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.

AI Summary

Interest under GST applies only to net cash tax liability, not gross liability, even in audit-based short-payment cases. Interest under Section 50 of the CGST Act is compensatory and payable only on the portion of tax discharged through the electronic cash ledger, not on tax already met through input tax credit. The retrospective amendment to Section 50(1) makes interest chargeable on unpaid or belatedly paid tax only to the extent of the net cash liability, except in cases covered by Sections 73(11) and 74. This principle is not confined to delayed GSTR-3B filings and extends to audit findings as well.