GST UPDATE ON RETROSPECTIVE AMENDMENT IN SECTION 50

The budget 2022 has made considerable changes in the CGST Act, 2017 and has tried to remove anomalies prevalent in the various sections of the CGST Act, 2017. The matching concept could not be operationalised since the inception of GST and it was perceived as far possibility to develop sufficient infrastructure for the same. Consequently, the provisions related to matching concept being section 42, 43 and 43A of the CGST Act, 2017 have been deleted. Similarly, section 50(3) of the CGST Act, 2017 has been amended retrospectively w.e.f. 01.07.2017 to rectify the drafting error in the said section. The analysis of the retrospective amendment made in section 50(3) of the CGST Act, 2017 is the subject matter of discussion of our present update. The provision of section 50(3) of the CGST Act, 2017 prevalent as of now, reads as follows:- (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 per cent., as may be notified by the Government on the recommendations of the Council. Moreover, the notification no. 13/2017-Central Tax dated 28.06.2017, prescribing interest rate has reference of section 50(1) specifying interest rate as 18% and states interest rate of 24% for section 50(3). Now, the question arises is the applicable interest rate for wrongful availment and utilisation of input tax credit for reason other than matching concept which is not made operational till date. There is no specific provision in section 50 of the CGST Act, 2017 covering situations wherein the interest is leviable for wrongful availment and utilisation of input tax credit for various other reasons such as ineligible credit under section 17(5) availed by the assessee or inadvertently credit taken twice by the assessee. In such cases, there was confusion as regards the applicability of interest rate as 18% or 24% or 0% as there is no specific provision for the same. It is worth mentioning that this lacunae in the provision of section 50 was pointed by us in our earlier GST update titled- MADARS HC DECISION ON LEVY OF INTEREST ON WRONG AVAILMENT OF ITC. It is submitted that the hon’ble Madras High Court in the case of M/S F1 AUTO COMPONENTS PVT. LTD. [W.P. NO. 6631 OF 2021] had concluded that since the provisions of section 42 were not invoked in the case of petitioner, they were not required to pay interest rate of 24% but were required to pay interest of 18% for the wrongful availment and utilisation of input tax credit. While analysing the reasoning adopted by the Hon’ble High Court, we had pointed that as per the provisions contained in section 50 of the CGST Act, 2017, section 50(3) only covers the situation of wrongful availment and utilisation of input tax credit under section 42/43 of CGST Act. Consequently, once it is held that provisions of section 42/43 are not applicable, interest should not be leviable for wrongful availment and utilisation of credit. It appears that the government has realised the drafting lacunae and has resorted to rectification of the said provision. The retrospective amendment as proposed in the Finance Bill, 2022 reads as follows:- “(3) Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four per cent. as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed.” It is worth noting that simultaneously retrospective amendment has been made in the notification no. 13/2017-Central Tax dated 28.06.2017 prescribing 18% for section 50(3). On harmonious construction of the above amendments, after enactment of the Finance Act, 2022, the wrongful availment and utilisation of input tax credit will be liable to interest at the rate of 18%. It is submitted that the above amendment on the one hand confirms the levy of interest on wrongful availment and utilisation of credit by removing the drafting error in section 50 while on the other hand provides benefit to the assessee that interest is not payable on mere wrongful availment of input tax credit. The issue regarding levy of interest on mere wrongful availment of interest is decided in favour of the assessees. Reference may be made to the decision given by the Hon’ble Patna High Court in the case of M/S COMMERCIAL STEEL ENGINEERING VS STATE OF BIHAR [W.P. NO. 2125 OF 2019] wherein it was concluded that interest is to be charged only if the wrongful availment of input tax credit has resulted in short payment of tax by the assessee. Therefore, the amendment seeks to reduce the possibility of litigation as regards interest liability on wrong availment and utilisation of input tax credit in future

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GST UPDATE ON RETROSPECTIVE AMENDMENT IN SECTION 50

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