Under the GST law, filing of returns, availment of input tax credit, payment of taxes is done on-line through GST portal. All assesses are required to log into the Portal for payment of tax and for filing of returns. A return in Form GSTR - 3B has to be filed on or before the 20th of every month, for the discharge of the liability of the preceding month.
Under Section 39(7), every registered person, who is required to furnish a return, should have paid to the Government, the tax due as per such return, not later than the last date on which he is required to furnish such return; In such return, unless the entire tax liability is discharged by the assessee, the system will not accept the return in Form GSTR - 3B.
The GST liability is permitted to be discharged by utilizing the eligible ITC available in electronic credit ledger [ECL]. ECL contains the input tax credit available to the account of an assessee.
A registered person is entitled to take credit of input tax. Input Tax Credit (ITC) is a beneficial provision of the law whereby if a supplier raises tax invoice on registered person and pays the tax, recipient is allowed to take ITC subject to certain conditions and restrictions.
Section 41 (1) provides for credit entry of eligible input tax credit to be made on a provisional basis in the electronic credit ledger. Section 41 (1) that a person gets credited with the input tax, in his electronic credit ledger, only upon his filing of the return on self-assessment basis. Till a return is filed, credit does not become available to his electronic credit ledger. Section 49(4) enables a registered person to make payment towards output tax from out of the credit available in the electronic credit ledger.
Section 50 of the Act imposes interest, upon every person who is liable to pay tax, but failed to pay the same. The liability to pay interest arises, when a person who is liable to pay tax, fails to pay the tax to the Government within the period prescribed. The liability to pay interest is in respect of the period for which the tax remains unpaid.
The issue is as to when there has been a delay in filing returns and payment of taxes, whether the liability to pay interest under Section 50 of the CGST Act, 2017 is the net tax liability or whether interest is payable on the total tax liability including a portion of which is liable to be set-off against ITC?
Analysis of the provisions pertaining to interest payable for delay in payment of taxes under GST
Interest is a levy to cover the time cost for the amount of tax delayed. On reading section 50(1) of GST law, the provision creates a liability to pay interest on amount of tax that person fails to pay. The term “pay tax” or “payment of tax” is not defined under GST law.
However when the credit availed is duely reflected in GSTR 2A it means that the ITC availed by assessee was paid to and received by the exchequer from various suppliers. Further when the credit of tax paid under reverse charge was availed in respective monthly GSTR 3B. In such scenario, the demand of interest on the amount which reached the Govt goes against the tenet of equitable law. Consequently any ITC availed and utilised in books of account and availed and utilised in GSTR 3B shall be considered as due “payment of tax”
Significantly GST Council in its 31st meeting held as follows:
“Amendment of 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”
In light of the above recommendation calculating interest on gross value goes against spirit of GST law.
Further it is settled precedent in several decisions under erstwhile Central excise and ST law that when there is sufficient credit, the interest for delayed payment of duty/tax can be computed and paid net of Cenvat credit. Similarly held in the following decisions:
- Oi & Natural Gas Corporation Ltd. Vs Commr. C. Ex. & S.T., Surat (2015 (38) S.T.R. 867 (Tri. - Ahmd.)
- AD Vision vs. CST, Ahmedabad [2011 (21) STR 455 (Tri. Ahmd.)]
In view of paper writer, the interest should be paid for the period for which the tax remains unpaid, on the unpaid liability, net of credit. This would also be in line with the view expressed in Pratibha Processors case as well wherein it was held as under:
In the case of Pratibha Processors v. Union of India 1996 (88) E.L.T. 12 (S.C.). it was held that “Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. 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”.
Thus, interest could only be charged to the extent of amount withheld, i.e. the amount payable in cash ledger after deducting the eligible input tax credit.
Recent High Court decision by Telengana High Court
Facts: In case of Mega Engineering Vs the Commissioner of Central Tax Writ Petition No.44517 of 2018 there was a delay on the part of the petitioner in filing the returns in GSTR – Form 3B, for the period from October, 2017 to May, 2018. They could not make payment and file the return within time due to certain constraints. However, the entire liability was wiped out in May, 2018.
After the petitioner discharged the entire tax liability, the Superintendent of Central Tax issued letters dated 29.06.2018 and 06.07.2018 demanding interest at 18%, in terms of Section 50 of the CGST Act, 2017. The Assistant Commissioner also issued a letter dated 04.10.2018 demanding payment of interest.
Issue: Whether the liability to pay interest under Section 50 of the CGST Act, 2017 is confined only to the net tax liability or whether interest is payable on the total tax liability including a portion of which is liable to be set-off against ITC?
Decision: The Telengana High Court has dismissed writ petition and held that interest is payable on gross liability and further held as follows:
- The tax paid on the inputs charged on any supply of goods and/or services is always available. But it is available in the air or cloud.
- 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.
- Further, liability to pay interest u/s 50 (1) of the CGST Act is self-imposed and also automatic, without any determination by any one
- In respect of the input tax credit available in the electronic credit ledger, there is a necessity to make payment.
- If no payment is made, the mere availability of the same, there in the cloud, will not tantamount to actual payment.
- Consequently, holds that payment of tax liability, partly in cash and partly in form of claim for ITC was made beyond period prescribed and hence, liability to pay interest u/s 50 (1) arose automatically.
However presently the matter is sub-judice as concerned assessee has filed appeal against the same with H’ble Supreme Court of India.
The Delhi High Court in Landmark Lifestyle vs UOI in WP(C) No. 6055/2019 & CM Appl.No. 26114/2019 has granted stay from the recovery of interest demanded in gross liability i.e. interest on the amount constituting the input tax credit which is, in fact, to be adjusted against the tax liability. It was submitted that on the actual tax liability, interest has been paid by the Petitioner. Against the total tax liability of Rs.3.31 crores the interest liability works out to 8.19 crores which makes it unreasonable and erroneous. Held till the next date, no coercive action be taken against the petitioner for non-payment of the interest amount.
The disputes leading to demand of interest on gross liability [and not net liability] may continue until the government amends the Section 50 of the CGST Act, and issues immediate clarification to provide that no recovery proceedings should be initiated where the taxpayer had sufficient credit balance to discharge output GST liability.
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