2020 (2) TMI 794 - HC - GST

Court clarifies CGST Act: Interest only on cash payments, not ITC

M/s. Refex Industries Limited, M/s. Sherisha Technologies Pvt. Ltd. Versus The Assistant Commissioner of CGST & Central Excise, The Superintendent of Central Tax, Bank Managar, Bank Managar, ICICI Bank

The court ruled in favor of the petitioners in a case concerning the calculation of interest on belated filing of Returns under the CGST Act. The judge ... Levy of Interest on belated payments - Section 50 of CGST Act - whether in a case, where credit is due to an assessee, payment by way of adjustment can still be termed 'belated' or 'delayed'? - HELD THAT:- The use of the word 'delayed' connotes a situation of deprival, where the State has been deprived of the funds representing tax component till such time the Return is filed accompanied by the remittance of tax. The availability of ITC runs counter to this, as it connotes the enrichment of the State, to this extent. Thus, Section 50 which is specifically intended to apply to a state of deprival cannot apply in a situation where the State is possessed of sufficient funds to the credit of the assessee. The proper application of Section 50 is one where interest is levied on a belated cash payment but not on ITC available all the while with the Department to the credit of the assessee. The latter being available with the Department is, thus, neither belated nor delayed. Proviso to Section 50(1), as per which interest shall be levied only on that part of the tax which is paid in cash, has been inserted with effect from 01.08.2019, but clearly seeks to correct an anomaly in the provision as it existed prior to such insertion. It should thus be read as clarificatory and operative retrospectively. Petition allowed - decided in favor of petitooner. Issues:1. Calculation of interest on belated filing of Returns under the CGST Act.2. Dispute regarding the liability to pay interest on the Input Tax Credit (ITC) component.3. Interpretation of Section 50 of the CGST Act regarding the automatic levy of interest.Analysis:1. The petitioners, registered under the CGST Act, filed Returns of income belatedly for the period 2017-18. The respondents issued communications computing the delay in filing Returns and the interest to be remitted on the tax. Demand notices were sent to the Banks to recover arrears of interest from the petitioners' accounts.2. The petitioners argued that they had sufficient ITC available with the Department, and interest should only be demanded on the cash component of the tax remitted belatedly. They contended that interest should not apply to the ITC amount adjusted towards the tax demands. The main issue raised was whether interest was payable on the ITC component.3. The legal issue revolved around whether interest was automatically payable on belated tax payments, considering the availability of ITC. Previous judgments and appeals highlighted the need for a deeper consideration of the interest levy. The Third Judge clarified that while interest was automatic, the quantification required an arithmetical exercise after hearing the assessee's objections.4. The judgment focused on the interpretation of Section 50 of the CGST Act, which mandates interest on delayed tax payments. The Judge emphasized that the levy of interest was compensatory to the revenue for belated remittance of tax. The comparison to Income Tax Act provisions reinforced the mandatory nature of interest payments for delayed filings.5. The Judge analyzed whether the term 'belated' or 'delayed' applied to situations where credit was due to an assessee, leading to the conclusion that interest should not be levied on ITC available with the Department. The Judge reasoned that Section 50 aimed to address deprival of funds, which did not apply when the State already possessed sufficient funds through ITC.6. The judgment referred to a proviso inserted into Section 50(1) that clarified interest would be levied only on the portion of tax paid in cash. This amendment, effective from 01.08.2019, aimed to rectify existing anomalies in the provision. The Judge also considered a Telangana High Court decision interpreting Section 50, emphasizing the importance of the recent statutory amendments.7. Ultimately, the Writ Petitions were allowed, setting aside the impugned notices demanding interest on ITC amounts. The judgment highlighted the correct application of Section 50, ensuring interest was levied only on belated cash payments, not on ITC available with the Department.