INTEREST IS TO BE LEVIED ON NET GST LIABILITY ONLY

Interest on delayed payment

Section 50 (1) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’ for short) provides that every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding 18%  as may be notified by the Government on the recommendations of the Council.

The proviso to Section 50(1) provides 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.  This proviso has been substituted for the earlier one vide Section 112 of Finance Act, 2021 which came into effect from 01.07.2017.

The interest shall be calculated on the amount of tax which remains unpaid, for the period starting from the date on which such tax was due to be paid till the date such tax is paid, at such rate as may be notified under sub-section (1) of section 50.

Where the input tax credit has been wrongly availed and utilized, the registered person shall pay interest on such input tax credit wrongly availed and utilized, at such rate not exceeding 24% as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed.

Interest to be paid on net GST

The interest for delayed payment is payable only after deducting the input tax credit availed by the assessee and not the gross amount.  Since the availing of input tax credit amounts to the payment of tax it shall not be taken into account for calculating interest for the delayed payment.

In M/S. SUMILON POLYSTER LIMITED VERSUS UNION OF INDIA - 2022 (9) TMI 935 - GUJARAT HIGH COURT, all the petitioners in this case have paid the GST belatedly.  Once the tax is paid lately the interest liability is automatic.  The Revenue demanded interest on delayed payment of tax under the provisions of CGST Act by calculating interest on the gross GST liability instead of net liability as per section 50(1) of the CGST Act.  Challenged the decision of the Revenue these writ petitions have been filed before the High Court.

The petitioners submitted the following before the High Court-

• The Revenue demanded interest on delayed payment of tax by calculating the interest on the gross GST liability instead of net liability as per Section 50(1) of the CGST Act.
• As per the decision taken in 31^st GST Council Meeting held on 22.12.2018 the interest shall be charged only on the net liability of the tax payer after taking into account the admissible credit.
• As per section 49 of CGST Act, the input tax credit as self assessed in the return of the registered person shall be credited to the electronic credit ledger which may be used for payment towards tax, interest, fees or any other amount whereas the amount available in the electronic credit ledger may be used for payment towards output tax.

Therefore the grievance raised by the petitioners for levy of the interest by the Revenue for the delayed payment of tax the net amount of GST liability should be taken care of.

The Revenue contended that in view of the amendment of Section 50(1) that came into effect from 01.07.2017 by inserting the proviso would redress the grievances raised by the petitioners of charging the interest on the gross amount of GST liability.

The High Court held that in view of the above submissions the petition becomes infructuous in view of the amendment brought to Section 50(1) of the CGST Act by substituting the proviso with effect from 01.07.2017 as per Section 112 of the Finance Act, 2021 and disposed the writ petitions.  The High Court directed the Revenue to give effect to the amendments to Section 50(1)