Many of the registered persons are receiving notices to pay interest on GROSS liability for delay in filing of GSTR 3B returns in case of failure to pay so the department may initiate recovery proceedings under sec 79, because of which there is as huge confusion among the registered tax payers regarding calculation of interest.
Before understanding the legal issues involved and suggesting let us understand what does GROSS & NET liability mean.
Suppose, a registered person has sold goods on which tax is amounting to Rs.1000/- & his Input Tax credit is Rs.900/-
Gross Liability in this example is Rs.1000/- total outward tax liability Net liability in this is Rs.100/-(1000-900) the amount required to be paid in cash.
Now let us understand the Legal Provisions & understand why there is a confusion on calculation of interest.
As per Sec 50(1) of the Act
“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.”
– this sec mandate that the interest has to be paid if there is as delay in paying of tax.
On 22/12/2018 the Press Release of 31st GST Council meet recommended that
“Amendment of section 50 of the CGST Act to provide that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e. interest would be leviable only on the amount payable through the electronic cash ledger.
The above recommendations of the Council will be made effective only after the necessary amendments in the GST Acts are carried out.”
– This shows that the GST Council is of the view that interest has to be collected on NET liability as but till date the law is not clear as no circular/notification has been issued.
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.
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
In the 16 pages judgement the court has explained that why the interest has to be charged on Gross Amount.
In Sec 100 of The Finance Act (No.2) 2019 in Act there was a proviso added to sec 50(1) of CGST Act,2017.
“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.”.
The sad part is the amendment has still not been effective.
But the 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.
But on a Letter Circulated on the social media Dt. 10/02/2020 of the CBIC which ordered Principal Chief Commissioner / Chief Commissioner to recover Rs.45886/- Crores remains unpaid on account of delayed payment of tax & has ordered to issue notices on Gross Basis.
This has been further clarified by the Tweet of CBIC India the official Twitter handle of CBIC on 12.41 am dt.15/02/2020 stating
“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.”
That means the interest has to be collected on Gross Basis.
Hence in my opinion the Interest has to be charged on the Net Liability because
1. The latest interim order of Telangana High Court in the case of Raghava Constructions on 17/08/2019 was in Favour the Registered person i.e interest on Net Liability.
2. Even the Delhi, Karnataka & Gujarat High Courts is of the same view & have granted interim order stating that the interest is to be paid on net liability.
3. Sec 50 states that the interest has to be paid on the tax remaining unpaid, even if you are thinking about the judgement in the case of M/s. Megha Engineering & Infra Ltd. V/s. The Commissioner of Central Tax, the reading the court understood that the court is of a view that as the return is not filing hence the input tax credit is in Air , but we can take help of the opening credit as is not in air but in our electronic credit ledger can be used and hence pay on Net.
4. The Finance Minister, she has pointed out in her budget speech of 2020 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.
5. No Circular / Standing order / any tweet is binding on the registered person.
From the above I am of the view that the interest has to be paid on NET even while replying to the notice kindly check the due dates as in many cases I have seen that the department has ignored the extension notification and has calculated interest on Gross Liability from 20th of the month.
– For any further clarification please feel free to contact.
CA AJAY KUMAR MUNDADA – Email id : firstname.lastname@example.org