Interest Payable on GST output tax liability – Gross or Net

Interest Payable on GST output tax liability – Gross or Net

As per GST Department order dated 10th Feburary, 2020, GST Officers have been instructed by department to collect interest on late deposit of GST on Gross Tax basis, i.e. on amount inclusive of input tax credit. Further as per CBIC Tweet stated that the existing laws permit collection of interest on gross liability. The amendment by Finance Act (2), 2019 will have prospective effect from the date of notification. A a result, a debate has started whether the interpretation of the revenue is correct or not.

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. Also Finance Act (2), 2019, inserted a clarification, of charging interest on net tax basis which was as follows:

“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. “

However this amendment is not yet notified.

As per the existing provisions of the GST law, section 50(2) provides that 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. However, nothing has been prescribed in the CGST Rules, 2017 till date in pursuance of the provisions of sub-section (2) of section 50.

Hence, some of the taxpayers have calculated interest on gross output tax liability whereas others have calculated interest on net tax liability after adjustment of input tax credit.

Various aspects and interpretation of charging interest on output tax liability on gross or net tax basis have been discussed via the article.

Opinion of GST Officials:

As per interpretation of GST Officials, interest has to be paid on Gross GST Liability, i.e. including Cash as well as credit component.

As per Section 50(2) the interest shall be calculated on amount on which such tax was due to be paid. Tax Includes, cash as well as credit component.

Interest Payable on GST output tax liability - Gross or Net
Interest Payable on GST output tax liability – Gross or Net

Judgement of Telengana high Court:

In the case of Megha Engineering & Infrastructures Ltd. v. Comm. of Central Tax (WP no. 55517 of 2018), Hon’ble Telangana High Court held that Interest will be levied on Gross Tax Liability if there is a delay in filing GST return. That is to say, interest for the delayed payment of output tax liability of GST shall also be required to be paid on the liability paid by way of ITC.

As per court, 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.”

Practice in Old Tax Regime:

Under excise, service tax and VAT regime a dealer was also liable to pay interest on delayed payment of tax, but the interest was calculated on the net tax liability after set off of input tax credit. Intention of law should never be earning collection from interest. Interest is charged only to compensate the revenue for the belated remittance of tax and also to ensure timely payment of taxes. Also the input tax portion has already been deposited by the vendor. Charging interest on the same again would be incorrect.

Judgement of Madras High Court:

Inmatter of Refex Industries Ltd. v. Sherisha Technologies (P.) Ltd. the court, pronounced that, in terms of section 50, levy of interest on belated payments would apply only to payments of tax by cash, belatedly, and would not stand triggered in case of available ITC, since such ITC represents credit due to an assessee by Department.

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

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  1. Hope, the issue will be clarified and proper notification issued in the next council meeting. Otherwise majority of tax payers may be compelled to approach courts for getting atleast a stay order.

    1. In present senario, specially how Tax Department is working these days, I dont think the notification if it comes would be in favour of taxpayer.