Retrospective Amendment - Interest on Tax payable under Section 50 on Net Tax liability

| Last updated: 08 June 2021

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Quick Summary

A recent amendment to Section 50(1) of the CGST Act, effective from 1st June 2017, clarifies that interest on delayed tax payments is payable only on the net tax liability debited from the cash ledger. This change replaces the word 'levied' with 'payable', meaning interest is now calculated on the actual cash amount due after adjusting input tax credits. This retrospective amendment addresses previous ambiguities and aligns with GST Council decisions, impacting past tax periods.

Notification 16/2021 dated 1st June 2021 notified the date for effectiveness of section 112 of Finance Act 2021 which states proviso to Sec.50(1) of CGST and shall be read as:

"Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the 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 payable on that portion of the tax which is paid by debiting the electronic cash ledger."

Prior to this notification, it was read as

"Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the 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."

Interest on Net Tax Liability: Retrospective Amendment Explained

The substitution has an effect of on word "levied" which is now substituted as "Payable". These means interest on tax payable after due date shall be payable and these withdraw levy of interest on the taxpayer since tax is only payable in case of any Net cash liability arises after adjusting the input tax.

One shall take note that the said amendment is retrospective amendment as section 112 states it shall be effective since 1^st June 2017. The previous provisio was bought effective vide Notification 63/2020-CT date 25.8.2020 which was applicable prospectively which bought too many issues as the Board has assured that no recoveries shall be made for the past period as well by the central and state tax administration in accordance with the decision taken in the 39th meeting of GST Council.

Some Judgments over the matter in Past

Gujarat High court judgement in the case of Megha Engineering & Infrastructure Limited (Writ Petition No. 44517 of 2018) delivered on 18th April 2019 was the first ever decision in this regard. Writ against levy of Interest on gross tax liability was dismissed by stating that no claim to ITC can be made unless the returns are filed.
Bombay High Court in the case of KLT Automotive and Tubular Products Ltd., held that no issue survives after issuance of administrative instruction date 18.09.2020 issued by CBIC
Orissa High Court in the case of Prasanna Kumar Bisoithe, held that interest to be paid on net cash tax liability in view of the decision taken by the GST council in its 39 ^th Meeting held on 14 March 2020.
Gujarat High Court in the case of Amar Cars Private Limited granted stay on recovery of interest on gross tax liability until further orders.
Madras High Court in the case of Refex Industries Limited that Interest is applicable only on net cash liability retrospectively.

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