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July 13 To July 19, 2019 u Taxmann’s Corporate Professionals Today u Vol. 45 u 47Recent Rulings
3.Payment of interest on ‘gross’ tax liability
or ‘net’ tax liability is under litigation for a
long time. Recent judgments on the above
issue are produced below:
3.1 Megha Engineering & Infrastructures Ltd.
v. Commissioner of Central Tax [2019] 104
taxmann.com 393 (Telangana)
The assessee had delayed filing of GSTR-3B
from October, 2017 to May, 2018. According
to the assessee, it could not make payment
and file the return within time due to certain
constraints. However, the entire liability was
discharged in May, 2018 but the Superintendent
of Central Tax demanded interest at 18% on
total tax liability. The petitioner submitted
that interest was to be calculated only on
the net tax liability, i.e., after deducting ITC
from the total tax liability.
Question raised by the assessee before the
High Court was ‘Whether the liability to pay
interest under Section 50 of the GST Acts,
2017 would be confined only to the net tax
liability or whether interest would be payable
on total tax liability including a portion of
which was liable to be set-off against ITC’?
u The Honourable High Court analyzed
following provision-Claim of ITC
(a) ‘Section 41- Claim of input tax credit
and provisional acceptance’ states
that every registered person shall
be entitled to take self-assessed ITC
in his return and such amount shall
be credited on provisional basis to
his electronic credit ledger. The
said credit shall be utilized for the
payment of self-assessed output tax
as per the return.
(b) As per the above section, a person
gets input tax credit in his electronic
credit ledger only upon his filing
of the return on self-assessment ba-
sis. Till a return is filed, no credit
becomes available to his electronic
credit ledger.u Interest on Delayed Payment of Tax
(a) ‘Section 50 - Interest on Delayed
Payment of Tax’ states that every
person who is liable to pay tax in
accordance with the provisions of
this Act or rules, but fails to pay tax
or any part of it to the government
within the prescribed period, shall
for the period for which tax or any
part thereof remains unpaid, pay,
on his own, interest at 18% for the
period for which tax or any part of
it remains unpaid.
(b) The liability to pay interest arises
automatically even without assess-
ment when a person liable to pay
tax fails to pay tax, as the person
is required to pay such interest ‘on
his own’.
Therefore, until a return is filed as self-as-
sessed, no entitlement to credit and no actual
entry of credit in the electronic credit ledger
would take place. As a consequence, no
payment can be made out of such a credit
entry. The tax paid on the inputs charged on
any supply of goods and/services, is always
available. But such tax becomes an input tax
credit only when a claim is made in the
returns filed as self-assessed. It is only after
a claim is made in the return that the same
gets credited in the electronic credit ledger
and payment can be made.
Further, the Government would get right
over the money available in the ledger only
when the payment is made through challan
on portal. Since ownership of such money
is with the dealer till the time of actual
payment, the Government would become
entitled to interest up to the date of their
entitlement to appropriate it.
After analyzing above provisions the High
Court of Telangana held that interest would
be levied on gross tax liability, i.e., on both
cash & ITC component and not on net tax
liability if there is a delay in filing of GST
return.INTEREST COMPUTATION UNDER GST ON ‘GROSS TAX’ OR ‘NET TAX’