Interest on delayed GST can be paid on net basis from Sept 1: Centre

Topics GST | CBIC

CBIC assured that the same rule will apply for past payments as well
The Centre has notified that interest payments due on delayed goods and services tax (GST) can be serviced on a net basis from September 1.  Net basis means that input tax credits and refunds will not be accounted for levying interest and only the tax liability discharged in cash will be taken for consideration. 

After criticism came from many quarters that the decision should have been made with retrospective effect from July 1, 2017 in line with the GST Council decision, the Central Board of Indirect Taxes and Customs (CBIC) attributed the prospective nature of the notification to "certain technical limitations". 

Sources said that the CGST Act had to be amended for making the move retrospective which could not be done due to Covid-19 situation. 

However, CBIC assured that the same rule will apply for past payments as well, and no recoveries will be made on the notices sent to various business for interest on gross payments.

This will ensure full relief to the taxpayers as decided by the Council, it said. 

Earlier in the day, experts were left baffled by the notification, wondering why the Council’s decision has not yet been implemented. They had said it will lead to litigation for large taxpayers and harassment for small and medium enterprises.

Rajat Mohan, partner at AMRG Associates, had said: “The GST Council had decided that the interest due on delayed GST payment would be charged on the net cash tax liability with effect from July 1, 2017. However the notification acceded this benefit prospectively from September 1, 2020. This issue is, once again, expected to land up in a judicial forum, thus adding to litigation woes for large taxpayers, and harassment for MSMEs.”

Abhishek Jain, partner at EY, had said that with the GST Council having approved of a retrospective amendment to interest dues being applicable on net liability, businesses will now await retrospective prescription for this.   

“The retrospective notification becomes all the more imperative to subside multiple notices, which were issued by revenue authorities demanding GST on gross liability,” he said.

Bimal Jain, an independent chartered accountant, had tweeted: “Why have recommendations and words of the GST Council not been respected and followed?”

There were also adverse comments on notification on the social media.

CBIC said its explanation came in response to an assortment of comments on the social media.  

The GST Council had to intervene earlier as the government had issued recovery notices to several businesses, demanding interest on gross liability.

Finance Minister Nirmala Sitharaman had, after the GST Council meeting in March, said: “The Council also decided to levy interest on delayed payment of GST on a net basis, not gross. For this, GST laws will be amended with retrospective effect of July 1, 2017.”

The move was aimed at reducing disputes and easing the recovery process, besides easing immediate cash flow burden on most entities.

Businesses registered under GST (other than under the composition scheme) are required to file GSTR-1 for outward supplies for a month by the 11th day of the following month, and GSTR-3B—a summary return for sales and input tax credit (ITC)—by the 20th.

Besides a late payment fee of Rs100 a day for central GST and a matching amount for state GST, the law provides for a levy of 18 per cent penal interest.

In the case of Refex Industries heard at the Madras High Court, the Assistant Commissioner of CGST & Central Excise had held that interest could only be levied on the belated cash component of tax, and not on the ITC.

CBIC had asked interest to be collected on gross tax liabilities, not on net cash liabilities. CBIC chairman had, last year, asked officers to recover Rs 45,996 crore in interest dues for late GST payments.


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