Standing order No.01 dt 04.02.2019 of Hyderabad Commissionerate – GST interest rate Debatable

While the Government is taking series of efforts in the recent past to unlock the clutches gone into GST implementation, many eye brows are raised while reading the subject order.

Principal Commissioner , Hyderabad vide C.No: IV/16/32/2019 – CT (Tech.) dt 04.02.2019 issued STANDING ORDER No: 01/2019 dt 04.02.2019 on GST- Interest liability U/ Sec. 50 of CGSTA/SGSTA on account of the delayed filing of GSTR-3B returns – Interest liable to be paid both on the cash and the ITC component of the tax paid after the due date prescribed – Recovery of such interest as clearly recoverable arrears  as it is a clear case of financial accommodation.

The following illustration demonstrates section 50 and 79 of CGST Act,2017 do not appear to envisage the view of the standing order

Transaction: – “A” is the supplier discharging the output tax liability after availing the input tax credit of his input supplies from “B”. Three different situations are handled to understand how the interest element is treated.

I situation

The supplier “A” is discharging output GST liability on due date and the ITC availed by him on the input was correctly discharged by his supplier on due date and supplier “A” is not reversing the ITC– No interest liability

II situation

The supplier “A” is not discharging output GST liability on due date and the ITC availed by him on the input was correctly discharged on due date and supplier “A” is not reversing the ITC.

As per para 8(1) of the standing order, interest liability will be @18% per annum for the delayed submission of one month, which is Rs 0.15 on the cash component and Rs.0.12 on the ITC component as per working given below:

Output Tax liability is 18% on Rs.100 Turnover =Rs 18 -Less ITC Rs.8 – Net tax liability Rs 10. Interest @18 % on Rs.10 for 31 days=Rs.0.15

Input tax credit of Rs.8 – Interest @ 18% on Rs.8 for 31 days – Rs.0.12

Total interest payable Rs.0.27

It is to be noted that the ITC of Rs.8 availed by “A” was duly remitted by “B” on the due date to the ex-chequer, still interest is attracted in the hands of “A”

III situation

The supplier “A” is not discharging output GST liability on due date and the ITC availed by him on the input was not correctly discharged by “B” requiring reversal by A on due date.

Interest liability

1. On output tax will be Rs.15 as explained in situation II and

2. @24 % on wrong availment of ITC of Rs.8 – Rs.16 (i.e.) Rs 8*24% for 31 days (to understand the impact in case of ITC reversal)

Total interest payable by “A” would be Rs. 0.31

It is to be noted that interest of Rs 0.15 from B would also be collected as arrear to -wards his output tax liability.

Conclusion

Thus, in situation II, interest of Rs.0.12 collected from A and in situation III interest of Rs 0.16 & 0.15 collected from both “A” and “B” are not in public interest. The standing order structured on the theory of financial accommodation appears to be not holding the water and is more likely prone to legal disputes.

Please note the view expressed in the article is as per the understanding and view of the writer and not necessarily the view of the author’s employer or his association with any other group or individual.

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A commerce graduate with over 35 years in F&A of L&T Limited. Creation of Indirect Taxation Department for a corporate and trained the team. Significant contributor in saving tax on commercials. A Go-Getter and task master with a goal for a win-win situation to all the stake holders. Won in View Full Profile

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