Undue haste to collect GST interest

| Updated on February 17, 2020

Tax officials should wait until all the States pass the necessary amendment on interest on GST delays

Even as the Finance Ministry is attempting to close the ₹11-trillion pending direct and indirect tax demands, that have become a veritable source of embarrassment for the Centre, the CBIC is getting ready to create a new pile of tax disputes. GST officials have recently been asked to collect interest amounting to nearly ₹46,000 crore for delayed payment of the GST. This is likely to lead to numerous litigations, since most GST assessees filed their taxes late in the initial years when the technical problems with the GSTN led to very low compliance. Since the law mandates that interest due on this delayed payment has to be paid by the assesses on their own, the CBIC is not wrong in enforcing this. It could, however, give some leeway to smaller businesses given the current tough economic conditions. Also, a legal tangle is being created due to the tax department’s haste in enforcing the law in letter.

According to the GST’s original design, the interest on late payment has to be computed based on the gross tax liability, as indicated in the GSTR-1 return, without deducting the input tax credit on it. This is due to the fact that the payment of GST liability is through two components — the cash component and the input tax credit. If the GSTR 3B is filed late, the CBIC was originally mandated to collect interest on the gross liability. However, the GST Council had rectified this anomaly and the law had been duly amended to make the interest payable on the net liability, after accounting for the input tax credit. But though the Central GST Act has been amended, all States have to amend their respective State GST Acts to make this change effective. Thanks to the delay by Telangana and West Bengal in rectifying their respective laws, the amendment to the Central GST Act is yet to be notified. Until that is done, interest on late payment has to be collected on gross tax liability, and that is what the tax authorities are doing now.

While it appears to be a complication created by legal delays, the tax department could have shown less alacrity in collecting the interest on late payment at this juncture, and waited for the two remaining States to make the necessary amendments to the law so that the interest could be computed on the net tax liability. Tax authorities could, in fact, consider waiving the interest on late payment for the first year, following the rollout, since the technical glitches and speed of the GSTN was to a large extent responsible for delayed payment of taxes. With the new returns for GST filing to be implemented from the next fiscal, the problems for taxpayers are expected to continue. The GST Council needs to take cognisance of the difficulties faced by taxpayers, especially smaller businesses, while enforcing such rules.

Published on February 17, 2020

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