Govt notifies interest on delayed GST on net basis from September 1

The government has notified that interest on delayed goods and services tax (GST) will be payable on net basis, by accounting for input tax credits and refunds, from September 1 onwards.
 

This, however, goes against the decision by the GST Council in the March meeting, where it had decided to levy interest on net basis and not gross with a retrospective effect from July 1, 2017.
 

The notification has baffled experts, who wonder why the decision of the Council has not been implemented. They argue that it will lead to litigation for large taxpayers and harassment for small and medium enterprises.
 

The Council took up the matter as it was a largely contested issue with companies asking for levying of interest on net basis which takes into account their input tax credit and refunds. The government had issued recovery notices to several businesses demanding interest on gross liability.
 

Finance Minister Nirmala Sitharaman had after the GST Council meeting in March said, “The Council also decided to levy interest on delaying in paying GST on net basis and not gross basis. For this, GST laws will also be amended with retrospective effect of July one 2017.”
 

The move was aimed to substantially reduce disputes and ease recovery process, besides easing immediate cash flow burden for most companies.
 

Rajat Mohan, partner, AMRG Associates said, “The GST Council had decided that interest for delay in payment of GST is to be charged on the net cash tax liability with effect from July 1, 2017. However the notification acceded this benefit prospectively from September 1, 2020. This issue is again expected to land up in judicial fora adding to the litigation for large taxpayers and harassment for MSME taxpayers.”
 

Abhishek Jain, partner, EY said that with the GST Council having approved a retrospective amendment to interest being applicable on net liability, businesses would now await retrospective prescription for this. “The retrospective notification becomes all the more imperative to subside multiple notices which were issued by the revenue authorities demanding GST on gross liability.”
 

"Why have the recommendations and words of the GST Council not been respected and followed," an independent chartered accountant Bimal Jain tweeted on Wednesday.
 

Businesses registered under GST (other than under the composition scheme) are required to file GSTR-1 for outward supplies for a month by the eleventh day of the following month, and GSTR-3B, which is a summary return for sales and input tax credit (ITC), by the 20th.
 

Besides a late payment fee of Rs 100 a day for central GST and a matching amount for state GST, the law provides for a levy of 18 per cent penal interest.
 

The Madras High Court, had in the case of Refex Industries Limited vs The Assistant Commissioner of CGST & Central Excise, held that interest could be levied only on the belated cash component of tax and not on ITC.
 

The CBIC has asked interest to be collected on gross tax liabilities and not on net cash liabilities. The central board of indirect taxes and customs chairman had last year asked officers to recover Rs 45996 crore in interest dues for late GST payments.