Interest u/s.50 Of CGST Act.2017
Interest is compensatory in character and is imposed on an assesses who has withheld payment of any tax as and when it is due and payable.The levy of interest is geared to actual amount of tax withheld and the extent of the delaying paying the tax on the due date. Essentially ,is is compensatory and different from penalty-which is penal in character.
The legal provision charge-ability of interest is as under:-
interest on delayed payment of tax.
50(1) every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under ,but fail to pay the tax or any part thereof to the government within the period prescribed ,shall for the period for which the tax or any party thereof remains unpaid ,pay,on his own ,interest at such rate ,not exceeding eighteen per cent ,as many be notified by the government on the recommendation of the council:
[Provided that interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39,except where such return is furnished after commencement of any proceeding under section – 73 or section – 74 in respect of the said period,shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.] [This proviso not yet made effective]
50(2)The interest under sub section (1) shall be calculated in such manner as may be prescribed ,from the day succeeding the day on which such tax due to be paid .
50(3) A taxable person who make an under or excess claim of input tax credit under sub-section (10) of section 42 or under or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such under or excess on such or excess claim or such under or excess reduction ,as the case may be ,at such rate not exceeding twenty four percent, as may be notified by the government on the recommendation of the council.
The scheme of CGST Act with respect to the filing of returns is contained under provision of section 39 of the CGST Act, 2017. The said provision links the due date for payment of tax with with the due sate for filing of the return.However,The said provisions do not mandate filing of return only after payment of the entire tax amount as disclosed in the return.Provisions contained u/s.2(117)of CGST At,2017 related ” valid return ” cannot be undermined.Accordingly a return is said to be a valid return if entire tax has been paid. Therefore a return filed on the due date reflecting the paid by way of utilizing the input tax credit and showing the balance tax as payable, although not a valid return, would still remain a return filed u/s.39.
However the GSTN portal does not permit filing of the return showing the tax payable by cash as out standing . The same is thus contrary to the legal provisions cited above. The GST council in its 31st meeting held on 02-12-2018 where in the GST council has acknowledged the fact that the GSTN portal does not permit filing of return with tax amount due. Further the fact that GST is a tax on value addition was also acknowledged and thus had agreed to insert the proviso to Section 50(1) of the CGST Act,2017 as reproduced above. Relevant extract of the agenda is as under:
“It is also pertinent to mention that the liability of any registered person is related to the value addition made by him since GST is leviable only on value addition. According ,input tax credit is allowed to the register person in respect of the tax paid by him on his inward supplies. And ,while making the outward supplies, the input tax credit so allowed is permitted to be utilised for discharging his output tax liability. The remaining part which is generally equivalent to the tax on value addition is discharged through electronic cash ledger. Hence, by this mechanism the registered person effectively pays tax only on the value addition made by him. If this concept is applied for interest payable, then, it appears that the interest should also be charged on the tax payable on the value addition only, i.e. the amount of tax which is required to be paid through electronic cash ledger.”
Further, it also acknowledges the contradiction of scheme of filing of GSTR – 3B with the legal provision. The relevant extract of the agenda note is as under :-
A perusal of above provision indicate that the law permits furnishing of a return without payment of full tax as self as self assessed as per the said return the said return would be regraded as an invalid return. The said return however would not be used for the purposes of matching of ITC and settlement of funds. Thus, although the law permits part payment of tax but no sch facility has been yet made available on the common portal. This being the case, a registered person cannot even avail his eligible ITC as he cannot furnish his return unless he is in a position to deposit his entire tax liability as self assessed by him.this inflexibility of the system increases the interest burden. The same is illustrated as below.
Suppose a register person has self assessed his tax liability as 100/- for a particular tax period. He has an amount of 10/- as balance in his electronic credit ledger and he is eligible to avail 80/- as input tax credit ( which would be credited to his electronic credit ledger only on furnishing of return).. He is therefore ,required to pay only 10/- from his electronic cash ledger. The IT system will not allow the said registered person to furnish his return (and therefore the ITC of 80/- will not be credited in his electronic credit ledger ) until he is in a position to discharge his complete self assessed liability of 100/-. He would be liable to pay interest on the entire self assesses tax liabiliti of 100/- as he is not able to pay 10/- or part there of from his electronic cash ledger.
It may be seen from the above that if the facility for part payment ,as permitted under law ,was available ,the registered person would have been required to pay interest only on 10/- but presently he is liable for interest on entire tax liability of 100/-.
Note : The above issue is what the law actually says but just a few months ago the GST Council issued a notification for this. Which I will explain in my second blog
BY. Tax help-