The FM in the Union Budget 2020 announced to amend section 50 of the CGST Act and collect interest on the Net GST Liability. However, a few days ago CBIC issued a clarification that the interest will be collected on the effect of such amendment will be prospective and not retrospective that interest will be collected on Gross GST Liability from the 1st of July 2017 to the date the change in the Act is notified. The taxpayers raised concerns that it was not justified. The Ahilya Chamber of Commerce wrote a letter to the Prime Minister to direct the department to stop collecting tax on Gross GST Liability:
The Prime Minister
Govt of India
Sub: Section 50(1) of CGST Act, 2017 - Ambiguity and hardship on Tax payers - INTEREST ON GROSS TAX
Admittedly, GST has been great reform in indirect taxes but, unfortunately, its implementation has resulted in huge complexity. It has also to be appreciated that the Council has been quite responsive to traders’ woes, but, here again, enormous amount of notifications, circulars and clarifications have made GST a bundle of confusion and contradictions.
Presently, interpretation of Section 50 (1) is causing havoc with the taxpayers. Instead of not only working on the principle of natural justice to tax payers, GST council is imposing interest on GROSS TAX for belated payment of tax and returns despite its having agreed earlier, in its 31st meeting, that interest is payable on NET Tax liability only. En block Notices by department for collection of interest on GROSS amount are being issued giving sleepless nights to taxpayers.
GST law committee has accepted the mistake made while drafting law and has come with Proviso in Section 50(1) which was inserted in Finance Act 2019 from date to be notified, which read as “Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.”
This is been passed in Lok Sabha, Rajya Sabha, included in Finance Act, 2019, passed by and all states + UT except only 2 states (namely Telengana and West Bengal).
Confusion started with judgement from Telengana HC favoured for charging interest on GROSS Amount. Proviso in Section 50(1) was not read properly by court and judgement was passed with incomplete data available to court.
A very balanced judgement has been passed by Madras High Court in JAN 2020 after studying GST Law, Proviso inserted in finance Act 2019, practical aspect of GST, Flow of ITC and tax in GST.
It is a pity to note that CBIC has not taken cognizance of Finance Act 2019 & Madras high court decision. In complete violations of the very founding principles of GST; CBIC has issued directives to Principal Commissioner / Commissioner in Feb 2020 to collect tax on GROSS AMOUNT. This is bad in law and against natural justice to trade and industry which is already reeling under woes of slowdown.
To illustrate, interest of late filing of returns is approximate INR.46000 Crore if calculated on gross amount (As per data available from government agency). However, if the same is calculated on net tax amount, it will be only Rs.3,000/-crores or so.
We, therefore, submit that:
1) Finance Ministry need to immediately interfere in this case and stop injustice to tax payers.
2) Special directives be issued to stop issuing Notices for Interest to tax payers on GROSS AMOUNT and notices already issued be withdrawn.
3) As provision in Finance Act 2019 in this regard has not been notified due to road block in 2 states, GST Council should take necessary steps to stop hardship to taxpayers immediately.
4) As, this process may take some time, we request your honour to instruct concerned authorities to issue Notices under Section 50(1) only after action has been taken as per point No.3.
5) Regarding Tax collection for government, government already have collected the amount in terms of Taxes which were deposited by suppliers of these tax payers.
(6) It should be made retrospective instead prospective so that the problem of the Trade and Industry in this respect can be solved.
With this letter, we request you Sir, the highest authority in Government of INDIA, to instruct Finance Ministry to issue directive to CBIC to stop taking any coercive action. If CBIC does not take immediate action, there will not only be heavy unrest in Taxpayer fraternity but some of them may be compelled to close down, resulting in widespread unemployment.
We are not only optimistic but confident that you will work for betterment of GST and stop any unfair practices in its implementation,
Very truly yours,
For Ahilya Chamber of Commerce and Industry