Benefit of net tax liability

[Atul Mehrotra]

Dear experts.

A taxpayer dealing in tobacco products failed to report cess on outward supplies for the month of July 2017 to the tune of ₹ 25 lakh both in GSTR-3B & GSTR-1. During departmental audit, the issue was taken up and interest was demanded till date on ₹ 25 lakh. Balance of ITC on cess as on 31 March 2018 was ₹ 13 lakh and ITC pertaining to July 2017 was ₹ 1.5 lakh.

Query 1 - What would be the manner of calculation of interest if benefit of ITC is given?

Query 2 - What would be the manner of calculation of interest if section 74 is invoked?

[Atul Mehrotra]

In Query 2, please include section 73.

Query 3- Can the taxpayer use currently accumulated ITC to pay Cess? (Interest will be paid in cash)

[KASTURI SETHI]

Sh. Atul Mehrotra Ji,

It is a fact that the lapse on the part of tax payer has been detected by the department in the course of audit (as mentioned by you). So the question of voluntary payment of cess for the past period does not arise. I mean to say non-payment of cess will be demanded by the department invoking Section 74 and not Section 73 in the audit report. The tax payer can make payment of arrears of cess by utilising input credit of cess. Also read Section 11 (2 & 3) of GST Cess Act. Also read Section 8 of the GST Cess Act

Interest has to be paid from the date of due date of payment on the gross amount of cess not paid. No benefit of net tax liability is available to the tax payer in this scenario. Highest rate of interest is applicable.

Central Excise Act and Rules are also applicable to tobacco products.

[Atul Mehrotra]

Respected Sethi Sir.

Can the taxpayer utilize Cess input available in the credit ledger as on date, and if so, which legal provision should be referred to?

[KASTURI SETHI]

Answer is yes. Proviso to Section 11(2) of GST Cess Act says :

"Provided that the input tax credit in respect of cess on supply of goods and services leviable under section 8, shall be utilised only towards payment of said cess on supply of goods and services leviable under the said section."

[Shilpi Jain]

In case the credit balance is maintained throughout the period when will the liability remained unpaid, there could be a possibility to waive off the interest demand. however this is not free from dispute from the department

[Shilpi Jain]

Have u not filed your 9 and 9C for the year 2017-18. if yes was it not discovered in the GST audit by the professional?

[KASTURI SETHI]

When the elements of suppression of facts, mis-declaration etc. are involved (referring to Section 74), not even remote possibility of charging interest on net tax liability is present. No hope for waiving of interest, if Section 74 is invoked.

[Atul Mehrotra]

GSTR-9/9C was filed but the error was not detected then.

If the taxpayer pays interest before issuance of SCN, can penalty be waived off?

[KASTURI SETHI]

If SCN is issued Section 73 and tax along with interest is deposited no penalty will be imposed .

Section 73 (8) of CGST Act Where any person chargeable with tax under sub-section (1) or sub-section (3) pays the said tax along with interest payable under section 50 within thirty days of issue of show cause notice, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded.

If SCN is issued under Section 74 (25% penalty will be paid)

Section 74 (8) of CGST Act "Where any person chargeable with tax under sub-section (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent. of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded."

[Atul Mehrotra]

Thank you for your valuable advice.

AI Summary

Interest on unpaid cess must be paid from the original due date on the gross liability; cess ITC may only discharge cess. The taxpayer may utilise accumulated cess-specific input tax credit only for payment of cess under the proviso to Section 11(2) of the GST Cess Act; interest on unpaid cess runs from the original due date and is calculated on the gross unpaid cess with no benefit of net tax liability when suppression or mis-declaration invoke enhanced provisions. Under Section 73, payment of tax and interest within the prescribed period after a show cause notice avoids penalty; under Section 74, a penalty component applies and prospects for waiver are limited.