Interest payable on gross tax liability under GST: HC

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The Hon’ble Hyderabad HC dismisses writ, holding that interest u/s 50 of CGST Act, 2017 (“the CGST Act”) @18% is payable on total gross tax liability including a portion of which is liable to be set-off against Input Tax Credit (ITC) where the GST returns were filed belatedly.

Facts:

Megha Engineering & Infrastructures Ltd. (“The Petitioner”) was engaged in the manufacture of MS Pipes and in the execution of infrastructure projects.

The petitioner delay in filing the returns GSTR – 3B Forms, for the period from October 2017 to May, 2018. This was due to the shortage of ITC, available to off-set the entire tax liability.

The total tax liability of the petitioner for the period from July 2017 to May 2018 was Rs.1014 crore and the ITC available to the credit of the petitioner during this period was Rs.968 crore. There was a short fall to the extent of Rs. 45 crore which the petitioner was obliged to pay by way of cash.

Issue Involved:

Whether interest is payable on the total gross tax liability including a portion of which is liable to be set-off against ITC?

Petitioner’s contention:

The petitioner put reliance upon recommendations of GST Council made during its 31st meeting that interest is to be calculated only on the net tax liability after deducting ITC from the total tax liability. The petitioner also paid an amount of Rs. 30 lakhs towards interest on their net tax liability.

Respondent contention:

After the petitioner discharged the entire tax liability, the Superintendent of Central Tax and Assistant Commissioner demanding interest at 18%, in terms of Section 50 of the CGST Act, 2017.

Held:

The Hon’ble High Court of Hyderabad vide its Writ Petition No.44517 of 2018 dated April 18, 2019 held that:

  • Even in respect of the input tax credit available in the electronic credit ledger, there is a necessity to make payment. Also expounding that, until a return is filed as self-assessed, no entitlement to credit and no actual entry of credit in the electronic credit ledger takes place.
  • Further, liability to pay interest u/s 50 (1) of the CGST Act is self-imposed and also automatic, without any determination by any one and If no payment is made, the mere availability of the same, there in the cloud, will not tantamount to actual payment.

Consequently, holds that payment of tax liability, partly in cash and partly in form of claim for ITC was made beyond period prescribed and hence, liability to pay interest u/s 50 (1) arose automatically.

Our Comments:

The GST Council in its 31st meeting approve amendment of section 50 of the CGST Act to provide that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e. interest would be leviable only on the amount payable through the electronic cash ledger.

Such recommendation should not be left open and law need to be amended as early and as appropriate on timely basis to give all effects to the recommendation of GST Council to make GST good and simple in realistic term.

This is reasonable demand of the Trade to be accommodated in the GST Law at the earliest to avoid any undue litigation, which is not helping GST as Good and Simple Tax.