News Analysis

Interest on late GST payment: Why are taxpayers up in arms?

Vivek Ananth | Updated on February 18, 2020

The interest on delayed GST payment is being computed on gross tax liability, without deducting the input tax credit, due to legislative delays in some States

BL Research Bureau

After the successful completion of an amnesty scheme to resolve legacy disputes that came up under the old excise and service tax laws, there is a new worry for goods and services taxpayers — interest on delayed payment on Goods and Service Tax.

Ever since GST was launched in July 2017, many GST assessees or taxpayers have delayed the payment of their GST dues many times because of various issues ranging from non-availability of funds and technical issues while filing the GST return on the Goods and Services Tax Network.

As reported by BusinessLine, the Central Board of Indirect taxes and Customs (CBIC) has sent letters to its different field formations to recover interest from GST assessees on their gross tax liability and not their net tax liability.

“This means that interest is to be charged and recovered on the output tax liability of the taxpayer,” says Sandeep Huilgol, Partner at Huilgol Law Chambers. “That is the tax payable (is to be calculated) on outward supplies of goods or services or both, and not on a taxpayer’s net tax liability that is computed after setting off of input tax credit against its output tax liability.”

The predicament

The Central GST Act, 2017 originally said that interest on delayed payment of GST would be calculated on the output tax liability, which is the outward supply of goods or services by an assessee. There was no provision for the assessee to use up any input tax credit available and then calculate the interest on the net GST payable on the net tax liability. This caused immense hardship and also led to litigation. The GST Council recommended amendments to remedy the situation.

The Finance Act No 2 of 2019 passed in July amended section 50 of the Central GST Act, 2017, which deals with interest on delayed payment of GST dues by a taxpayer or an assessee under GST laws. This amendment added a provisio to section 50 which said that the interest on delayed payment of GST dues should be charged only on the net tax liability and not the gross tax liability.

“Every taxpayer is required to calculate interest liability on account of late payment of tax and pay it on his own while filing the GSTR 3B,” says G Ravindranath, Commissioner of GST and Central Excise, Chennai. “According to the proviso inserted in section 50, the interest liability is restricted to that portion of the tax that is paid by debiting the electronic cash ledger. But this prospective amendment has not yet been notified by the Government.”

CBIC clarifies

The CBIC, in a series of tweets on February 15, said that the Centre and many States have amended their GST laws so that interest is charged only on the net tax liability, and this amendment will be only be prospective in nature, after it is notified.

The CBIC also said that the amended law on interest calculation on delayed payment of tax will be made operational for the entire country only after the remaining two States — Telangana and West Bengal — amend their state GST laws too.

Litigious matter

Nirmal Singh, Partner at Nangia & Co LLP, points out that “there is a recent order of the Madras High Court that says that the provisio passed in the Finance Act of 2019, which talks of interest on delayed payment, is clarificatory in nature. The court held that this would be applicable retrospectively.”

For now, the Gujarat High Court has stayed recovery of interest on delayed payment of GST in a case. But since various High Courts have taken different views on this issue, there seems to be no finality on how much interest assessees will have to pay on their delayed payment of GST dues.

“The controversy will not die a quiet death and will instead be vigorously litigated before the constitutional courts across the country, apart from before the statutory authorities,” says Huilgol. “All that remains to be seen is when and in what manner this prickly issue will be resolved.”

Published on February 18, 2020

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