SME Chatroom: No interest liability due on retrospective amendment

We refer to the retrospective insertion of Section 7(1)(aa) in the CGST Act, 2017, along with an explanation that effectively makes clubs and associations liable to pay GST on the services provided to their members with effect from July 1, 2017. Are they liable to pay interest on the GST payable?

In the case of Star India Pvt. Ltd. vs Commissioner of Central Excise, Mumbai and Goa [2006(1) STR 73 (SC)], the Supreme Court held that “it is well established that while it is permissible for the legislature to retrospectively legislate, such retrospectivity is normally not permissible to create an offence retrospectively”.

The Court also held that “the liability to pay interest would only arise on default and is really in the nature of a quasi-punishment. Such liability although created retrospectively could not entail the punishment of payment of interest with retrospective effect”. In my opinion, therefore, no interest is payable in such cases. However, it would help all persons concerned if the CBIC issues a clarification in this regard.

With the insertion of the explanation at Section 75(12) of the CGST Act, 2017, with effect from January 1, 2022, the tax liability will be determined as per the details of supplies reported in GSTR-1 and, in case a lesser amount is reported in GSTR-3B, the government can straightaway recover the difference. What happens if we report a higher figure in GSTR-1 through a genuine mistake?

You can rectify the mistake in your subsequent return. However, the proper GST officer may send you a communication asking you to explain the reasons for the shortfall in GSTR-3B, or pay the shortfall. If you are able to justify the differences between GSTR-1 and GSTR-3B, or explain the reasons for any short payment or non-payment of tax, or pay the amount of tax short-paid or not paid, no recovery proceedings will be initiated.

However, if you fail to reply, or fail to explain the differences satisfactorily, or fail to pay the tax short-paid or not paid, the proper officer can initiate recovery proceedings under Section 79 of the CGST Act, 2017. In this connection, you may refer to the guidelines for recovery of tax in such cases issued through CBIC instruction no. 01/2022 dated January 7, 2022.

We imported certain raw materials on which the BCD payable was debited to MEIS duty credit scrip. We used the raw material to manufacture export products under claim of drawback through brand rate. Can we ask for fixation of brand rate, taking into account the BCD debited to the MEIS scrip? 

Yes. Para 3.15 of FTP says that BCD paid through debit under Duty Credit scrip shall be adjusted for Duty Drawback as per DoR rules or notifications. Condition 8 at Para 2 of the notification 24/2015-Cus dated April 8, 2015 also says that the importer shall be entitled to avail of the drawback of BCD against the amount debited in the said scrip.
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