WHETHER LIABILITY OF INTEREST UNDER SECTON 50 OF CENTRAL GOODS AND SERVICES TAX ACT, 2017 IS AUTOMATIC?

[Mr. M. GOVINDARAJAN]

The provisions of Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides for the payment of GST by a registered person once he is liable to pay the same. The said payment has to be made within the time prescribed. If he fails to pay the said tax he is liable to pay interest under Section 50 of the Act.

Section 50(1) of the Act provides that 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, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding 18% as may be notified by the Government on the recommendations of the Council.

A proviso to this section 50(1) was inserted by Finance Act, 2019 (which came into effect from 01.09.2020) which provides 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 said proviso has been substituted by a new proviso by Finance Act, 2021. The newly substituted proviso to Section 50(1) provides that he 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. The newly substituted proviso came into effect from 01.07.2017 i.e., the date of implementation of GST provisions in India.

Section 50(2) of the Act provides that the interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.

Section 50(3) of the Act provides that where the input tax credit has been wrongly availed and utilized, the registered person shall pay interest on such input tax credit wrongly availed and utilized, at such rate not exceeding 24% as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed.

In THE ASSISTANT COMMISSIONER OF CGST & CENTRAL EXCISE, THE COMMISSIONER OF CGST & CENTRAL EXCISE, THE SUPERINTENDENT OF CENTRAL TAXES VERSUS M/S. DAEJUNG MOPARTS PVT LTD., INDIAN OVERSEAS BANK - 2020 (2) TMI 668 - MADRAS HIGH COURT, the Madras High Court held that a careful perusal of sub Sections (2) and (3) of Section 50 thus would show that though the liability to pay interest under Section 50 is an automatic liability, still the quantification of such liability, certainly, cannot be by way of an unilateral action, more particularly, when the assessee disputes with regard to the period for which the tax alleged to have not been paid or quantum of tax allegedly remains unpaid. Likewise, whether an undue or excess claim of input tax credit or reduction in output tax liability was made, is also a question of fact which needs to be considered and decided after hearing the objections of the assessee, if any. 

In MAHADEO CONSTRUCTION CO. VERSUS THE UNION OF INDIA, ASSISTANT COMMISSIONER, CENTRAL GOODS & SERVICES TAX AND CENTRAL EXCISE, SUPERINTENDENT, CENTRAL GOODS & SERVICES TAX AND CENTRAL EXCISE - 2020 (4) TMI 666 - JHARKHAND HIGH COURT, the High Court held that it is not a true that liability of interest under Section 50 of the CGST Act is automatic, but the said amount of interest is required to be calculated and intimated to an assessee. If an assessee disputes the liability of interest i.e. either disputes its calculation or even the leviability of interest, then the only option left for the Assessing Officer is to initiate proceedings either under section 73 or section 74 of the Act for adjudication of the liability of interest.

In BLUESTAR MALLEABLE PVT. LTD. VERSUS THE STATE OF JHARKHAND., THE CHIEF COMMISSIONER, CGST AND CX, RANCHI ZONE, THE SUPERINTENDENT OF THE CGST AND CX, ADITYAPUR 1 RANGE, THE PRINCIPAL CHIEF COMMISSIONER, CGST, RANCHI ZONE, RANCHI. THE CHAIRMAN, GOODS AND SERVICE TAX NETWORK (GSTN) , NEW DELHI. - 2022 (8) TMI 978 - JHARKHAND HIGH COURT the petitioner being eligible to claim transitional credit of input tax credit under the provisions of the Jharkhand Value Added Tax Act, 2005 submitted a declaration in form TRAN-1 as per section 140 of the JGST Act, 2017 with a claim of credit for a sum of Rs.3,11,43,255 which was filed electronically on the common portal of the respondent department. The accountant of the petitioner company repeated the said claim of transitional credit for the same amount in the GSTR-3B furnished in July, 2017. The said mistake was committed since the GST Act is a new one and not familiar with the provisions of the said Act and rules made there under. In July, 2018 petitioner took step to reverse the said entry to rectify the error. In GSTR-3B of July 2018, the sum of Rs.3,11,43,255 has been reversed towards Input Tax Credit of SGST. The said input tax credit was not utilized by the petitioner company against the output tax liabilities arising out of daily business transactions.

The Department asked clarifications from the petitioner regarding the reversal of credit and why interest has not been paid for such reversal. The petitioner gave reply to the Department. The same was not considered and the Authority, vide letter dated 06.11.2018 directed the petitioner to pay the interest amount Rs.72,49,126/-

In the meanwhile the petitioner applied for refund of Rs.26,45,301/- found in excess in cash ledger on line vide his application dated 12.09.2018. The said refund was sanctioned by the Department but the said refund was adjusted against the outstanding interest liability of Rs.72,49,126/-. The petitioner was requested to pay the balance of Rs.40,71,403/- towards interest payment after adjustment of the refund amount sanctioned in favor of the petitioner. Against this order the petitioner filed the present writ petition before the High Court.

The petitioner raised the following issues in this writ petition-

• Whether interest under Section 50 of the JGST Act, 2017 primarily being compensatory in nature can be levied upon the petitioner, if the input tax credit has not been availed twice through mistaken filing of GSTR-3B after the same had earlier been carried forward as transitional credit through GSTR TRAN-1 and also the same got reversed in July 2018 at the behest of the petitioner. It is the petitioner’s case that no tax dues remained unpaid during this period.
• Despite taking an objection to the notice dated 06.11.2019 for payment of interest in term of Section 50(3) of the JGST Act through reply dated 09.01.2019 by the petitioner, the respondents have not followed the procedure prescribed for realization of the interest. No intimation in the prescribed format or proceedings has been initiated for recovery of the interest in terms of Section 50(3) of the Act.

The Department submitted the following before the High Court-

• The claim of the taxpayer that it made all best efforts to rectify the said error by reversal of the said Input Tax Credit but due to shortcomings in the online facilitation procedures of the respondent department the reversal of the said Input Tax Credit facilitated in the month of July, 2018 is not tenable.
• As per the procedure the irregularly taken SGST Credit was required to be reversed by adding the same to the output tax liability in the GSTR-3B return for the month of August, 2017.
• While filing the GSTR-3B for the month July, 2017 the taxpayer again took the Input Tax Credit which the taxpayer already transferred into the electronic credit ledger through TRAN-1.
• The taxpayer was able to file GSTR-3B returns on the online portal and the facility to reversal was available in the GSTR-3B return itself, therefore the plea of taxpayer that the online portal had short comings is not tenable.
• Ignorance of law cannot be an excuse for non compliance of legal provisions. The petitioner tried to put their failure on online portal which is not correct and tenable.

In view of the above the Department contended that the petition is not maintainable and liable to be dismissed.

The High Court considered the submissions put forth by the parties to the present writ petition and analyzed the provisions of Section 50 of the Act and also the judgments relied on by the parties to the petition. The High Court observed that if any assessee disputes the liability of interest under Section 50 of the JGST Act then the revenue will have to follow the specific procedure as stipulated under Section 73 or 74 of the JGST Act. Admittedly a notice was issued to the petitioner dated 6.11.2018 by the Department. The petitioner filed reply to the said notice. However the respondent department vide letter dated 28.1.2019 repeated its earlier stand and refused to accept the petitioner’s stand and the petitioner was directed to pay the balance amount of Rs.40,71,403/ towards interest payment after adjustment of refund amount sanctioned in favor of the petitioner. It clearly transpires that the respondents have not followed the procedure as enshrine d in Section 73 or 74 of the JGST Act.

Therefore the High Court quashed and set aside the impugned order. The High Court remitted back the case to the Department to initiate a fresh proceeding with regard to the liability towards interest under Section 50 of JGST Act in accordance with law as stipulated in JGST Act.