September 12, 2020

Recovery of Interest u/s 50 on net cash liability under GST

If a taxpayer fails to make payment of GST within the due date then he is liable to pay interest on GST liabilities @ 18% per annum for the period during which default continues. However, for the purpose of interest computation, whether “Gross Output Tax Liability (With Adjusting ITC)” or “Net Tax liability(After adjusting ITC)” should be considered has always been a matter of ligitiation.

Post various contrary decisions by different authorities, GST Council in its 39th GST Council meeting recommended that the interest for delay in payment of GST should be computed on net cash tax liability (i.e., after adjusting ITC).

For the purpose of giving effects to such recommendation, following proviso was inserted in Section 50-“Interest in delayed payment of Tax” by Finance (No. 2) Act, 2019:

“Provided that the 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 the commencement of any proceedings 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.”

However, such proviso shall come into effect from 01.09.2020 as declared by Notification No. 63/2020–Central Tax dated 25-08-2020.

Applicability of proviso to Section 50 with effect from 01.09.2020 created confusion among taxpayers that whether interest liability for delayed GST payments of past periods, i.e., till 31.08.2020, should be computed on “Gross Output Tax Liability” or “Net Tax Liability”?

Therefore, in response to an assortment of comments circulating on social media with respect to Notification No. 63/2020–Central Tax dated 25-08-2020 about applicability of proviso to Section 50 with effect from 1st September, 2020, Central Board of Indirect Taxes (“CBIC”) issued a press release dated 26th August, 2020 wherein following points are clarified:

Amended provisions of Section 50 are made applicable prospectively due to some technical limitations.
However, CBIC assured that no recoveries shall be made for the past periods as well, i.e., delayed GST payment made upto 31.08.2020, by any of the Central and State tax administration. Therefore, interest computation for earlier period shall be carried out in accordance with the decision taken in the 39th meeting of GST Council only.
CBIC has ensured full relief to the taxpayers as decided by the GST Council.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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