Interest on non-compliance with Rule 86B

[vaibhav agrawal]

A taxpayer did not comply with Rule 86B during FY 2022-23 and discharged 100% of output tax liability through eligible ITC instead of paying the mandatory 1% in cash.The Department is now demanding interest under Section 50 on the 1% shortfall from the original due dates.

However, the taxpayer had substantial balances in the Electronic Cash Ledger during the relevant period, including amounts deposited before/around the relevant due dates, which continued to remain available in the ledger.

Questions:

1. Does non-compliance with Rule 86B automatically attract interest under Section 50?
2. Can the 1% be considered "tax remaining unpaid" when the output tax liability was otherwise discharged through eligible ITC?
3. Does the availability of sufficient funds in the Electronic Cash Ledger affect the applicability/calculation of interest?

AI Summary

Rule 86B cash-payment compliance raises whether interest applies despite eligible credit utilisation and sufficient electronic cash ledger balances.
Interest liability for non-compliance with Rule 86B is examined where output tax liability was fully discharged through eligible input tax credit instead of paying the stipulated portion through the Electronic Cash Ledger. The issues are whether the cash-payment shortfall constitutes tax remaining unpaid for Section 50 interest and whether sufficient balances available in the Electronic Cash Ledger affect the applicability or calculation of interest.