SEC 50 ; CONSTITUTIONAL VALIDITY, Goods and Services Tax - GST

[giri gattupalli]

respected sir,

as a settled rule by supreme court" INTEREST IS COMPESATORY IN NATURE" and till now this position continues , and as per GST LAW delayed payment made by crediting electronic credit ledger , and as there is no loss of money to exchequer , how SEC 50 OF GST ACT come in to play. please share your opinions. whether any one challenged this issue ? if yes please share inputs. our eminent panel discussions are very educative to me.

thanking you

giri

tax advocate

Posts / Replies

[PAWAN KUMAR]

Dear Sir,

As per SC judgment of Pratibha Processors - 1996 (10) TMI 88 - SUPREME COURT, SC has interpreted the Tax, Interest and Penalty. Interest is compensatory in nature and payable if the person who require to pay taxes withheld the payment of tax by the due date. The interest is payable as actual on tax component only. Same view also expressed by KTK High court in Bill Forge - 2011 (4) TMI 969 - KARNATAKA HIGH COURT case law. If there is no tax payable, no interest is required to be paid. This would be so because the Revenue gets prejudiced to the extent of the delay. In the GST Law, Amount if lying in the credit ledger has been excluded for calculating the interest component. Now interest is only payable on cash amount of GST which unpaid by the due date. The provision has been made effective since 01.07.2017.

[giri gattupalli]

respected sir,

thanks for your response. i elaborate my issue here.

one of my client is a govt works contractor. department picked up his returns for scrutiny under SEC-61 .department found some short payment of tax for FY2019-20 , basing on tds returns filed by contractee department they found short fall of out put tax amounting to Rs 5,00,000.meanwhile due to some miss communication, proceedings reached to final stage and show cause notice followed by order under sec 74 was issued. after receiving order ,after verification of books of accounts, we found that, short fall of tax is correct and accepted the short fall and paid the tax by debiting his electronic credit ledger. in discharging liability no cash was used. and right from beginning of FY2019-20 till today there was a credit carry forward in my client's ledger continuously more than 5,00,000. in this scenario whether he is liable to pay interest or not ? as per SEC -50 of GST ACT department is demanding interest . my opinion is as there is no loss of amount of tax (in the shape of cash ) to department there is no basis for claim of compensation in the form of interest. and settled law as of now is INTEREST IS COMPENSATIVE IN NATURE. i invite our respected panelists to discuss.

thanking you

[KASTURI SETHI]

The department is 100 % correct in demanding interest in this scenario. You have missed the word, 'except' (exclusion clause ) mentioned in proviso to Section 50 (1) of CGST Act. If tax is paid after commencement of any proceedings under Section 73 or Section 74 of CGST Act, no benefit of 'interest only on net cash liability' is available.

'Any proceedings' includes investigation proceedings also. If summon is issued under Section 70 or search is conducted under Section 67, it is the commencement of proceedings. In this case Section 74 (with mala fide intention/suppression of facts with an intent to evade tax) was invoked. The assessee falls in the exclusion clause as he has evaded tax and caused loss to the revenue . Thus the subject assessee has forfeited the benefit of payment of interest only on net cash liability. Interest has to be paid on the amount of tax evaded notwithstanding having sufficient balance lying in both Electronic Credit Ledger and Electronic Cash Ledger.

The facility of payment of interest only on the net cash liability is not meant for those registered persons who pay due tax after commencement of any proceedings under Section 73 or 74 and on their own. This is penal action by the department.

The judgment of Supreme Court does not rescue the assessee in this case.

[KASTURI SETHI]

In continuation of my reply, hence there is no basis to challenge constitutional validity.

[giri gattupalli]

thank you sethiji. your answer is very informative.

giri

[KASTURI SETHI]

Thank you Madam. . The querist's satisfaction is my goal.

[PAWAN KUMAR]

Dear Sir,

I endorse the reply of sh. kasturi Sir.

further i wish to submit as per your issue in details, The tax was short paid by an due date which you were required to paid. but unpaid due to any reason. You paid the taxes.

The balance in your ECL is the higher amount than the short paid taxes.

This balance is not all adjustable.

If the issue were of wrongly availament of ITC then there will no interest becuase balance in your ECL is more and have not falled below the amount of ITC availment.

but the case is of short paid of taxes for which interest is payable.

as per my view.

[Amit Agrawal]

Dear Querist,

Apex court's observation that 'interest is compensatory in nature' in case of Pratibha Processors - 1996 (10) TMI 88 - SUPREME COURT must be understood in the context of factual aspects & dispute which was present in that case. Furthermore, Para 14 needs to be read carefully before taking a line from the judgement and same reads as follows:

"14.In the above backdrop, let us consider the scope and content of Section 61(2) of the Act as it existed at the relevant time. Section 61(1) prescribes the period during which the goods imported may remain in the warehouse. The normal period in different cases are provided therein. Extension of time in special cases is also provided. If the goods imported remain in warehouse beyond the period provided or extended under Section 61(1), the consequences are specified in Section 61(2) of the Act. As per the provisions of the Act duty is payable (only) when the goods are cleared. If the goods are not cleared within the time granted under Section 61(1) of the Act, and the goods are cleared later, the payment of duty exigible on the goods gets automatically delayed. It is to meet the said contingency. Section 61(2) provides that if the goods warehoused are cleared beyond the time specified or granted under Section 61(1) of the Act, interest not exceeding 18% per annum shall be payable on the amount of duty on the warehoused goods. It is implicit from the language of Section 61(2) of the Act that the interest shall be payable on the amount of duty "payable or due" on the warehoused goods for the period from the expiry of period specified or granted till the date of clearance of the goods from the warehouse. In this case, on the date of clearance of the goods, no duty is payable. The goods are not exigible to duty at that time. Calculation of interest is always on the principal amount. The "interest" payable under Section 61(1)(2) of the Act is a mere "accessory" of the principal and if the principal is not recoverable/payable, so is the interest on it. This is a basic principle based on common sense and also flowing from the language of Section 61(1)(2) of the Act. The principal amount herein is the amount of duty payable on clearance of goods. When such principal amount is nil because of the exemption, a fortiori, interest payable is also nil. In other words, we are clear in our mind that the interest is necessarily linked to the duty payable. The interest provided under Section 61(2) has no independent or separate existence. When the goods are wholly exempted from the payment of duty on removal from the warehouse, one cannot be saddled with the liability to pay interest on a non-existing duty. Payment of interest under Section 61(2) is solely dependent upon the exigibility or factual liability to pay the principal amount, that is, the duty on the warehoused goods at the time of delivery. At that time, the principal amount (duty) is not payable due to exemption. So, there is no occasion or basis to levy any interest, either. We hold accordingly."

In above case, there was no duty payable and hence, no interest was payable as per Apex Court. So, taking a line from such judgement that 'interest is compensatory in nature' will not help your case because in your case, tax is indeed payable and same is paid after due date.

STILL, Govt. had made retrospective amendment u/s 50 where following proviso was added under sub-section (1):

".....

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 payable on that portion of the tax which is paid by debiting the electronic cash ledger"

Thus, no interest is still payable for delayed payment of tax by debiting the electronic credit ledger ledger (except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period).

In conclusion, the case of Pratibha Processors - 1996 (10) TMI 88 - SUPREME COURT does not help tax-payer to avoid interest-liability if there is indeed delayed payment of taxes (i.e. payment of taxes after due date).

P.S. Not having an option to file a return without payment of full taxes, as self-assessed in that return, is altogether different issue / ground to argue against non-levy of interest.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Please read last line of my above post as follows:

P.S. Not having an option to file a return without payment of full taxes, as self-assessed in that return, is altogether different issue / ground to argue against non-levy of interest. And such grounds can be tried only when same is supported by a peculiar facts of a particular case. Again here, challenge to constitutional validity / vires of Section 50 (1) will be very difficult to succeed. Best hope, in my view, will be a relief by Supreme Court using powers under Article 142 when & only if peculiar facts of a particular case deserve such relief.

[Padmanathan Kollengode]

Agreed in toto with views of Shri Amit Ji.

Further the proviso to section 50(1) which reads as below

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 payable on that portion of the tax which is paid by debiting the electronic cash ledger"

The above proviso applies only when the tax liability for a supply made during a tax period is declared in the return for that very same tax period. i.e. to put it simply, belated filing of GSTR-3B after the due-date.

In your case, the supply may be made in a tax period and the returns for that particular tax period would have been already filed.

Now the department has found out short payment during adjudication proceedings.

This additional liability has to be discharged only in DRC-03 (and not through return for that tax period to which the supply pertains to).

Hence the proviso to section 50(1) will not apply to this present case because the tax payable in respect of a supply made during a tax period is not declared in the return for that particular tax period.

[Amit Agrawal]

I agree with Shri Padmanathan Ji with regards to the facts elaborated by the Querist in serial No. 2 where there is not even disclosure of subject tax-liability by the tax-payer in the return for the month when supply is made.

My earlier post was with conceptually dealing with main query raised by the Querist about challenging the levy of interest using one line from Pratibha Processors - 1996 (10) TMI 88 - SUPREME COURT.

As reasons explained by me in earlier post, one cannot successfully challenge levy of interest u/s 50 (1) (as amended retrospectively w.e.f. 01.07.2017) by taking that line from such judgement (i.e. 'interest is compensatory in nature') because in your case, tax is indeed payable and same is paid after due date.

So, interest is payable for delayed payment of taxes using past ITC balance EVEN IF such liability gets disclosed & paid by the tax-payer in subsequent return (i.e. as per proviso u/s 39 (9)) voluntarily, on your own & without being detected by Dept.

And your scenario as per post at serial No. 2 is even many steps further & much worse (i.e. detection of tax-evasion by Dept. where matter has reached the stage of adjudication u/s 74).

Presuming that said tax-payer has got no legal defence for 100% penalty imposed u/s 74, it is better to pay interest u/s 50 (1) as well as penalty - both in cash (i.e. not through ITC) & within 30 days from date of communication of said order - so as to take benefit of reduced penalty u/s 74 (11).

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Ganeshan Kalyani]

Short payment of tax means tax already collected from customer but has not been deposited into Govt treasury. That means you enjoyed the tax amount which is not yours but belongs to govt. For this mistake interest is applicable. The tax payer is required to self asses the tax and make payment. If any error occurs the onus lies with himself. Taxpayer is suppose to thoroughly check the books with respect to sales register , GST payable Ledger and ensure that whatever tax collected and accouted in GST payable Ledger is deposited with govt. So payable Ledger should be zero one payment is made. You need to check this. There can be staff issue and hence timely reconciliation not happen leading to short payment of tax. This excuse is not accepted. You have committed mistake by collecting tax and keeping with you. Only when it was found out by the govt you came to know and you have paid it. So section 74 is correctly applied.