28.08.2020
From
M/s………………...
…………………….
…………………….
…………………….
To
……………………
……………………
……………………
Sir,
Sub: Reply
to your Notice regarding payment of interest on delayed payment of GST.
Ref: DIN
……………………… dated ……………….
GSTIN : ………………………………………….
We have been directed by the above mentioned Notice to
remit Rs. 3,19,468.57 as interest at eighteen percent on delayed
payment of GST for the period from July 2017 to December, 2019 as per
section 50(1) of CGST Act,2017, Section 20 of IGST Act and Section 11 of
Compensation CESS Act.
In the above letter, interest payable on delayed
payment of GST has been calculated on the gross amount of GST payable for the
period without allowing the respective Input Tax Credit set off.
The demand of interest on gross tax liability instead
of net tax liability is not legally correct due the following grounds:
1.
In this regard, we bring to your kind notice Madras
High Court Decision in Refex Industries Ltd. v. Sherisha Technologies
(P.) Ltd [2020] 114 taxmann.com 447 (Madras) in which it is held that
interest shall not be levied of gross tax due and it shall be levied only on
that part of the tax which is paid in cash.
2.
The above Madras High Court Decision further states
as follows: -
16. Learned counsel for the petitioners also draw my attention
to the decision of the Telengana High Court in the case of Megha
Engineering and Infrastructures Ltd. v. The Commissioner of Central
Tax and others (2019-TIOL-893), where the Division Bench interprets
Section 50 as canvassed by the Revenue. The amendment brought to Section 50(1),
was only at the stage of press release by the Ministry of Finance at the time
when the Division Bench passed its order and the Division Bench thus states
that 'unfortunately, the recommendations of the GST Council are still on paper.
Therefore, we cannot interpret Section 50 in the light of the proposed
amendment'. Today, however, the amendment stands incorporated into the Statute
and comes to the aid of the assessee.
17. In the light of the above discussion, these Writ Petitions
are allowed and the impugned notices are set aside. No costs. Connected
Miscellaneous Petitions are closed
3.
We further wish to submit that GST Council in its 31st
Council meeting held on 22.12.2018, had included ‘Proposal for amendment of
Section 50 of CGST Act, 2017 to allow payment of interest on net cash
liability’ as Item No 7 (xx) in the Agenda for discussion.
Excerpts
from the discussions by the GST Council are as follows:
A.
(Para 4):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. Accordingly, input tax credit is
allowed to the registered 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.
B.
(Para 3) The law permits furnishing of a return
without payment of full tax as self-assessed as per the said return but the
said return would be regarded 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 such 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.
C.
(Para 6) The issue was deliberated by the Law
Committee of GST Council in its meeting held on 15.12.2018. The Committee
observed that the proposal to charge interest only on the net liability of the
taxpayer, after taking into account the admissible credit, may be accepted in
principle. Accordingly, the interest would be charged on the delayed payment of
the amount payable through the electronic cash ledger.
4.
As per the recommendations of the GST Council, the
following proviso is inserted in Section 50(1) of the Central Goods and
Services Tax Act-
“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 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.”.
5.
Applicability
of the new proviso in Section 50(1) of CGST Act vide Section 100 of Finance (No.2)
Act, 2019.
Section 1 (2) (b) of Chapter 1 of The
Finance (No.2) Act, 2019 states as follows:
‘Sections
92 to 112 and section 114 shall come into force on such date as the Central
Government may, by notification in the Official Gazette, appoint.’
Vide Notification No: 63/2020 Central Tax,
dated 25.08.2020 issued by Central Government, the provisions of Section 100 of
Finance (No.2) Act, 2019 to insert a proviso in Section 50(1) of the Central
Goods and Services Tax Act has been made effective from 01.09.2020.
Immediately, Central Board of Indirect Tax
& Customs, issued a Press Release dated 26.08.2020, in its Twitter,
clarifying that the Notification 63/2020 Central Tax, dated 25.08.2020 relating
to interest on delayed payment of GST has been issued prospectively due to
certain technical limitations. It is further clarified that no recoveries shall
be made for the past periods as well by the Central and State Tax administrations
in accordance with the decisions taken in the 39th meeting of the GST
Council. This press Release is also available in the Face book page of Kerala
State GST Department.
6.
We further wish to submit that as per Section 50(2)
of CGST Act, it is stated as follows: -
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 was due to be paid.
It may please be
noted that Central Government has not yet notified or prescribed any manner in
which interest payable under section 50(1) shall be calculated. Therefore, no
interest is payable by us till Central Government prescribes the manner of
calculation of interest.
7.
We further submit that the above Madras High Court
order further states that the amendment made in Section 50(1) is retrospective
from 01.07.2017. The relevant portion of the Court order is given below:
15. The above proviso, as per which
interest shall be levied only on that part of the tax which is paid in cash,
has been inserted with effect from 01-8-2019, but clearly seeks to correct an
anomaly in the provision as it existed prior to such insertion. It should thus,
in my view, be read as clarificatory and operative retrospectively.
8.
On the basis of Clarifications dated 26.08.2020 issued
by CBIC in its press Release, Madras High Court decision, Deliberations took
place in the GST Council meeting on the basis of Law Committee proposals and changes
made to CGST Act, we like to submit that your direction to pay interest of Rs. 3,19,468.57 on gross tax liability
is not correct.
9. We also wish to
submit that 39th GST Council meeting held on 14th March,
2020 made the following recommendations:
Interest for delay in payment of GST
to be charged on the net cash tax liability w.e.f. 01.07.2017 (Law to be
amended retrospectively).
10.
Based on above facts and due to the fact that the GST
Portal does not calculate interest automatically, we have not paid interest so
far.
11.
We have calculated interest on net GST liability at Rs.
15,737.00. We are taking steps to pay the same and would inform you the
details of payment when the same has been paid. The Detailed working of
interest is attached herewith.
Yours faithfully,
For M/s…………………
Authorised
Signatory.
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