Trade wants GST Council to change late payment rule

The Central Board of Indirect Taxes and Customs (CBIC) has asked its field formations to collect about Rs 46,000 crore as interest on delayed payment of goods and services tax (GST) on the basis of gross tax liability, i.e. the tax liability without adjusting the input tax credit (ITC) available in the electronic credit ledger. This move has caused a lot of heartburn in the trade.  

The government contends that if a tax payer is required to pay tax of Rs 1 crore but has available ITC of Rs 99 lakh and delays payment of the due tax of Rs 1 lakh after adjusting the ITC, then interest must be paid on the gross tax liability of Rs 1 crore. 

This position has been upheld by the Telangana High Court in the case of Megha Engineering and Infrastructures. [2019 (26) GSTL 183 (Telangana)], on the basis of the law as it stands. 

The contention of the trade is that the interest should be collected on the net tax liability of Rs 1 lakh in the above example, which is the amount payable in cash after adjusting the available ITC. The GST Council, in its 31st meeting on December 22, 2018, had accepted this stand and recommended charging interest only on the net lax liability.  The central government has also got the relevant Section 50 of the Central GST Act, 2017 suitably amended last August. 

However, it has not yet notified the amendment but has assured that the same will be given effect as soon as the two remaining states, Telangana and West Bengal, amend the relevant State laws. 

The CBIC says this amendment will operate prospectively and so, all interest on delayed payment of tax till the amendment takes effect will be on the basis of gross tax liability. 

The trade says once the GST Council has conceded the unfairness of charging interest on gross tax liability, there should be no hesitation in giving retrospective effect to the amendment. 

Meanwhile, the Madras High Court, in the case of in the case of M/s Refex Technologies (2020-TIOL-382-HC-MAD-GST) has held that the amendment allowing payment of interest on the basis of  net tax liability is clarificatory and therefore, retrospective in its operation. 

When the tax payers started receiving the notices for interest, some approached the courts and the Gujarat High Court, in the case of Amar Cars, stayed the notice demanding such interest and asked the government to respond. 

The overall sense in the trade is that the main aim of the government is to garner revenue by any means, even when it knows that there is no merit in asking for interest on the basis of gross tax liability. 

As the law stands, the government may have a right to demand interest on gross tax liability but it must recognise the unfairness of the demand, hold up such demands and amend the law retrospectively providing for interest on net tax liability, say the tax payers.  

The wise way forward for the government is to persuade the GST Council to allow interest payment on net tax liability retrospectively, get necessary amendments made in the GST laws and give effect to the same quickly. Meanwhile, demands on the basis of gross tax liability can be held in abeyance. 

email : tncrajagopalan@gmail.com