Interest in GST is payable on Gross Liability or Net Liability?

Interest in GST.

Before the discussing about the liability of Interest in GST, First we will discuss what the provision of GST Act, 2017 says about the Interest liability.

Section 50 of CGST Act, 2017:- Interest on delayed payment of tax.

                Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, 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 per cent., as may be notified by the Government on the recommendations of the Council.

                After reading the wordings of section 50 of CGST Act, 2017 the doubt has been raised whether interest of 18% shall be paid on Gross liability or Net liability (i.e. after considering the eligible ITC)?

The Finance (No. 2) Act, 2019 No. 23 of 2019 Dt. 1st August, 2019 finally amend the Section 50 of CGST Act, 2017 and inserted the following proviso,

                Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.

                From the above proviso now it has been clarified that interest shall be payable on net liability.

Now the question is that whether this amendment is Retrospective or Prospective?

                The GST Council in its 39th meeting in March had decided that interest for delay in payment of GST to be charged on net tax liability with effect from July 1, 2017, and law would be amended retrospectively.

                However, the Central Board of Indirect Taxes and Customs (CBIC) on 25th August 2020, wide notification No. 63/2020 CT notified September 1, 2020, as the date from which interest would be charged on net tax liability.

                Prospective availability of this benefit would mean that millions of taxpayers may be looking at demand of interest for over 3 years from the date of GST implementation.

Now another question raised whether department will ask for recovery of Interest on gross liability for over 3 years from the date of GST implementation?

                The Central Board of Indirect Taxes & Customs (CBIC) in its press release Dt. 26th of Aug, 2020 clarified that the Notification No. 63/2020-Central Tax dated 25 August 2020 relating to interest on delayed payment of GST has been issued prospectively due to certain technical limitations. However, it has assured that no recoveries shall be made for the past period as well by the Central and State tax administration in accordance with the decision taken in the 39 Meeting of GST Council. This will ensure full relief to the taxpayers as decided by the GST Council.

CONCLUSION:-

                Interest shall be payable on net liability and no recovery shall me made for past periods even if the applicable date is 1st Sep, 2020.