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2019 (4) TMI 1319 - HC - GSTLevy of interest - Delay in Filing of return in GSTR-3B Form - requirement to discharge entire tax liability - delay in filing return due to shortage of ITC, available to off-set the entire tax liability - Payment of interest on the ITC portion - HELD THAT - While Sub-Section (1) of Section 50 speaks about the liability to pay interest under one contingency, viz., the failure to pay tax within the period prescribed, Sub-Section (3) of Section 50 speaks about the liability to pay interest under a different contingency. Whenever an undue or excess claim of ITC is made or whenever an undue or excess reduction in out-put tax liability is made, a liability to pay interest arises under Sub-section (3). The words on his own used in Sub-section (1), are not used in Sub-section (3) of Section 50 - The liability to pay interest under Section 50 (1) is self-imposed and also automatic, without any determination by any one. Hence, the stand taken by the department that the liability is compensatory in nature, appears to be correct. Sub-section (2) of Section 49 that a credit entry is made in the electronic credit ledger of a registered person, only when the ITC, as self-assessed, is found in the return of a registered person. After a credit entry is made in the electronic credit ledger, the same becomes available for making payment. This is clear from Sub-section (3) of Section 49. If after payment, a balance is still available in the electronic credit ledger, the same is liable to be refunded in accordance with Section 54. Until a return is filed as self-assessed, no entitlement to credit and no actual entry of credit in the electronic credit ledger takes place. As a consequence, no payment can be made from out of such a credit entry. It is true that the tax paid on the inputs charged on any supply of goods and/services, is always available. Admittedly, the petitioner filed returns belatedly, for whatever reasons. As a consequence, the payment of the tax liability, partly in cash and partly in the form of claim for ITC was made beyond the period prescribed. Therefore, the liability to pay interest under Section 50 (1) arose automatically. The petitioner cannot, therefore, escape from this liability. The claim made by the respondents for interest on the ITC portion of the tax cannot be found fault with - the Writ Petition is dismissed.
Issues Involved:
1. Liability to pay interest under Section 50 of the CGST Act, 2017. 2. Calculation of interest on net tax liability versus total tax liability. 3. Procedure for filing returns and payment of tax. 4. Eligibility and conditions for taking input tax credit (ITC). Detailed Analysis: 1. Liability to Pay Interest under Section 50 of the CGST Act, 2017: The primary issue is whether the liability to pay interest under Section 50 of the CGST Act, 2017, is confined only to the net tax liability or if interest is payable on the total tax liability, including the portion set-off against ITC. The court observed that the liability to pay interest arises automatically when a person fails to pay the tax within the prescribed period. This liability is self-imposed and compensatory in nature, as indicated by the use of the phrase "on his own" in Section 50(1). 2. Calculation of Interest on Net Tax Liability versus Total Tax Liability: The petitioner argued that interest should be calculated only on the net tax liability after deducting ITC. However, the respondents contended that interest is payable on the total tax liability, as the ITC amount does not lie with the Government Treasury until it is credited to the electronic credit ledger. The court concluded that the liability to pay interest under Section 50(1) arises for the entire tax liability, including the ITC portion, as the credit entry in the electronic credit ledger occurs only upon filing the return. 3. Procedure for Filing Returns and Payment of Tax: The court examined Sections 39, 41, and 49 of the CGST Act, 2017, to understand the procedure for filing returns and payment of tax. Section 39 mandates that every registered person must file a return electronically by the 20th of the succeeding month and pay the tax due by that date. Section 41 allows for provisional acceptance of ITC, which is credited to the electronic credit ledger upon filing the return. Section 49 details the payment process, including the use of ITC for payment of output tax. 4. Eligibility and Conditions for Taking Input Tax Credit (ITC): The court analyzed Sections 16 and 41 to determine the eligibility and conditions for taking ITC. Section 16(1) entitles a registered person to take credit of input tax charged on supplies used in business, subject to conditions in Section 16(2). These conditions include possession of a tax invoice, receipt of goods or services, actual payment of tax to the Government, and filing the return under Section 39. Section 41(1) allows for provisional credit of ITC in the electronic credit ledger upon filing the return. Conclusion: The court dismissed the writ petition, holding that the liability to pay interest under Section 50(1) of the CGST Act, 2017, includes the total tax liability, not just the net tax liability after deducting ITC. The court emphasized that the credit entry in the electronic credit ledger and the subsequent payment from it occur only upon filing the return. Therefore, the petitioner is liable to pay interest on the entire tax liability, including the ITC portion. The court also noted that the proposed amendment to Section 50, which suggests charging interest only on the net tax liability, has not yet been enacted and cannot influence the current interpretation of the law.
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