Interest leviable only on cash portion of GST liability with retrospectively from July 1, 2017

[CA Bimal Jain]

The Hon’ble Chhattisgarh High Court in the case of ABIS EXPORT INDIA PRIVATE LIMITED THROUGH ITS DIRECTOR DR. ANJUM ALVI VERSUS STATE OF CHHATTISGARH, COMMISSIONER STATE TAX, JOINT COMMISSIONER APPEAL, PROPER OFFICER (ASSISTANT COMMISSIONER) , ASSISTANT COMMISSIONER, STATE TAX - 2022 (11) TMI 85 - CHHATTISGARH HIGH COURT, held that the amendment to Section 50 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) regarding the imposition of the interest on late payment of tax has a retrospective effect.

Facts:

M/s Abis Export India Pvt. Ltd. (“the Petitioner”) is engaged in a business of producing  a variety of goods, including pet food. After the CGST Act came into effect, the commodity of pet food was assigned the Harmonized System Code (“HSN”) carrying the number 2309.

The aforementioned goods are taxable under the CGST Act, although there are no specific instructions or notifications about taxation of animal and pet food, which is included in the index under Chapter 23 HSN 2309. The Petitioner sold pet food and animal feed to several distributors without including GST, and filed a return.

However, over time it became clear that all animal feed is tax-exempt, with an exception of pet food, and the GST provisions came out of the shadows. The Petitioner's company approached the authority, demonstrating the discrepancy between its GSTR 1 and GSTR 3B, and asked for guidance regarding the mechanism to correct its return, but because the mechanism was not available, the return could not be corrected.

However, the Petitioner on his own set-off the tax liability in the return submitted in March 2018 for the month of July 2017 to September 2017, and it has been further argued that there is no tax liability with the Petitioner because the Petitioner has neither claimed any input credits for pet food nor charged the same to the customer to whom it was sold.

The Petitioner filed an appeal against the decision, which was rejected on the grounds that the Petitioner had disregarded Section 107(6), of the CGST Act, according to which no appeal shall be filed under sub-section (1) unless the appellant has paid the tax as provided in Section (a) & (b) of the CGST Act.

While the writ petition was pending, the Government of India revised Section 50 of the CGST Act, and added a proviso that became effective as of July 1, 2017. This was done via a Gazette notification published on March 28, 2021.

The Petitioner filed I.A. No. 02/2021, which was an application for disposal of the writ petition in view of the Gazette Notification dated March 28, 2021, mainly contending that the said notification has created a method so that the tax dues on supplies supplied and reported in the return for the said provided after the deadline in compliance with Section 39 of the CGST Act, except when such return is provided after the beginning of any action under Sections 73 and 74 of the CGST Act must be paid on the tax component that is debiting the electronic cash register. This Petition may be dismissed in light of the Central Government's modification, and liberty was requested to approach the authority for a new decision on the appeal after benefiting from the Central Government's revision, which became effective on July 1, 2017.

The State responded by refuting the Petitioner's claims, and argued that the Petitioner is not entitled to any benefits from this amended provision.

Issue:

Whether the amendment to Section 50 of the CGST Act has retrospective effect?

Held:

The Hon’ble Chhattisgarh High Court in ABIS EXPORT INDIA PRIVATE LIMITED THROUGH ITS DIRECTOR DR. ANJUM ALVI VERSUS STATE OF CHHATTISGARH, COMMISSIONER STATE TAX, JOINT COMMISSIONER APPEAL, PROPER OFFICER (ASSISTANT COMMISSIONER) , ASSISTANT COMMISSIONER, STATE TAX - 2022 (11) TMI 85 - CHHATTISGARH HIGH COURT held as under:

• The amendment to Section 50 of the CGST Act was made in response to the 39th GST Council meeting, which took place on June 21, 2019, which recommended amending Section 50 through Section 100 of the Finance (No. 2) Act, 2019, and establishing a provision for charging interest on net cash liabilities.
• The Council, at the meeting, recommended charging interest on net cash tax liabilities with effect from July 1, 2017, with the GST Act being retrospectively amended beginning on that date. In a press release titled "Measures for Trade Facilitation" that was released by the Council on March 14, 2020, it was expressly stated that, starting on July 1, 2017, the proviso to Section 50 would apply retrospectively and that interest for late GST payments would only be charged on net cash tax liabilities.
• The amendment that became effective on July 1, 2017, clearly provides that the interest on tax payable in respect of supplies made during the tax paid and declared in the return for the said period furnished after the due date in accordance with the provisions of Section 39 of the CGST Act shall be leviable, except where such return is furnished after commencement of any proceedings under Sections 73 or 74 of the CGST Act.
• It was also made clear by the Hon’ble High Court that it had only examined the retrospective applicability of Section 50 of the CGST Act, and that the appellate authority will decide whether the Petitioner can take advantage of or not overcome the rider of Section 107(6), which is a condition precedent for maintaining the appeal under the CGST Act, after providing the Petitioner with a chance to be heard.
• The opportunity of hearing the Petitioner's appeal is to be decided by the appellate authority once they have examined the impact of the amendment to Section 50 of the CGST Act, which will take place within four months of the date they receive a copy of the order made by this Court. The impugned order dated September 11, 2018 was set aside and the matter was remitted back to the appellate authority.

(Author can be reached at [email protected])