The interest is being charged by the Department on gross tax liability which is the output tax and tax payable on reverse charge mechanism without deducting any input tax credit i.e. net tax liability. Many taxpayers are getting notices from the GST Department regarding late filing of return. The GST Department is adding interest liability and charging a heavy penalty on the same. The problem with such interest lies with the amount on which the Department is calculating it.
Meaning of Payment of Tax as per CGST Act, 2017
What amounts to payment?
The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made thereunder.
The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act.
The following outflows do not amount to payment:
As per Section 49 of CGST Act, 2017, Every deposit made towards tax, interest, penalty, fee or any other amount by a person by internet banking or by using credit or debit cards or NEFT or RTGS or by such other mode and subject to such conditions and restrictions as may be prescribed, shall be credited to the electronic cash ledger of such person to be maintained in such manner as may be prescribed. Here the Act talks only about deposit made to the cash ledger so this cannot be construed as payment.
The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41; Here amount credited to the electronic credit ledger is focussed on so this is also not payment.
The provisions of GST Law explicitly state that payment of tax means payment made through electronic credit ledger or electronic cash ledger. This means that until and unless liability is offset the amount will not be considered to be paid and payment can be done in the following two ways:
By utilising balance in the credit ledger
By utilising balance in the cash ledger
The fact that tax will not be considered as paid unless we offset the liability of such payment leads to this conclusion by the Department that interest should be paid on the gross tax liability.
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