Interest on delayed payment on GROSS or NET under GST ???

Interest on delayed payment on GROSS or NET under GST ???
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Interest on delayed payment on GROSS or NET under GST ???

Interest on GST to be levied on net tax liability from 1st September 2020

Current Scenario

⊗ As per section 50 of CGST Act,2017

If there is a delay in payment of tax or part payment of tax within the prescribed due date THEN

  • Interest is to be calculated on the gross tax liability. 
    • It is to be calculated on unpaid tax on outward supplies shown in GSTR 1/GSTR 4.
    • It is to be calculated on tax payable without considering any set-off of the eligible input tax credit.
  • Interest is to be calculated from the succeeding day of due date upto the date of payment.

Interest = [Unpaid tax on outward supply x 18% x (date of payment – due date of payment)]

(Note: That interest is to be calculated based on the number of days)

⊗ As per section 41 of CGST Act 2017

  • A taxpayer is entitled to take the credit of eligible ITC for payment of self-assessed output tax liability in the GST return.
  • Date of making the credit entry in the electronic credit ledger is important as only upon the filing of the return on a self-assessment basis the credit becomes available to electronic credit ledger for paying the output tax liability.

Proposed Scenario

⊗ As per the recommendations of 31st GST Council Meeting dated 22nd December 2018

If there is a delay in payment of tax or part payment of tax within the prescribed due date THEN

  • Interest is to be calculated on the net tax liability.
    • It is to be calculated on unpaid tax payable after considering the set-off of the admissible input tax credit
    • To put in simple words, it is to be calculated on tax payment required through electronic cash ledger.
  • Interest is to be calculated from the succeeding day of due date upto the date of payment.

Interest = [Unpaid amount from (Tax on outward supply- ITC on inward supply) x 18% x (date of payment – due date of payment)]

(Note: That interest is to be calculated based on the number of days)

Note: The above recommendations of Council and the press release becomes effective only if the necessary amendments are made in the GST Acts and same is issued by way of notification.

Refer press release for amendments in GST Act dated 22.12.18

⊗  As per the Finance Bill 2019 dated 5th July 2019

Following is proposed in Finance Bill 2019,  it will be effective once this gets approval from both the houses of parliament.

  • Interest should be levied only if the tax to be paid in respect of supplies made during a tax period(which is declared in return) is not paid upto the prescribed due date.
  • It shall be levied only on the portion of the tax which is payable by debiting the electronic cash ledger.

Note: If the return is furnished after the commencement of any proceedings u/s 73 and u/s 74 then interest will not be on net tax liability.

Note: Interest can not be paid by utilizing the electronic credit ledger.

Refer amendments to Section 50 >> clause 99 on page 29 of Finance Bill 2019


Judgments passed for interest on delayed payment 

We will discuss two HIGH Court cases here, where different judgments have been passed.

Telangana High Court >> M/s. Megha Engineering & Infrastructures Ltd. vs. The Commissioner of Central Tax [18.04.19]

  • The taxpayer did not file the GSTR 3B for the months Oct 2017 to May 2018. The delay in filing return was not significant as per assessee (Maximum delay was 29 days for the month of March 18).
  • The returns were not filed within due dates as there was a shortage of ITC for the completely setting-off of the tax liability. All the tax liability was cleared by the assessee in May 2018.
  • Facts of the case:  Total tax liability was of Rs. 1014,02,89,385/- and the ITC available Rs. 968,58,86,133/-
  • GST department demanded interest based on Section 41 and section 50 on gross tax liability but assessee paid the same on net tax liability basis.
  • HC held that tax paid on inputs, input services or capital goods become input tax credit only when the claim for the same is made while filing the return on the self-assessment basis.
  • Telangana set aside the writ petition filed and ordered that, If there is a delay in filing return, where the payment of tax liability is done partly in cash and partly by utilizing credit available then interest will be calculated on the gross liability.

⊗ Delhi High Court >> M/s LANDMARK LIFESTYLE vs. UNION OF INDIA & ORS. [27.05.19]

  • M/s LANDMARK LIFESTYLE stated that calculation of the interest payable for delayed payment of GST was unreasonable and erroneous. As it was calculated on the amount of tax which in fact consists of ITC  and needs to be adjusted against the tax liability.
  • Facts of the case: Total tax liability was of Rs. 3.31 crores and interest liability was calculated as Rs. 8.19 crores.
  • Court has granted a stay on the recovery for the interest amount payable on gross GST liability upto 30th September 19.
  • Order has been passed that no coercive action should be taken against the assessee for non-payment of interest until the next hearing takes place.
  •  HC accepted the contention of the taxpayer and presumed that a notification for the same shall be passed soon as it was recommended by the GST Council.


Conclusion

Current scenario where the interest is levied on gross tax liability is unreasonable. GST Council has also considered the same and it was also included in the budget speech by our Finance Minister.  Changes proposed should be passed soon in both the houses of parliament and related notification should be issued amending the CGST Act 2017. This will bring huge relief to the taxpayers until then interest will be charged on the gross tax liability basis only. Even the Delhi High Court order has just kept on hold the recovery of interest upto 30th September presuming the changes will be made till then.


Sources for compiling the article


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About CA Ankita Khetan 166 Articles
Ankita is a Chartered Accountant in practice and holds a Diploma in IFRS (from ACCA, UK). She is also a Commerce PG and Certified Independent Director (from IICA). She holds a certification in Forex and Treasury Management. Her area of expertise is GST and Income tax. She is passionate about reading, writing, and sharing knowledge on areas related to finance and taxation.

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