the Central Goods and Services Tax Act, was presented under the Finance Bill, 2019. Under this new amendment governing section 50 of the Act, interest will be charged on only that portion of the GST liability which is paid by debiting the electronic cash ledger. In other words, the portion paid using cash.
Subsequently in Finance Act 2019, the issue was addressed by inserting proviso to section 50 (section 100 of the Finance Act/bill) is as follows :
“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.”.
One thing is very clear form the above wording is interest is to be charged on Net Tax liability only but it is not clear that whether the amendment proposed through the FA 2019 is Prospective or Retrospective. (why I said not clear means, in the same FA 2019, Some of the sections are especially marked with Retrospective amendment on the Right hand side of the act)
Exact Extract is as follows :
But the same extract in case of amendment to section 50 is as follows :
So it can be concluded that effective date was not clear and president gave his assent on 1st August 2019 for the amendment.
Further Actions / Events :
1) On 04.02.2019 , a Standing Order No. 01/2019 issued by the Office of the Principal Commissioner of Central Tax (Hyderabad GST Commissionerate) stating that the interest has to paid on account of delay in filing of GSTR 3B Returns on the cash & the ITC Component of the tax paid after due date i.e that the interest has to be paid on Gross Liability.
2) On 18.04.2019 , the position was upheld in the order of Honourable High Court of Telangana in the Case of M/s. Megha Engineering & Infra Ltd. V/s. The Commissioner of Central Tax – We may have a doubt why it was upheld, the reason given by High court is as follows :
if no payment is made, the mere availability of the same will not tantamount to actual payment – as the payment of the tax liability, partly in cash and partly in the form of claim for ITC was made beyond the period prescribed, the liability to pay interest u/s 50(1) arises automatically and the petitioner cannot escape from this liability. Only when the payment is made, the Government gets a right over the money available in the ledger. Since ownership of such money is with the dealer till the time of actual payment, the Government becomes entitled to interest up to the date of their entitlement to appropriate it.
3) On 07.08.2019 , High Court of Telangana on 07/08/2019 has granted interim stay order in the case of Raghava Constructions V/s. Union of India ordering that the amendment to sec 50 of the Central GST Act,2017 would be retrospective. Therefore, the interest has to paid on net liability basis from 01/07/2017.
4) On 15.02.2020 , CBIC India vide the official Twitter handle of CBIC tweeted the following statement
“The GST laws, as of now, permit interest calculation on delayed GST payment on the basis of gross tax liability. This position has been upheld in the Telangana High Court’s decision dated 18.04.2019 In spite of this position of law and Telangana High Court’s order, the Central Government and several State Governments, on the recommendations of GST Council, amended their respective CGST/SGST Acts to charge interest on delayed GST payment on the basis of net tax liability Such amendment will be made prospectively. The States of Telangana and West Bengal are in the process of amending their State GST Acts. After the process of amendment is complete, the changed provisions can be put in operation for the entire country.”
From the above tweet of CBIC ,it clear that the interest on net tax liability will be on prospective basis and upto the date when it will be prospective, will be charged on Gross Liability only.
5) The Finance Minister in her budget speech of 2020 has pointed out that the harassment of Tax Payer will not be tolerated, asking a taxpayer to pay on gross is not less than harassing him which can never be the intention of the law maker. She has given assurance that the government will introduce suitable amendments to incorporate the proposed recommendations retrospectively.
6) Once again the Finance minister assured that interest will be on Net Tax Liability in the 39th Council Meeting.
From the above development point 4, as stated by the CBIC that interest on net tax liability will be made prospectively, the CBIC issued Notification no. 63/2020-Central Tax Dated 25.08.2020 they made it prospective from 01.09.2020.
As per my opinion, Interest can be charged on gross basis by department upto 01.09.2020 and there after it is on Net basis as per the latest notification. If it is charged on Gross basis upto 01.09.2020 no other option we need to fight legally.
Now it is the part of Finance Minister to ensure that taxpayer cannot be harassed, so we need to wait until, there will be a new notification or amendment to notification regarding this. Hope we will get good news from Finance Minister side in future.
PRESS RELEASES OF 39TH GST COUNCIL MEETING ON 14TH MARCH, 2020
|Recommendations of 39th GST Council Meeting on IT Roadmap||Press Release ID: 1606433||14/03/2020|
|Changes in GST rates on goods & services in 39th GST Council Meeting||Press Release ID: 1606432||14/03/2020|
|39th GST Council recommendations on Law & Procedures||Press Release ID: 1606430||14/03/2020|