Ministry notifies amendment in GST law for levying interest on net cash liability

Shishir Sinha New Delhi | Updated on June 02, 2021

Taxpayers who have already paid interest on gross liability can seek refund

The Finance Ministry notified amendment in Central Goods and Services Tax (CGST) Act to facilitate charging of interest on net cash (tax) liability, retrospectively. To ensure smooth implementation, States will also be required to amend the State Goods and Services Tax (SGST) Act and notify at the earliest.

Experts feel that such a notification will give a big relief to assessees. Net cash liability is arrived at after deducting input tax credit from gross GST liability. Tax is deposited along with returns within the prescribed timeline. After the prescribed date, the assessee is required to pay interest on cash liability.

“This notification for amendment made through Section 112 of the Finance Act 2021 intends to remove any ambiguity on the issue (charging interest on net cash liability) from the date of implementation of GST (July 1, 2017) and close pending cases and litigations on this issue,” a senior Finance Ministry official told BusinessLine. This matter was placed before the meeting of GST Council on May 28 and post its approval, notification has been issued.

Seeking refund

“With this notification, notices will not be issued for recovery on gross tax liability for any tax period. Further, taxpayers who had already paid interest on the gross tax liability will ideally be entitled for refund of the interest paid since July 1, 2017,” Aditya Singhania, Partner at Singhania’s GST Consultancy & Co said.

However, one must exercise caution in discharging interest on the gross tax liability where the invoices/debit notes of a certain tax period have been uploaded in the returns of the subsequent tax period, he said. “In fact, interest needs to be paid on gross tax liability where such return is furnished after the commencement of any proceedings under section 73 or section 74 in respect of the said tax period,” he added.

A long drawn issue

Interest on net cash liability has been long drawn issue. In its meeting on June 21, 2019, the GST Council recommended interest to be charged on net cash tax liability, with effect from a date to be notified by the government. For this, amendment was made through the Finance Act, 2019. Then, in another meeting (March 14, 2020), the Council recommended interest to be charged on net tax liability with effect from July 1, 2017.

However, a notification was issued on August 25, 2020, which set the appointed date as September 1, 2020 for interest applicability. Taxpayers alleged that this notification was contrary to recommendations given by the Council. In order to address this issue, the Central Board of Indirect Taxes and Customs (CBIC) issued an instruction on September 18, 2020

Accordingly, it was decided that for the period between July 1, 2017 to August 31, 2020, interest is to be recovered only on the net cash tax liability. Further, it was said wherever a show-cause notice (SCN) has been issued on gross tax payable, the same may be kept in abeyance in Call Book till the respective amendment in the law is carried out.

Published on June 02, 2021

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