INTEREST ON GST- DELAYED TAX

[ARVIND JAIN]

ITC Balance - 31.03.2021 - ₹ 5 lakhs ( ALL ITC DUE TO EXCESS INPUT NO TAX PAID IN CASH IN ALL CASES )

ITC Balance - 30.04.2021 - ₹ 3 lakhs

ITC Balance - 31.05.2021 - Rs.NIL

ITC Balance - 30.06.2021 - ₹ 1 lakh

Let's assume there is neither output tax liability nor any ITC for the month of July 2021 and also assume that interest is payable only on Net tax liability.

Now, few missed out B2C invoices of MARCH 2021 having output tax liability of ₹ 3.50 lakhs are considered in GSTR 1 and GSTR 3B pertaining to tax period July 2021 and tax was paid on 20.7.2021. Please confirm that interest shall be chargeable on ₹ 50,000 for the period 1.5.2021 to 31.05.2021 and on ₹ 3.50 lakhs for the period 01.06.2021 to 30.06.2021 and
on ₹ 2.50 lakhs for the period 01.07.2021 to 20.07.2021. ( Assuming interest on Net Itc payment )

OR have to pay interest directly on 3.50 lakh from 22.04.2021 being due date of march return to 20 July 2021.

[Gunjan Shah]

Department would not like the way you have calculated interest.

Section 50(1) proviso states as under:

Provided 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.

Thus, plain reading states that interest shall be payable on the portion of tax which to be paid by debiting the cash ledger.

If you pay interest as per your calculation then -

1) Department does not object / verify - issue is settled.

2) There is no interest on interest.

[Shilpi Jain]

If the liability which is disclosed in the jul return is that of March period, as per the provision of sec 50 I test will still be liable. However your calculation can be defended considering interest is to compensate any loss caused to department. However this will have to be settled in the Courts only

[ARVIND JAIN]

NOW : 45th Meeting of the GST Council

. In the spirit of earlier Council decision that interest is to be charged only in respect of net cash liability, section 50 (3) of the CGST Act to be amended retrospectively, with effect from 1-7-2017, to provide that interest is to be paid by a taxpayer on 'ineligible ITC availed and utilized' and not on 'ineligible ITC availed'. It has also been decided that interest in such cases should be charged on ineligible ITC availed and utilized at 18% with effect from 1-7-2017.

Now My View on Int on the net is correct?

[Gunjan Shah]

You can stand by your, view, you can also take the shelter of intent of the GST Council meeting. However, as shilpi ji already pointed out in earlier reply, if some officer does not agree then you should be ready fight it.

I had already advised that there is no interest on interest.

[Shilpi Jain]

What has been mentioned in the Press release is that the Council has decided not to levy interest in case of any ineligible ITC availed but not utilised. So still does not clear the airs...

[Shilpi Jain]

Also, before relying merely on the press release it is suggested that we wait for the notifications (which have legal force). Some times it is seen that what comes out in the actual notification has other implications as well.

AI Summary

Interest on net tax liability: chargeability limited to cash-paid tax and to utilized ineligible ITC, pending formal notifications. Whether GST interest is computed on the net cash tax liability or on the gross tax for supplies of an earlier period declared later: departmental reading of the proviso to section 50(1) confines interest to the portion paid by debiting the electronic cash ledger, so interest is charged on the cash-paid portion and not on the entire attributable tax; interest is not compounded. The GST Council press release proposes a retrospective amendment to charge interest only on ineligible ITC that has been availed and utilized, but legal effect awaits formal notification.