AN ARTICLE ON INTEREST LIABILITY ATTACHED WITH BELATED FILING

1. INTEREST LIABILITY UNDER GST
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CA N.RAMASWAMY, F.C.A.
CHENNAI- 600024
PH- 04424732130
MOBILE: 9840446412
E MAIL : nryrams@rediffmail.com
CA RAMASWAMY N

2. Provisions for interest under GST Act
• Section 50 of CGST Act, 2017 mainly deals with interest payable under the
Act. First two sub-sections of section 50 contains provisions for payment
of interest on delayed payment of taxes.
• “Section 50(1):- Every person who is liable to pay tax in accordance with
the provisions of this Act or the rules made there under, 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.”
• “Section 50(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.”
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3. Analysis of section 50
• a) Who is liable to pay interest:-
– Every person who is liable to pay tax in accordance with the provisions of this Act or the
rules made there under, but fails to pay the tax or any part thereof to the Government
within the period prescribed is liable to pay interest. [50(1)]
• b) At what rate:-
– At such rate not exceeding 18%, as may be notified by the Government on the
recommendations of the Council. The Government has notified 18% vide Notification
13/2017 Central tax dated 28-06-2017 [50(1)]
• c) On which amount is to be paid:- Not specifically mentioned in the section 50.
• d) For which period:- period for which the tax or any part thereof remains unpaid. [50(1)]
• e) When to pay the interest: Not mentioned in the section. However as per rule 61(3),
every registered person furnishing the return under sub-rule (1) shall, subject to the
provisions of section 49, discharge his liability towards tax, interest, penalty, fees or any
other amount payable under the Act or the provisions of this Chapter by debiting the
electronic cash ledger or electronic credit ledger and include the details in Part B of the
return in FORM GSTR-3.
• f) Whether any notice is required:-No. Interest is to be paid on his own. [50(1)]
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4. Decision in GST council meeting
• The 31st meeting of the GST Council, appears to have decided regarding
inter liability and it has been published on 22nd December, 2018 that the
council has principally approved to amend section 50 of the CGST Act to
provide that interest should be charged only on the net tax liability of the
taxpayer, after taking into account the admissible input tax credit, i.e.
interest would be leviable only on the amount payable through the
electronic cash ledger. This press release has put a question mark on the
understanding of the people in general that section 50 of the CGST Act,
2017, as of now, is asking to pay interest on the net amount of tax payable
(net of ITC).
• Even this appears to have not been enacted into the law by an
amendment to the respective sections.
• The amendment if made with effect from 1.7.2017 will be huge relief to the
stake holders.
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5. Standing order of the Principal Commissioner
Central Tax Hyderabad[ 04-02-2019.]
• An order was issued by Principal Commissioner of Central taxes Hyderabad on 4-2-
2019 on the subject of interest liability whenever returns are filed belatedly. The
said order inter-alia contained “Since ITC/Credit in balance in the ‘Electronic Credit
Ledger’ cannot be treated as the Tax paid, unless it is debited in the said credit
ledger while filing the return for off-setting the amount in the ‘Liability Ledger’, the
interest liability under Sec. 50 is mandatorily attracted on the entire Tax remained
unpaid beyond the due date prescribed”.
• However, it is to be noted that Section 50 does not support the standing order
which inter-alia contains that the interest liability under Sec. 50 is mandatorily
attracted on the entire Tax remained unpaid beyond the due date prescribed. The
section, at least in its literal meaning, does not mandate or prescribe to levy
interest on the total amount of output tax regardless of credit of input tax
available , without deducting the available credit of input tax. The effective words
are” 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,”
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6. Interest Liability in different laws
• Whenever interest arises an account of non payment of tax in the past, it is always
the net tax that is deemed to be with held or not paid and therefore interest is
always paid on the net tax liability after adjustment of Tax credit due . Section 50
of CGST Act, 2017 does not confer any specific power to levy interest on the out
put tax liability especially when the words used are “fails to pay the tax or any
part thereof to the Government :”
• Section 75 of the finance Act 1994. who fails to credit the tax or any part thereof to
the account of the Central Government within the period prescribed, shall pay
simple interest at such rate for the period by which such crediting of the tax or any
part thereof is delayed. Thus interest is payable on Net liability.
• Under Central Excise Act too, Interest is payable for the delayed payment on the
net tax with held/ not paid , after adjusting Cenvat credit available.
• Even under Sales tax/ Vat Provisions of different States , interest is liable to be paid
on the net tax payable
• Interest being compensatory in nature, is payable on the tax amount with held.
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7. Interest Liability in different laws
• The levy of interest is geared to actual amount of tax withheld and the extent of
the delay in paying the tax on the due date. Essentially, it is compensatory and
different from penalty– which is penal in character. [Prathibha Processors Vs. UOI
(1996) 11 SCC 101 (SC)]
• Tax becomes payable by an Assessee by virtue of the charging Section. Penalty
becomes payable on willful violation of any of the provisions of the taxing statute.
Interest is claimed from an assessee who has withheld payment of any tax payable
by him and it is always calculated at the prescribed rate on the basis of the actual
amount of tax withheld and the extent of delay in paying it. It may be noted
interest is compensatory in character [Associated Cement Co. Ltd. Vs. Commercial
Tax Officer, Kota and Others (1981) 048 STC 0466 (SC)]
• Interest under section 50 of CGST Act, 2017, is leviable for delay in effecting
payment of GST. No assessment or notice required and has to be paid through
Electronic Cash ledger , on his own. Accordingly in the words of the Apex Court
interest, being a compensatory levy is to be calculated at the prescribed rate on
the basis of the actual amount of tax withheld and the extent of delay in paying it.
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8. HIGH COURT JUDGMENT IN TELANGANA
• The High Court of Telangana dismissed the writ petition filed against the demand
for interest raised by the revenue authorities on Gross tax liability.
• Facts : Meha Engineering & Infrastructure ltd engaged in manufacture of goods
and execution of infra projects had delayed filing of the GSTR 3 B returns for the
period Oct 2017 to May 2018. They paid the GST liability along with interest on the
tax Amount due ( Gross Tax liability less Input tax credit available) at the time of
filing retunes.
• The revenue demanded interest to be calculated on the Gross Tax liability with out
reducing Input tax credit . The company Filed a writ petition before the High Court
of Telangana . The petition was dismissed on the following ground.
• The High Court considered the following provisions of the GST Act like section 50
on Interest on Delayed payment of tax, section 41 on Claim of input tax credit and
Provisional Acceptance thereof. Section 49 on Payment of tax, interest, penalty
and Other amounts section 39 on Furnishing of returns
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9. OBSERVATIONS OF THE HON’BLE HIGH COURT
• After considering submissions made by both sides, the Hon’ble Court made
following observations: -
• GST Input tax credit (ITC) is available to a registered taxpayer only upon filing of
return as prescribed under the law namely u/s 39 (1) of the CGST Act 2017
• ITC becomes available in electronic credit ledger only upon filing of return and that
too on provisional basis;
• Only after credit becomes available by filing return; the credit can be used for
payment of taxes even though by virtue of book entries (though there is no cash
deposit to government in such cases)
• Considering the aforesaid, the Hon’ble Court held that ITC for payment becomes
available only upon filing return & till such time of filing return, entire tax liability
remains unpaid, on which interest is payable u/s 50(1) of the CGST Act 2017
• The Hon’ble High Court also negated to rely upon proposal of GST Council’s
recommendation to amend interest provision to suitably amend aforesaid
provision, as the same has not been implemented.
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10. Comments
• This is an important judgment as The High Court of Telangana determined that the
tax paid on inputs shall be considered as input tax credit only after filing return.
• Though GST council has had agreed and recommended levy of interest on NET GST
LIABILITY after considering ITC available , amendment to this effect in section 50
of the GST act is yet to be made.
• The High Court judgment has posed an unique challenge to stake Holders
especially when many judicial principles appear to have not been considered.
• Provisions relating to Interest in fiscal statutes are normally compensatory in
nature and are designed to discourage delay in payment. It is to compensate the
use of funds belonging to the revenue on the appointed date which includes tax
payable and eligible credits. This has not been fully appreciated.
• The word ‘unpaid’ in the provision is preceded by words ‘the tax or any part
thereof’, which itself implies that Input tax credit if any has to taken into account to
arrive at the amount on which compensatory interest becomes payable.
Otherwise proper meaning for the words “ any part there of ‘”can not be supplied.
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11. Comments
• The judgment itself notes that there is no provision of filing a return wherein return
may be filed with partial payment of taxes. If such is the scenario, then the phrase the
tax or any part thereof appears to be redundant, following the Hon’ble High Court
ratio. This only means that partial payment is because of adjustment arising out of
input tax credit available on the appointed date.
• Substantial rights of the assesses cannot be denied because of procedural lapses. The
procedure it self does not allow return to be filed pending payment of tax . The
judgment states that credit of tax on goods and services are available however
disallows set off only for the purpose of interest merely on belated filing.
• There could be cases where the Cash payments could have been made but return
could not be filed. Interest becomes payable even if Cash payment made earlier.
Similarly in the case where Opening balance of ITC is available but return filed
belatedly, interest becomes payable on Gross liability , according to the ratio of the
high Court judgment, which is harsh on the assessee.
• GST Council should immediately take steps to get an amendment to the interest
provision effective from 01-07-2017 to nullify the impact of aforesaid ruling before
taxpayers are served notices in such matter
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12. THANKING YOU.
CA N.RAMASWAMY, F.C.A.
CHENNAI- 600024
PH- 04424732130
MOBILE: 9840446412
12CA RAMASWAMY N