Interest under CGST Section 50 is applicable only where output tax is paid in cash – Proviso to Section 50(1) is clarificatory
Issue
Whether interest is payable for delay in payment of tax and consequent delay in filing of GSTR-3B returns on the component of output tax paid by utilising Input Tax Credit (ITC)?
Facts
Assessee filed the GSTR-3B returns under the GST regime belatedly for the period from July 2017 to March 2018. Consequent to such delayed filing, the Petitioner received communications from the Superintendent seeking payment of interest on the tax (paid by way of cash as well as by utilisation of ITC) remitted belatedly consequent to the delay in filing of such returns.
Two Writ Petitions were filed before the Madras High Court by the Petitioner against such communications. The petitioner objected stating that they had sufficient ITC available in their Electronic Credit Ledger (ECL) and thus, interest if at all could be demanded only on the delay in payment of tax by way of cash.
Findings of the Court
- Interest under Section 50 of Central Goods and Services Tax Act, 2017 is intended to compensate the revenue for belated remittance of tax beyond the time frame permitted under law. This principle enunciated in the decision of Commissioner of Income Tax, Mumbai v. Anjum M.H. Ghaswala & Ors. [(2002) 1 SCC 633] applies on all fours in the present case.
- The use of the word ‘belated’ or ‘delayed’ in Section 50 connotes a situation of deprival, where the government has been deprived of the funds representing the ‘tax component’ till the time return is filed along with remittance of tax. In the present case, the availability of ITC runs counter to this, as it connotes enrichment of state to this extent.
- Thus, Section 50 which is intended to apply to a state of deprival cannot apply to a situation where the government is in possession of sufficient funds in the form of ITC.
- The proper application of Section 50 is one where interest is levied only on a belated cash payment. ITC, being available with the department is neither belated nor delayed.
- Proviso to Section 50(1) of the Act as per which interest is leviable only on that part of tax which is paid in cash has been inserted w.e.f 1-8-2019, but clearly seeks to correct an anomaly in the provision as it existed prior to such insertion. Hence, the Proviso must be read to be clarificatory and operative retrospectively.
- The decision in case of Megha Engineering and Infrastructures Ltd. v. Commissioner of Central Tax and others [2019-VIL-175-TEL] is not applicable to the present case since, at the point when the decision was rendered, the Proviso was not incorporated in the Statute.
Ratio
It was thus held that interest under Section 50 is applicable only in case where the output tax is paid in cash and not by way of ITC since there is no deprival to the department in case of payment of output tax by way of ITC.
[Refex Industries Ltd. v. Assistant Commissioner of CGST & Central Excise, Chennai and Others, Writ Petition Nos. 23360 and 23361 of 2019, decided on 6-1-2020, Madras High Court]
Implications and comments
Under GST, the payment of tax and filing of returns are interlinked. Thus, even though there is availability of credit in the ECL, if the return was filed belatedly, interest liability automatically accrued under Section 50. Thus, this issue of levy of interest on Gross or Net CST liability was a widely disputed one in CST. This has now been settled by the Madras High Court.
While arriving at the above conclusion, the Madras High Court has also made a reference to the Proviso to Section 50(1) of the CGST Act that was inserted w.e.f 1-8-2019. It is to be noted that this Proviso has not been notified yet. Irrespective of the above, the findings of the Court on interest being compensatory in nature will sustain independently.
Author’s Comments
Section 50(1) proviso was inserted vide Section 100 of Finance Act, 2019 which as per Section 1 of the Finance Act, 2019 is to be made operative by a notification. Till Date no notification has come to make Section 100 operative that may perhaps be the reason why proviso on which judgement has arrive may not even be operative as on current date.
Further CBIC has been forcing the matters and assessees have started receiving mails from the department to pay such interest. Sample of one such email is as under :-
Notice for Payment of interest on late filing of GSTR-3B for the F.Y. 2019-20
Sub: failure to discharge due interest liability while late filing of GSTR-3B for the financial year 2019-20 – reg.
Dear Taxpayer,
It has come to the notice of the department that you have failed to discharge interest liability on account of late filing of GSTR-3B returns. In this regard, I would like to draw your attention towards Sub-section (1) of Section 50 and Sub-section (12) of Section 75 of the CGST Act, 2017 which cast liability on the taxpayer to assess and pay the interest on delayed payment of tax.
2. On perusal of your return filing status, it has been observed that interest amounting to Rs. xxxxx/- remains unpaid to the government on account of delayed payment of tax. The same is required to be paid with intimation to the undersigned. It is requested to furnish the details of payment made by return mail/letter within 7 days of receipt of this letter, failing which recovery proceedings may be initiated under section 79 of the CGST Act, 2017.
Best Strategy currently is to ensure, you keep your net of ITC calculation ready and resort to the beneficial ruling provided by Madras HC and other courts shall also soon follow considering the proviso itself seeks to provide the relief
