Every penny counts as GST officers send demand notices to companies

Rs 5.9858630140000004! This is not a figure from an S Ramanujan-G H Hardy conversation but a demand notice given by tax officials to a company on paying interest because the goods and services tax (GST) return had overshot the deadline.

After directions from the Central Board of Indirect Taxes and Customs (CBIC) to recover goods and services tax interest, totalling Rs 46,000 crore, field officials are busy sending notices for recoveries, which sometimes are in single digits.

One such client in equity information services has been asked to deposit Rs 5 (after rounding off the liability cited above) as interest, another Rs 2.

A company received notice for paying Rs zero, which is the approximate figure for its interest liabilities.

The strong stance regarding interest collection is aimed at meeting the challenging GST indirect tax revenue target for FY20.


“Records indicate that you have filed your GSTR 3B return for the period … after due dates in which you have not calculated and paid interest liability under section 50 of CGST Act 2017 … you are advised to deposit interest amount of Rs 5 ... (else) appropriate legal action for recovery of interest due to delayed filing of return shall be initiated,” read one such notice.

Central GST collection grew by 10.4 per cent in the April-January period and has to grow by 21 per cent in the last two months of the current fiscal year to meet the revised estimate, which was scaled down by Rs 1 trillion from the Budget Estimates (of 2019-20) in the recent Budget (of 2020-21).

Experts say issuing such notices would make payers fearful and ease of doing business would suffer.


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 CBIC has clarified that taxpayers can pay part of their liabilities in cash and the rest through adjustments in input tax credit.

Rajat Mohan, partner, AMRG Associates, said: “Tax authorities need to be cautious and concerned at the plight of taxpayers who are burdened with a new law and plethora of technological glitches.”

The CBIC, in a letter on February 10, had asked field officials to initiate recovery proceedings against those who had not cleared interest liabilities.

Then there is the issue whether interest would be charged on gross tax liabilities or net cash liabilities, which take into account the ITC of the companies in the system.


M S Mani, partner, Deloitte India, said businesses would appreciate if clear instructions were issued to the tax authorities to compute interest only on the net amount of the GST payable in cash. “This would also be in line with the recent decision of the Madras High Court.” 

The Madras High Court, in its recent decision in the case of Refex Industries Limited v. The Assistant Commissioner of CGST & Central Excise, held 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 despite the decision by the GST Council in December 2018 to this effect. 

The board has taken a view that interest liabilities will be calculated on net cash liabilities prospectively and not retrospectively as the change is yet to come into force with amendments from Telangana and West Bengal awaited.

“In this regard, the provisions of Section of Section 50 are very clear 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 tax amount of tax liability as shown in Form GSTR 3B,” the CBIC letter said.



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