Breach of Trust by Government- Notification No 63/2020 Dated 25.08.2020

CA Rohit kapoor | Last updated: 22 February 2021

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Quick Summary

This article discusses Notification No 63/2020, issued by the Central Government on 25th August 2020, which brings Section 100 of the Finance (No. 2) Act, 2019, into force from 1st September 2020. This notification clarifies that interest on delayed GST payments will be levied on the 'net tax liability' only, after accounting for input tax credit. This change was proposed to be effective retrospectively from 1st July 2017.

Text of Notification No 63/2020- Central Tax Dated 25th August 2020

In exercise of the powers conferred by sub-section (2) of section 1 of the Finance (No. 2) Act, 2019 (23 of 2019), the Central Government hereby appoints the 1st day of September, 2020, as the date on which the provisions of section 100 of the Finance (No. 2) Act, 2019 (23 of 2019), shall come into force.

Notification

Some Facts to understand this issue

As per Sec 50 (1) of the CGST Act 2017 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 recommendation of the Council.

GST Interest on Net Liability: Notification 63/2020 Explained

The legislation effective from 1st July 2017 did not provide the needed clarity on whether the levy of interest is on gross liability or net liability remaining after setting off the ITC.

In the 31st GST Council meeting held in New Delhi on 22nd December 2018-‘Amendment of Section 50 of the CGST Act was proposed 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.’’

Amendment was inserted through the Finance Act, 2019 enacted on 1st August 2019, but the same was not notified

In 39th GST Council meeting held on 14th March 2020 it was proposed that as a measure for Trade Facilitation Interest for delay in payment of GST to be charged on the net cash tax liability w.e.f. 01.07.2017 (Law to be amended retrospectively).

Copy of Press Release of the 39th GST Council Meeting

Today i.e 25th August 2020 Notification No 63/2020 Central Tax has been issued which states Interest in GST to be levied on "Net Tax liability", a proviso, which was inserted vide section 100 of the Finance (No. 2) Act, 2019 (23 of 2019), now got notified w.e.f 01/09/2020 vide Notification No. 63/2020-Central Tax, dated. 25th August, 2020.

Clearly this is Breach of Trust on part of Central Government and CAs, Council of the Institute of the Chartered Accountants of India and other professionals must raise this issue. This has to be rolled back.

FAQ :

Notification No 63/2020, issued by the Central Government on 25th August 2020, appoints 1st September 2020 as the date when Section 100 of the Finance (No. 2) Act, 2019, comes into force.

The notification introduces a proviso clarifying that interest on delayed GST payments will be levied on the 'net tax liability' (amount payable through the electronic cash ledger) rather than the gross liability.

The provisions of Section 100 of the Finance (No. 2) Act, 2019, which clarify that interest is on net tax liability, were notified to come into force on 1st September 2020.

Yes, in the 39th GST Council meeting, it was proposed that the law be amended to charge interest on the net cash tax liability retrospectively from 1st July 2017.

Originally, Section 50(1) of the CGST Act 2017 stated that interest was payable on the tax that remained unpaid for the period it was outstanding, without explicit clarity on whether it was on gross or net liability.