In The Matter Of M/S Megha Engineering & Infrastructures Limited V/s. Commissioner Of State Tax The Telangana High Court In The Judgment Has Laid Down Clearly That The Interest Will Be Paid On Gross Tax Liability And Not On Net Tax Liability (After Claiming ITC)If The Monthly Return Of GSTR 3B Is Not Filed Within Due Time. The H'ble High Court Has Given This Judgment On The Basis Of Section 50 Of CGST Act Which Reads As '
- 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 Percent., As May Be Notified By The Government On The Recommendations Of The Council.
- 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.
- 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.
Now This Decision Is Going To Be Big Blow For Business Industry.
Arguments:
- The First Argument Would Be That Since The Challan Of Tax Liability/Interest/Late Fee Etc Is Generated Automatically Through GSTN Then What Can A Tax Payer Do But When I Read Sec 50(1) Twice To Thrice It Was Very Clear '….Or Any Part Thereof Remains Unpaid, Pay, On His Own, Interest At Such Rate, Not Exceeding Eighteen Percent” Which Means Pay In His Own I.E Calculate The Interest Yourself ,Create A Challan And Pay Yourself.
- The Second Argument Would Be That Why Eighteen Percent Whereas Sec 50(1) Reads As '…Not Exceeding Eighteen Percent…”Which Can Be From 1% To 18% But The Amended Notification Made It Clear To Be Charged At Fix '18%”
- The Third Argument Is That Its Obvious That Late Fee/Interest Will Only Be Paid If The GSTR3B Is Not Filed Within Due Time. If The Return Would Have Been Filed In Due Time Then No Question Of Late Fee/Interest Arises? But Sec 50(2) Reads As '…From The Day Succeeding The Day On Which Such Tax Was Due To Be Paid…..”
- The Fourth Argument Is That While Passing The Act The Intention Of Legislation Would Not Have Been That Interest Shall Be Paid On Gross Tax Liability And Not On Net Tax Liability. The Intention Of Legislation Was Made Clear In The 31 Meeting Of GST Council Which Reads As
'The GST Council In Its 31st Meeting Held Today At New Delhi Gave In Principle Approval To The Following Amendments In The GST Acts:
1j………..
2. 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.
The Above Recommendations Of The Council Will Be Made Effective Only After The Necessary Amendments In The GST Acts Are Carried Out.” But No Such Notifications Has Been Issued So Far.
- The Fifth Argument Is That While Filing Income Tax Return Interest U/S 234A/B/C Is Calculated On Net Tax Payable And Not On Gross Tax Payable But Here The Taxes Which Is Reduced From Gross Tax Payable Has Been Actually Paid Either As Advance Tax Or TDS Etc
It Is A fact that Many Taxpayers Must Have Filed GSTR3B After Due Date Because Of Lack Of Awareness About GST Act So Its Better To Calculate The Interest On your Own And Deposit It Through The Challan Before Filing Annual Return GSTR9.
For Example 'A' Provided Services of 1 Crore In The Month Of Oct 2017.The ITC For That Month Was 12 Lakhs.The Due Date For Filing GSTR3B Was 20 Nov 2017.
Case (1) If 'A' Files Return On 18 Nov 2017 That Is Before Due Date(20 Nov 2017) Then 'A' Will Have To Pay Tax At 18 Lakhs(Assuming GST Rate For His Services Is 18%)-12 Lakhs(ITC For The Month)=6 Lakhs And Nil Interest.
Case (2) If 'A' Files Return On 25 Nov 2017 That Is After Due Date(20 Nov 2017) Then 'A' Will Have To Pay Tax At 18 Lakhs(Assuming GST Rate For His Services Is 18%)-12 Lakhs(ITC For The Month)=6 Lakhs But Interest Will Have To Pay On 18 Lakhs(Gross Tax Liability)At The Rate Of 18% For 5 Days Which Comes Out To Be CGST Interest 2219.18 And SGST Interest 2219.18
Case (3) If 'A' Filed Return On 25 Nov 2017 That Is After Due Date(20 Nov 2017) And 'A' Paid Tax At 18 Lakhs (Assuming GST Rate For His Services Is 18%)-12 Lakhs (ITC For The Month) = 6 Lakhs But Did Not Paid The Interest(Not Knowing About Sec 50)Now Suppose 'A' Want To Pay Interest Today i.e. 04 May 2019 Then Question Arises:-
Option1. Will I Have To Pay Interest For The Days From Due Date(20 Nov 2017) Till Today (04 May 2019) Or
Option2. Will I Have To Pay Interest For The Days From Due Date(20 Nov 2017) Till The Date I Filed Return or On The Date On Which I Paid Tax (25 Nov 2017)
Now Section 50(2) Reads As '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.” From This It Is Clear That I Will have To Pay Interest As 'Option 2” Since my Tax Liability Was Paid On 25 Nov 2017
Those Taxpayers Will Have To Pay The Interest Heavily Who Migrated After July 2017 Through Various GST Notifications And Were Allowed To File The Return Till Mar 2019 .The Late Fees For Such Taxpayers Was Waived For Filing GSTR3B From Jul 2017 To Sep 2018.Such Notifications Only Waived The Late Fees And Not Interest.
Its Upto You To Pay The Interest Component Soon Or Wait For Amended Notification For The Decision Taken On 31st GST Council Meeting. I Have Also Prepared Calculator For Calculating Interest. These Are My Own Views
The author can also be reached at kudiyal@gmail.com
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