Interest on net GST liability with retrospective effect to get legal backing

Shishir Sinha New Delhi | Updated on February 19, 2021 Published on February 19, 2021

Finance Bill proposes amendment in law

The Finance Ministry has cleared the air on interest on net tax liability with retrospective effect by proposing amendment in the GST law.

The Finance Bill 2021 proposes to amend Section 50 of the Central Goods and Services Tax (CGST) Act to substitute the proviso to sub-section (1) so as to charge interest on net cash liability retrospectively with effect from the July 1, 2017.

Net GST 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 to pay interest on tax liability.

Seeking refunds

A senior CBIC official said once the Finance Bill 2021 is enacted, the retrospective amendment will become effective and help in settling old matters. At the same time, those who have already paid higher interest can seek refunds. However, some experts feel assessees may need help from High Court to file refunds.

MS Mani, Partner with Deloitte, says the amendment will reaffirm the views of the Madras HC in the case of Refex Industries and overrule the decision of the Telangana HC in the case of Megha Engineering. “This will clarify to businesses at large that the need to pay interest on delayed payments is only on the net amount paid and will ensure that tax authorities across the country adopt a uniform view on this issue,” he said.

The GST Council, in its meeting on June 21, 2019, 2020, 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 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.

Contrary to notification

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.

Accordingly, it was decided that for the period July 1 to August 31, 2020, interest is to be recovered only on the net cash tax liability (that it, that portion of the tax that has been paid by debiting the electronic cash ledger or payable through cash ledger). Further, it was said wherever show-cause notice (SCN) has been issued on gross tax payable, the same may be kept in Call Book till the respective amendment in Section 50 of the CGST Act is carried out.

Call Book cases are those SCNs, which cannot be adjudicated immediately due to certain specified reasons and adjudication is to be kept in abeyance. Cases transferred to the Call Book are not included in the monthly statement of pending cases.

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Published on February 19, 2021
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