Interest on GST Should Only Apply to Cash Portion, Not Input Tax Credit Under Section 50 of CGST Act

HC allowed writ petitions challenging levy of interest on gross returned income under Section 50 of CGST Act. The court held that interest should only be calculated on the portion of tax paid through electronic cash ledger, not on input tax credit. This interpretation was confirmed by the 2021 amendment to Section 50, which applied retrospectively from July 1, 2017. Respondents were directed to quantify interest in accordance with the amended provision after consulting with petitioners. No costs were imposed.

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Issues:
Levy of interest on gross returned income, interpretation of Section 50 of the Central Goods and Services Tax Act, 2017.

Analysis:
In a batch of writ petitions, the petitioners raised concerns about the levy of interest on the gross returned income rather than the net cash amount. The main issue revolved around the interpretation of Section 50 of the CGST Act, which deals with interest on delayed tax payments. The original text of Section 50(1) mandated individuals failing to pay tax within the prescribed period to pay interest at a rate not exceeding eighteen percent. The proviso to Section 50 was substituted by the Finance Act, 2021 with retrospective effect from 01.07.2017. Before the substitution, the proviso stated that interest on tax payable for supplies made during a tax period and declared late in the return should be levied on the portion paid by debiting the electronic cash ledger.

The amendment to the proviso addressed the petitioners' grievances. The revised proviso clarified that interest on tax payable for supplies made during a tax period and declared late in the return should be payable on the portion paid by debiting the electronic cash ledger. Consequently, the petitioners' concerns were effectively resolved. However, the specific details of the interest to be paid needed to be determined by the relevant authorities in accordance with the amended provision. Therefore, the court allowed all the writ petitions and directed the respondents to notify and consult with the petitioners before quantifying the interest to be paid under the amended Section 50 of the CGST Act. The judgment did not impose any costs on the parties, and pending miscellaneous applications were to be closed.

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