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As per the judgment of Hon'ble High Court of Telangana in case of M/S. MEGHA ENGINEERING & INFRASTRUCTURES LTD. vs. COMMISSIONER OF CENTRAL TAX HYDERABAD, liability to pay interest under section 50(1) for belated payment GST will be on entire tax liability including amount of ITC available to an assessee.

Facts of the case

Megha Engineering & Infrastructures Ltd. had delayed in filing the returns in GSTR-3B for the period from October 2017 to May 2018. They had paid tax liability (net of ITC) along with interest calculated on the net tax liability. The respective dept. had issued a letter demanding interest to be calculated on the total tax liability (gross). Writ petition filed against such demand before High Court.

Provision in CGST Act 2017

As per Subsection (1) of Sec 50 of CGST Act 2017 with respect of Interest on delayed payment of tax “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”

Simplify the fact & provision

The Sec. 50 envisages that such interest is liable to be paid by the Taxpayer on his own. Input tax credit balance in electronic ledgers cannot be treated as the Tax paid, unless the return filed on or before due date i.e. until a return is filed as self-assessed, no entitlement to credit and no actual entry of credit in the electronic credit ledger takes place. So tax paid on inputs becomes ITC when a claim is made under GST returns. Once the payment is beyond the prescribed date, interest liability u/s 50 is attracted on the entire Tax amount and the ITC has no relevance.

Before the High Court judgment and with the reasonable interpretation of law, interest calculated on net tax liability in case of delayed payment of GST. In the 31st GST council meeting held on 22 December 2018 [agenda No. 7 (xx)], recommended that levy of interest on net tax liability i.e. after taking into consideration of admissible ITC.*

After consider the judgment of Court, in the current scenario either the tax payer have to pay and file GST return on time or pay the interest on total tax liability (without consider ITC).**

Conclusion - Interest to be paid on total tax liability (gross) for late payment and filing of return and taxes.

These are My own views

The recommendation of GST council has not been given effect in GST Law; Central Board of Indirect Taxes and Customs (CBIC) consider the recommendation of & issue the necessary notification to avoid huge liability/ litigation in the future.

It is judgment of Telangana High Court; other state may not consider this judgment and may continue with reasonable interpretation i.e. wait for notification of CIBC in this regard.


Published by

CA Aakash Jain
(Practicing CA)
Category GST   Report

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