Interest on delayed payment of GST, Goods and Services Tax - GST

[SARAVANAN PURUSHOTHAMAN]

Sir

Whether interest on late payment of GST to be calculated on Gross tax amount or net tax amount (i.e tax payable after setting of ITC). In Finance Bill no.2 they had amended section 50. But till date CBIC not issued any notification or circular for the same. Kindly advise the whether to charge on Gross amount or Net amount?

Regards

Saravanan

Chartered Accountant.

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

Section 100 of Finance (No. 2) Act 2019 which had inserted a proviso "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." under Section 50 of CGST Act, 2017 is yet to be notified. This is because some litigation is pending before courts.

[KASTURI SETHI]

In the absence of notification, interest has to be paid on gross amount. The date of enforcement of the notification to be issued is also crucial.

[SHARAD ANADA]

Levy of interest on the delayed payment of GST can only be on the tax paid by way of cash has been upheld by the Hon'ble Madras High Court in the case of Refex Industries Limited v. The Assistant Commissioner of CGST & Central Excise (Writ Petition Nos.23360 and 23361 of 2019) = 2020 (2) TMI 794 - MADRAS HIGH COURT.

[KASTURI SETHI]

Contradictory judgements by two High Courts. When GST Council has approved charging of interest only on net cash liability, notification to this effect should have been issued. Per contra, instruction for charging interest on gross amount has been issued.

Anyhow, we are to wait for the notification in favour the asseees, that too retrospectively from 1.7.17. At present law demands interest on gross liability.

[Kashish Gupta]

In my view, interest is to be paid on net tax liability. This interpretation holds good even in absence of proviso. This is because of following two main views:

1. Section 50(1) uses the word "tax" as against "output tax". Had the intention of law is to charge interest on gross tax liability, the expression could have been so used.

2. Section 39 requires an assessee to file return by due date. It nowhere says that return is to be filed after payment of taxes in full. This can further be corroborated with the meaning of "valid return" given under section 2. As per circular 07/07/2017-GST, department has acknowledged that return can be filed without or with lower payment of taxes. But the said functionality was not active on GST portal. As a result, if assessee was not able to knock off his gross tax liability to the extent of input tax credit due to system restrictions, he should not be penalised by way of interest.

Also, doing so interest has been made in penalised nature whereas it is always compensatory in nature.

[KASTURI SETHI]

On 10.2.2020 Board has issued letter to recover interest on gross tax liability and on that basis the tax payers are receiving notice to pay interest on gross tax liability failing which interest/Govt. dues will be recovered under Section 79 of CGST Act. Recovery being monitored on daily basis. There are judgements in favour of the department and also in favour of the parties.

[Kashish Gupta]

Section 79 of the CGST Act, 2017 contemplates that any amount payable by a person to the Government under any of the provisions of the said Act or the Rules made there under is not paid, the proper officer shall proceed to recover the amount by one or more of the modes referred to therein. Therefore, it is evident that the term “amount payable by a person” is to mean that such liability arises only after determination of such amount in a manner known to law. [2019 (11) TMI 766 - Madras HC]

What is contemplated u/s 75(12) read with Section 79 of the CGST Act, 2017, is permitting initiation of recovery proceedings without the issuance of the SCN is only limited to the interest amount which has not been self-assessed by the taxpayer. Hence, the amount of interest sought to be recovered either on account of quantification or determination which is in excess of the self-assessed interest can only be done by resorting to the provisions of Section 73 and 74 and following the principles of natural justice.

The reference is invited to the decision of Hon’ble Karnataka High Court in the case of LC Infra Projects Pvt. Ltd. v. Union of India 2019 VIL 365 (Kar.) = 2019 (8) TMI 84 - KARNATAKA HIGH COURT. In the said case the above-referred principle of natural justice has been upheld by holding that the law requires the officer to issue the show-cause notice even for the recovery of interest u/s 50 which has not been self- assessed by the taxpayer.

[KASTURI SETHI]

On the recovery of interest there is a judgement of Supreme Court also. We can only discuss and nothing else. Let us wait for the decision of Board/Govt. in this aspect.