The CBIC has issued intra-departmental directions for recovery of interest payable on delayed payment of tax under Section 50 (1) of CGST Act, 2017 where the taxpayers have filed their Form GSTR-3B returns belatedly. However, it could lead to widespread tax litigation and inconvenience to taxpayers. There were doubts about whether the interest has to be paid on the gross tax liability or on the net tax liability.
Under GST regime, Section 50 of CGST Act, 2017 clearly states that Interest liability is required to be paid on the tax liability that is paid belatedly, either through cash or through utilization of input tax credit (ITC). In other words, interest is required to be paid on total amount of tax liability as shown in Form GSTR-3B.
CBIC has initiated the process of recovery of nearly INR 46,000 crore of unpaid interest on delayed GST payments, and the GST officials has been directed for recovery of the said interest, to look into the issue personally and recovery of interest from identified taxpayers and furnish weekly report of the GSTIN wise recovery.
This position has been upheld in the Telangana High Court’s decision dated 18.04.2019. In spite of this position of law and Telangana High Court’s order, the Central Government and several State Governments, on the recommendations of GST Council, amended their respective CGST/SGST Acts to charge interest on delayed GST payment on the basis of net tax liability. Such amendment will be made prospectively. The States of Telangana and West Bengal are in the process of amending their State GST Acts. After the process of amendment is complete, the changed provisions can be put in operation for the entire country.
It has been clarified that the interest payable on such delayed payment of tax can be recovered under the provisions of section 79 of the CGST Act read with section 75(12) which provides for various methods by which the proper officer shall proceed to recover any amount which is payable to the government.
The GSTIN-wise list of assesses has been generated and shared by Tax Department, who have not discharged the due interest liability on delayed filing of GSTR 3B returns. According to the letter, the total interest amount due was ₹45,996 crore. Now, process has been initiated to recover this interest.
It is presumed that the move is probably going to trigger cases with taxpayers challenging demands, since the government had at the time of relocation to the new Indirect Tax system waived off interest and penalties for filing their tax returns.