GST Update on paying of interest on Gross liability of Tax

Now government has discovered a new revenue stream to make up for the shortfall in GST collection and is looking to collect ₹45,996 crore as interest on late payment of tax. The officials have started issuing letters to taxpayers for recovery of interest amounting on the gross liability of tax. Let us have a look at the history of payment of interest on delayed filing of return.

Section 50 of CGST Act 2017 deals with Interest on delayed payment of tax.Prior to amendment of the aforementioned section, it read as follows:
“(1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, 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 eighteen per cent., as may be notified by the Government on the recommendations of the Council.

(2) 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.

(3) A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four percent., as may be notified by the Government on the recommendations of the Council.”

The general reading of these provisions leads to interpretation that interest is payable on gross liability. But the real loss to Government exchequer is of liability late paid in cash. Thus, there was dispute between assesse and Government as to interest is payable on gross amount or net liability. A number of representations were sent to Government to rectify the same. It was twice accepted by GST council also that interest is payable only on net liability payable in cash.

In such a situation, Telangana and Andhra Pradesh High Court in case of M/s Megha Engineering and Infrastructures Ltd. passed given in favour of Department levying interest on the gross liability. The Honourable High Court stated that “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 (i.e. interest is to be paid on Gross Value of tax payable without adjusting available ITC) that the liability is compensatory in nature, appears to be correct.” The department view was affirmed and it was held that interest is payable on gross liability including the credit available with asseessee.

Later,Stay order was issued in the case of Landmark Lifestyle Vs Union Of India by Delhi High court wherein the court has granted a stay on recovery of interest on gross liability.
On the basis of representations made to GST council, the Union Budget 2019 had proposed to amend to Section 50(1) of the CGST Act. As per section 50 (1) of CGST Act, 2017, interest is payable by every person who is liable to pay tax in accordance with the GST law but fails to pay the tax or any part thereof to the Government within the prescribed due date. A Proviso is proposed to be inserted to Section 50 of the CGST Act as per which interest will be payable on “Net Tax Liability” i.e. the liability which arises after adjusting the input tax credit from gross tax liability.
All the amendments proposed through Amendment Act have come into force from 01^st Jan 2020 vide Notification No. 01/2020- Central Tax except for a few provisions. One of them is that of Amendment on delayed payment of tax. This amendment has yet not come into force. Hence, the controversy is continued. Moreover, the Finance Minister while proposing this amendment has made it clear that the amendment is prospective.

Government has been very clever in bringing retrospective amendments only to those Sections and provisions which are beneficial to themselves. Further, in the case of AAP & Company passed by Gujarat High Court that GSTR-3B is not a return prescribed under 39 of CGST Act, 2017. So the government made anretrospective amendment and such amendment would apply. What more, in order to deny the availment of credit of SHE Cess and KKC, government made an retrospective amendment to the transitional provisions and such amendment would apply.

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GST Update on paying of interest on Gross liability of Tax

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