Interest on delayed GST cash payments (July 2017-Oct 2020) u/s50 and r.142A upheld; writ dismissed

Interest on delayed payment of GST was in issue, specifically whether interest could be recovered under s.50 CGST Act read with r.142A CGST Rules for tax paid belatedly in cash from July 2017 to October 2020, and whether the proviso to s.50(1) barred such recovery. The HC held the proviso (inserted by Finance (No.2) Act, 2019) operated only prospectively from 01.09.2020 as notified, and did not negate interest liability for the period of default; interest is a statutory consequence of belated payment of self-assessed tax, and the taxpayer had no justification for not discharging liability timely using available electronic credit/cash mechanisms. The writ petition was dismissed and the interest demand sustained.

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Issues Involved:
1. Entitlement to stall recovery of interest on delayed tax payment under Section 50 of CGST Act, 2017.
2. Applicability of the proviso to Section 50(1) of CGST Act, 2017.
3. Legality of the demand for interest on belated tax payment.

Issue-wise Analysis:

1. Entitlement to Stall Recovery of Interest on Delayed Tax Payment Under Section 50 of CGST Act, 2017:
The petitioner sought to quash a demand notice dated 04.03.2020, which required payment of Rs. 6,58,233/- as interest for delayed tax payment under Section 50(1) of the CGST Act, 2017. The High Court had previously directed the respondents to recompute the interest liability and refund any excess amount collected. The GST Council had recommended that interest on delayed GST payment should be charged only on net cash tax liability retrospectively from 01.07.2017. Despite this, the GST authorities issued orders levying interest on tax paid by reversal of ITC, leading to contradictory positions and coercive recovery actions.

2. Applicability of the Proviso to Section 50(1) of CGST Act, 2017:
The proviso to Section 50(1), inserted by the Finance Act (No. 2) Act, 2019, stipulates that interest on tax payable for supplies made during a tax period and declared in the return filed after the due date should be levied only on the portion of tax paid by debiting the electronic cash ledger. This proviso came into effect from 01.09.2020 via Notification No. 63/2020-Central Tax. The CBIC clarified that no recovery of interest for the past period would be made in light of the GST Council's decision. However, the court noted that this proviso was not relevant to the petitioner's case, as the interest liability did not arise from the reversal of ITC but from the belated payment of tax.

3. Legality of the Demand for Interest on Belated Tax Payment:
The court observed that the petitioner had paid tax belatedly for the period from July 2017 to December 2019 and was thus liable to pay interest under Section 50(1) of the CGST Act, 2017. The court emphasized that interest is applicable on belated tax payments declared in returns, irrespective of whether the tax is paid from the electronic cash ledger or credit ledger. The court dismissed the writ petition, concluding that the petitioner had no excuse for not paying the tax on time and was liable for the interest demanded.

Conclusion:
The court dismissed the writ petition, stating that the petitioner was liable to pay interest on the belated payment of tax under Section 50(1) of the CGST Act, 2017. The proviso to Section 50(1) was deemed inapplicable to the petitioner's case, as the interest liability did not arise from the reversal of ITC. The court upheld the demand for interest on the net tax liability due to delayed tax payment.

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