aplicablity of interst under sec 50

[giri gattupalli]

respected sir,

department is still levying interest on gross tax liability instead of net tax liability in the instance of audit findings . and they are arguing interest on net tax liability applicable only for GSTR-3B  returns but not for audit findings.

i request our respected members please provide clarity.

thanking you

[Sadanand Bulbule]

The retrospective amendment to Section 50(1) establishes that interest is compensatory and must be levied only on the net tax liability (cash portion), as the government already holds the credit portion in its coffers, making the department's distinction between returns and audit findings legally untenable.

[YAGAY andSUN]

Interest under Section 50 of the CGST Act is compensatory in nature and can be levied only on the portion of tax actually paid in cash, since tax discharged through ITC does not result in any loss of revenue to the Government.

Section 50(1), after amendment by the Finance Act, 2019 (retrospectively effective from 01.07.2017 vide Notification No. 16/2021-CT dated 01.06.2021), specifically provides that interest shall be payable only on that portion of tax paid by debiting the electronic cash ledger, except in cases covered under Section 73(11) or Section 74.

The provision does not restrict its applicability only to delayed filing of GSTR-3B returns. The language used is "tax unpaid or paid belatedly". Therefore, wherever tax liability is ultimately discharged partly through ITC and partly through cash, interest can arise only on the net cash liability.

Audit findings merely determine short payment or non-payment of tax. Once such liability is discharged through available ITC, the portion adjusted through ITC cannot be treated as revenue withheld from the Government. Hence, levy of interest on the gross liability defeats the legislative intent behind the retrospective amendment.

This position also stands supported by judicial precedents.

Further, CBIC itself, through its press release dated 26.08.2020 and subsequent amendment, acknowledged the legislative intent that interest is to be levied only on net cash tax liability.

Therefore, the departmental contention that net liability principle applies only to GSTR-3B filings and not to audit demands is legally unsustainable, unless the case falls under Section 73(11) or Section 74 involving fraud, suppression, or detention of tax beyond prescribed situations.

[KASTURI SETHI]

The department's stand is statutorily incorrect. Differentiating in such a way is baseless.

[FCA Adv amit aggarwal]

many GST audit wings and DGGI formations still raise interest demands on gross tax liability in cases involving:

• audit objections,
• scrutiny findings,
• wrongful availment/utilisation of ITC,
• delayed disclosure of outward supply,
• post-investigation tax payments,
• Section 73/74 proceedings.

BUT Refex Industries Limited vs The Assistant Commissioner Of Cgst (2020 (2) TMI 794 - MADRAS HIGH COURT) clarified that proper application of section 50 is one where interest is levied on a belated cash payment but not on ITC available all the while with the Department to the credit of the assessee.

if case in pending at deptt stage- made response through mention this judgement

if DRC 07 order has been issued- file appeal with appellate authority

[KASTURI SETHI]

With reference to the reply at serial no.4

The issue is worth fighting up to the end. Since the department is interpreting in a different way, the matter will travel up to Hon'ble Supreme Court, Interpretational dispute always travels up to the Apex Court.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

As per Circular 192/04/2023-GST, interest is not attracted if the total ITC balance (IGST + CGST + SGST) is sufficient to cover the wrongly availed amount.

However, the Credit of ITC must not fall below the date on which the output tax liability arises. That is, there must be a continuous flow of ITC as on the date of output tax liability payable.

Ineligible ITC, wrongly availed ITC or fraudulently availed ITC at credit cannot be taken for net tax liability. Interest would be attracted to the extent of such portion of ITC at credit.

Other than these things, the net tax liability is to be considered. There is no concept of interest on net tax liability applicable only for GSTR-3B returns, but not for audit findings. The audit officer has a wrong notion.

[KASTURI SETHI]

Sh.Kalleshamurthy Murthy Ji,

Sir, No room for doubt. Well explained by you. After your reply, it appears to me that the department is drawing a thin line between declared (GSTR-3B) and non-declared (suppressed/concealed) (Section 74). Whatever is being detected by the department is being treated as concealed from the department. That detection may be the result of:-

• audit objections,
• scrutiny findings,
• wrongful availment/utilisation of ITC,
• delayed disclosure of outward supply,
• post-investigation tax payments,
• other proceedings under Section 74.

We may not be aware of full facts of each case. We cannot jump at the conclusion on the basis of what is being presented before us in the query itself.

Each query is one-sided picture inasmuch as the department's viewpoint is absent in the absence of disclosure of full facts in the query by the querist.

We have observed that the querist never discloses full facts at the first instance and, later on, the whole scenario is changed by way of addition or deletion or modification in the query.

[KALLESHAMURTHY MURTHY K.N.]

Dear Kasturi Sethi Ji Sir,

Thank you very much for the appreciation. Sir, you are absolutely correct. The query did not include all the facts needed to provide the answer. Your reply is more detailed and clearer.

[KASTURI SETHI]

Sh. Kalleshamurthy Murthy Ji,

Sir, I am highly thankful to you for devoting your precious time and validation as well.

[YAGAY andSUN]

From a legal standpoint, the following principles emerge:

1. Interest under Section 50 is fundamentally compensatory and not penal in nature.
2. Ordinarily, interest should be computed only on the net cash liability, since utilisation of valid ITC does not deprive the Government of revenue.
3. The benefit of net liability computation is not confined merely to GSTR-3B filings and may extend even to liabilities arising from audit or scrutiny proceedings, provided valid ITC was available throughout.
4. In cases involving fraud, suppression, wilful misstatement, or ineligible ITC, the department may seek to invoke exceptions under Sections 73(11) and 74 to justify levy on gross liability.
5. The issue remains litigation-prone due to divergent departmental interpretations and absence of final authoritative determination by the Hon'ble Supreme Court on all factual scenarios.

Accordingly, assessees facing demands for interest on gross tax liability in audit proceedings should:

• examine whether sufficient eligible ITC was continuously available;
• analyse whether the case genuinely falls under Section 74 allegations;
• rely upon the amended Section 50, CBIC clarifications, and judicial precedents including Refex Industries;
• contest unsustainable demands through adjudication and appellate remedies where necessary.

In conclusion, the stronger legal view presently favours levy of interest on net cash liability rather than gross tax liability, except in cases specifically involving statutory exceptions such as fraud, suppression, or utilisation of ineligible ITC.

[KASTURI SETHI]

Par Excellence, Sir.

[KASTURI SETHI]

Regarding the invocation of Section 74, the burden of proof is cast upon the department. Regarding correct availment of ITC, the burden of proof is cast upon the person who claims ITC as per Section 155 of CGST Act. Both aspects have to be taken care of while filing reply to the SCN or filing an Appeal.

[Sadanand Bulbule]

2026 (5) TMI 789 - CHHATTISGARH HIGH COURT - Vandana Global Ltd. Versus Principal Commissioner Central GST Central Excise Chhattisgarh, Commissioner SGST, Raipur, Chhattisgarh, Assistant Commissioner SGST, Goods And Service Tax Network New Delhi

[giri gattupalli]

Respected Sir,

I am herewith disclosing my findings here, please check and give your valuable opinions.

Sir,

The phrase “tax payable” is very necessary for levy of interest under section-50(1) but we never find definition of tax payable or any prescribed mechanism to arrive at tax payable in GST Act.

But in FORM GSTR-3B we can find something useful for our purpose

I am herewith submitting extracts of FORM GSTR-3B as under:

1) In FORM GSTR-3B for the purpose of column 6.1 i.e. payment of tax, figures are picked up directly from column 3.1 of GSTR-3B i.e. out put tax payable. So we may arrive at conclusion that from the point view of Department tax payable is output tax payable before ITC adjustment and for the purpose of section 50(1) also they considered output tax payable as tax payable. So, for the purpose of levy of interest Department is proposing directly on” under declaration of out put tax” in simple words they have equated TAX PAYABLE to OUTPUT TAX PAYABLE and I think whole problem is here.

And further column No. 2 they have used the words TAX PAID THROUGH ITC. Here Department clearly admitted that payment through ITC is one of the mode of tax payment and here I like to bring your attention.

“If there is excess ITC available in Electronic credit ledger then why it does not mean to excess payment of tax in advance credited with Department and where this excess amount of tax covers “UNDER DECLARED OUTPUT TAX and then how the question of interest arises if we have excess payment. Please discuss.

Thanking you sir,

[giri gattupalli]

i request all esteemed members of this group to evaluate my opinion in above reply 11 and kindly provide your valuable inputs to correct myself .

thanking you

[giri gattupalli]

Respected Sir,

Even by strictly adopting the words used in GSTR-3B form the point view of Department:

If total tax payable (Output tax payable) for the month of April-2025 = 15,00,000/-

Tax paid through ITC (Total claim of ITC) for the month of April-2025 = 10,00,000/-

Excess tax paid of = 5,00,000/-

If Department find 2,00,000/- of under declaration of output tax still we have excess payment of tax of 3,00,000/- then how the liability for interest is arising. Please discuss.

Thanking you Sir.

[KALLESHAMURTHY MURTHY K.N.]

Dear Sir,

This is for your example at Sl. No. 12.

Your tax liability, as you calculated, is Rs. 15-00 lakhs. You have discharged the tax through ITC at Rs. 10-00 lakhs. This means you have utilised the entire ITC at your credit. Please pay the remaining balance of Rs. 5-00 lakhs through the cash ledger. If the Department identified an additional 2-00 lakhs tax liability, the total tax liability would be 17-00 lakhs. So your tax liability above the ITC is set off. If this is the scenario in your case, the levy of interest would be correct.

If the ITC at your Credit after deducting ineligible ITC is Rs. 15-00 lakhs, and the tax liability is Rs. 10-00 lakhs, an additional tax liability of 2-00 lakhs is identified by the department, you still have ITC at credit at Rs. 3-00 lakhs if the said tax liability is given set off with the available ITC, then no interest will be payable.

[YAGAY andSUN]

Under the scheme of the CGST Act, interest u/s 50 is attracted only where tax remains unpaid beyond the prescribed date. The crucial distinction is between:

1. ITC already utilised in GSTR-3B, and

2. ITC validly available and lying unutilised in Electronic Credit Ledger ("ECL").

In the first situation:

• Output tax liability declared = Rs. 15,00,000

• ITC utilised in GSTR-3B = Rs. 10,00,000

• Balance discharged through cash = Rs. 5,00,000

Here, the entire ITC available for the tax period already stood exhausted/utilised. Therefore, when the Department determines additional output tax liability of Rs. 2,00,000, such additional liability cannot be said to be covered by any balance ITC. Consequently, the additional liability becomes payable in cash and interest u/s 50(1) is legally attracted from the due date till the date of payment.

The contention of "overall excess payment" is not legally sustainable because GST law does not recognise notional or aggregate excess payment once the ECL balance stands fully utilised in the return. Liability is examined with reference to:

• tax payable determined for the period; and

• admissible ITC actually available in ledger.

However, in the second situation:

• Valid admissible ITC available in ECL = Rs. 15,00,000

• Declared tax liability = Rs. 10,00,000

• Unutilised ITC balance remaining in ECL = Rs. 5,00,000

• Additional liability determined = Rs. 2,00,000

Then, the additional liability can be entirely set-off against the already available balance ITC. Since sufficient ITC was continuously available in the ECL, there is no delayed payment of tax in cash. In such circumstances, levy of interest u/s 50 is not sustainable, because the Government was never deprived of tax to the extent covered by valid ITC available in ledger.

Thus, for applicability of interest, the decisive factor is not "overall excess tax paid", but whether sufficient admissible ITC remained available in the Electronic Credit Ledger on the relevant dates to discharge the differential tax liability.

[Shilpi Jain]

Many taxpayers accept the position stated by officers and treat that as law. This is not correct.

Interest is on net liability and this is supported by provisions and decisions.

[Amit Agrawal]

From the query, what I understood is that the tax-payer has either not disclosed or short-disclosed output tax liability in its return/s filed under Form GSTR-3B.

And now, after the audit, Dept. has demanding the same (i.e. taxes either not-paid or short-paid) with interest u/s 50(1) of the CGST Act, 2017 (on gross tax liability basis) read with Rule 88B(2) of the CGST Rules, 2017 wherein interest is NOT allowed to be reduced (to the extent of net tax liability) despite tax-payer maintaining constant ITC balances.

And if I understood the factual position from the query correctly, kindly let me explain my "conundrum" in given situation:

Relevant portion of Section 50 reads as follows:

50. (1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council.

Provided that ................

(2) The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid."

Now, the most relevant question, to my mind, is what is the "period / due day prescribed" for payment of 'subject tax-dues'?

Section 37(7) throws some light of above question, which reads as under:

"Every registered person who is required to furnish a return under sub-section (1), other than the person referred to in the proviso thereto, or sub-section (3) or sub-section (5), shall pay to the Government the tax due as per such return not later than the last date on which he is required to furnish such return:

................"

However, above-said Section 37(7) prescribes due-date of payment of taxes ONLY for "tax dues' disclosed / declared as per return. But, the same does NOT deal with the due-date of paying taxes which are NOT disclosed / declared in that return itself.

So, on what basis, whether ANY interest is payable u/s 50(1) in the given situation? And yes, what is the due-date of paying those taxes so discovered during Dept's audit ?

Please note that I have NOT given any views on any of these questions.

JUST SOME FOOD FOR THOUGHTS FROM POINT OF HEALTHY DISCUSSION / DEBATE ..... Nothing more

[KALLESHAMURTHY MURTHY K.N.]

Sir,

This is a reference to Sl. No. 15 for the due date for interest liability on the undisclosed/undeclared tax.

"However, above-said Section 37(7) prescribes due-date of payment of taxes ONLY for "tax dues' disclosed / declared as per return. But, the same does NOT deal with the due-date of paying taxes which are NOT disclosed / declared in that return itself."

It is very much understood that the tax payer has to declare all the tax liability when arises while filing the returns for the respective month u/s 39(1). Undisclosed turnover and tax falls due from the date that has to be declared. So the due date itself is the date on which he is required to furnish such return as provided u/s 39(1).

[Amit Agrawal]

Dear KALLESHAMURTHY MURTHY K.N. Ji,

W.r.t. your post at Sr. No. 15.1, your attention is invited to 5 member bench Apex Court ruling in case of BIRLA CEMENT WORKS & JK. SYNTHETICS LTD. VERSUS COMMERCIAL TAXES OFFICER AND STATE OF RAJASTHAN (As reported in 1994 (5) TMI 233 - SUPREME COURT.).

In above ruling, reasoning given to OVERULE the majority opinion of earlier 3 member bench ruling in case of Associated Cement Co. Ltd. Versus Commercial Tax Officer, Kota and Others (As reported in 1981 (10) TMI 146 - Supreme Court) is worth noticing.

[KALLESHAMURTHY MURTHY K.N.]

Dear Sri Amit Ji,

Sir,

Thank you for the cases referred; they provide more insight into interpreting the circumstances for levying interest on delayed payments. In the case of J.K. Synthetics Ltd vs Commercial Taxes Officer - 1994 (5) TMI 233 - SUPREME COURT the hon'ble Court has observed that the interest was levied under relevant sections of the Rajasthan State Act. The hon'ble Court also explained in Para-7, the situations of levy of interest.

"It will thus be seen that under Section 11-B before the 1979 Amendment the liability to pay interest on unpaid tax amount accrued on the dealer in two situations only, viz., (i) failure to pay the tax due under sub- sections (2) And (2-A) of Section 7 and (ii) failure to pay the tax within the time allowed by the notice of demand or 30 days from the receipt of the notice by the dealer. Section 11-B before its amendment nowhere provided for payment of interest on the unpaid tax amount as found on final assessment from the date of the filing of the return under Sec. 7 of the Act. If the amount of tax payable under sub-section (2) is paid on the basis of return, not on the basis of final assessment, there can be no question of payment of interest under clause (a) of Section 11-B. Similarly, if the tax is paid according to the return as required by sub-section (2-A), in other words, if the full amount of tax due 'shown' in the return is paid, there can be no question of charging interest under clause (a) of Section 11-B. So far as clause (b) is concerned it is a post assessment situation. Where tax is found due on final assessment..... If the dealer fails to pay the tax within the time specified in the notice, and if no time is specified within 30 days from the receipt of notice, he is required to pay interest. But if he pays the difference of tax within the prescribed time, there is no question of charging interest......."

So the Judgement was clearly held the situations of liability to interest where and when it can be levied and where it cannot be applicable.

So, the case was held on the particular issue depending upon the different situation in the said case and does not applicable for all other situations in other cases.

This is my understanding of the case. Welcome to more discussion for clarity in the subject matter.

AI Summary

Net cash liability under GST interest provisions governs levy on unpaid tax, including audit-related demands with valid ITC availability. Interest under Section 50 of the CGST Act is generally compensatory and is leviable only on the net cash tax liability, not on the gross tax liability. The net-liability principle is said to apply beyond delayed GSTR-3B filings and may extend to audit or scrutiny findings where valid ITC was continuously available. Exceptions are recognised for fraud, suppression, wilful misstatement, or ineligible ITC under the statutory provisions corresponding to Sections 73 and 74.