Pay GST Interest on Gross or Net GST Liability : Telangana HC Judgement Analysis


Pay GST Interest on Gross or Net GST Liability : Telangana HC Judgement Analysis

In today’s senario it is important to do all the compliances on time as late payment of tax or filling of return can lead to payment of heavy interest and penalty. In wake of recent TELANGANA HIGH COURT judgement industry should ensure timely filing of GSTR-3B as it’s late filing can lead to GST Interest on Gross Tax Liability.

The Hon’able High Court has ruled out that GST interest liability is not only confined to the net tax liability but the total Gross tax liability which includes portion liability which was liable to be set-off against ITC.

This is an disappointment for the whole industry as GST Council in its 31st Meeting expressed the opinion that GST interest should be calculated on Net Tax Liability after making Adjustment of GST Credit Available but the same was not notified and now this Judgment will obviously prevail over that announcement.

Below is the Analysis of Judgment of Telengana High Court and various provisions of GST Law which we can conclude that GST interest would be paid on Gross Tax and not Net Tax Liability.

The Court has used 3 aspects to clarify that the GST interest should be paid on Gross Tax Liability and not net Tax Liability. Those 3 aspects are Filing of GST Return and payment of Tax, Claim of ITC and Language of Section 50 of CGST Act.

Please Refer my Article on Calculation of Interest on GST Tax Liability for understanding the difference between Gross Tax and Net Tax

Pay GST Interest on Gross or Net GST Liability : Telangana HC Judgement Analysis

1.) Filing GST Return and payment of Tax

Under Section 39, a detailed procedure is stipulated for the filing of the monthly returns. In brief, the Scheme of Section 39 is as follows:

i) Every registered person should furnish for every Calendar Month or part thereof, a return, electronically, of inward and outward supplies of goods or services, ITC availed, tax payable, tax paid etc., on or before the 20th day of the succeeding calendar month;

ii) The Commissioner is empowered to extend, by notification, for reasons to be recorded in writing, the time limit for furnishing the returns, for such Class of registered persons;

iii) Every registered person, who is required to furnish a return, should pay to the Government the tax due as per such return not later than the last date on which he is required to furnish such return;

iv) If a registered person discovers any omission or incorrect particulars in the return already filed by him, he shall rectify such omission or incorrect particulars in the return to be furnished.

2.) Claim of ITC : Conditions for Availing Input Tax Credit under GST

Section 16 deals with the eligibility and conditions for taking ITC. Under Section 16 (1), every registered person shall be entitled to take credit of input tax charged on any supply of goods or services, which are used or intended to be used in the course of his business. The amount should be credited to the electronic credit ledger of such a person.

Sub-section (2) of Section 16 lays down four conditions subject to which a registered person will be entitled to the credit of any input tax. These conditions are:

(i) he should be in possession of a tax invoice or debit note issued by a supplier registered under the Act;

(ii) he should have received the goods or services;

(iii) the tax charged in respect of such supply should have been actually paid to the Government, either in cash or through utilisation of ITC; and

(iv) he should have filed the return under Section 39

3.) Wording of section 50

50. Interest on delayed payment of tax- (1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under, but fails 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 part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council.

(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 was due to be paid.

(3) A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council.

Conclusion : When a Return is filed late, the whole Gross Tax liability is delayed. Now some part of this liability was supposed to be paid in cash and some part was to be paid by Input Tax Credit. But again the conclusion is that the whole tax liability was delayed and thus GST Interest on Gross Tax Liability should be levied. This has been beautifully explained by the court via below mentioned lines.

An amount available in the account of a person, though available with the bank itself, is not taken to be the money available for the benefit of the bank. Money available with the bank is different from money available for the bank till the bank is allowed to appropriate it to itself. Similarly, the tax already paid on the in-puts of supplies of goods or services, available somewhere in the air, should be tapped and brought in the form of a credit entry into the electronic credit ledger and payment has to be made from out of the same. If no payment is made, the mere availability of the same, there in the cloud, will not tantamount to actual payment.

The court has clearly put a full stop on confusion that whether to pay GST Interest on Gross or Net GST Liability. Also until there is an amendment in the GST Act one should follow the judgement and pay GST interest on Gross Tax Liability.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. In no event shall I shall be liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information

Tags : Pay GST Interest on Gross or Net GST Liability, Telangana HC Judgement Analysis, GST Interest on Gross Tax Liability, Calculation of Interest on GST


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