Interest rates under CGST Act.

[Alkesh Jani]

Sir,

In terms of Section 50 (3) of CGST Act, If ITC is wrongly taken or utilized, on reversal interest @ 24% is to be paid. However, if refund is delayed for more than 60 days, interest rate @6% will be paid in terms of Section 54(12) of CGST Act, 2017.

Moreover, in terms of Section 2(84) of CGST Act, 2017, person includes Central Government or State Government.

The query is :- Section 54(12) of the Act, can be held to be ultra vires to Article 14 of Constitution of India.

Thanks

[YAGAY andSUN]

In our view it is not ultra vires to Article 14 as higher rate of interest as charged by Government works as deterance and to force the assessee/tax payer to adherence with the compliances.

[Rajagopalan Ranganathan]

Sir,

The CGST Act, 2017 does not specify the maximum rate of interest payable by the registered person. However Notification 13/2017-C.T. prescribe the rate of interest leviable under sub-sections of Section 50, 54 and 56. Unless you prove with evidence tha levy of interest @ 24% causes undue hardship or it is unreasonable you cannot challenge the same under Article 14 of Constitution of India. This is my opinion. Experts may please elaborate further.

[KASTURI SETHI]

The querist wants to say why discrimination on account of payment of interest. Govt. pays @ 6% but recovers @ 24 % or 18% depending upon the nature of contravention. Govt. is a 'Ruler' and an assessee is a 'Ruled' as per Constitution of India. Nicely explained/ replied by both experts. I agree with the views of both experts.

If Central Govt. or State Govt. is a taxable person, that Govt. will also get interest @ 6% on the delayed refund. If we peruse decisions of various Courts, penal interest is also imposed on Central Govt. and State Govt., if contravened any provision of Act.Hence question of 'ultra vires' of Article 14 of the Constitution does not arise. All persons are equal in the eyes of law.

[Alkesh Jani]

Sir,

I appreciate the views expressed by our experts, as stated by M/s. Yagay and Sun, that it is to force the assessee/tax payer to adherence with the compliance of law. Also as stated by Sh. Kasturiji Sir, about the discrimination of rate of interest. In this regards, I wish to add the following grounds :-

1. If this is to force the taxpayer to adhere with the compliance of law, why not tax officers are not forced for compliance of law. In erstwhile law, Excise or Service Tax, the refund was to be sanction within 30 days, while in GST, time frame is 60 days. Moreover,Govt. was not termed as “person” in erstwhile law while in GST Govt is termed as person and Govt. plays the role of execution of the decision of the council, therefore, in GST council is the highest authority.
2. Regarding rate of interest say 6% which is less than the Bank Interest while 24% or 18% is like imposing penalty. Even money lenders are abid by the rate of 18%, then why 24% for taxpayers.

We are in Independent India, these kind of rate of interest and taxes were levied during British Rule. If Govt. is for the people, why not to keep 24 % instead of 6% for delayed refund.

I also acknowledge the views expressed by Sh. Rajagopalan Ranganathan Sir, with request that 24% is 4 times higher than delayed refund rate of 6%, without any doubt, it is undue hardship to any taxpayers or any citizen. Here, we are to keep in our mind the business man having turnover of just more than 20 or 10 lakhs, as the case may be. Please re-offer your comments.

Thanks

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

We can raise voice only in the interest of justice before Govt.. It is the duty of Govt. to see what is right and what is wrong. Can you measure the magnitude of evasion of various taxes in a year ? Do you think assessees are availing threshold exemption of Rs.20 lakhs only de facto? It is the jurisdiction of GST Council/Govt. of India. Govt. has done so knowingly. When Govt. frames laws, the factor of evasion is also kept in mind. It is the field of policy makers and Govt. knows how to rule and how to watch interest of public. We cannot teach the Govt. At the helm, no dearth of intelligent leaders. They know how to rule India and how to make law. We are deviating from the mainstream.

However, I appreciate that there is a logical force in your idea.

[DR.MARIAPPAN GOVINDARAJAN]

Section 54(12) of the CGST Act cannot be held to be ultra vires to Article 14 of the Constitution.

AI Summary

Interest Rate Differential: higher statutory interest on reversed ITC operates as deterrent and is not arbitrary under Article 14 Section 54(12) of the CGST Act allows a lower interest rate on delayed refunds than the higher interest charged for wrongly availed input tax credits; the differential is defended as a permissible policy measure serving as a deterrent, with rates borne out by delegated notifications. The statutory scheme does not fix a maximum interest rate, and challenge under Article 14 requires evidence that the prescribed rate is arbitrary or causes undue hardship. Inclusion of governments within the definition of 'person' and instances where governments incur interest liabilities weigh against a finding of unconstitutional discrimination.