#TaxmannPPT | Decoding the Interesting Journey of INTEREST Provisions under GST | Tattvam Advisors

Decoding Interest provisions under GST

By CA Tushar Aggarwal CA Chetan Agrawal

Tattvam Advisors Copyright@

Contents 1. Legal Provisions : Section 50 2. Rule 88B – Manner of calculating interest on delayed payment of tax 3. Explanation to Rule 88B 4. Case Study 1 – Late filing of return 5. Case Study 2 – Omission of invoice in return 6. Case Study 3 – Wrong ITC availed 7. Case Study 4 – Balance lying in cash` ledger 8. Case Study 5 : Interest on erroneous refund 9. Case Study 8 : Reversal of ITC owing to ‘failure of payment’ within stipulated time period 10. Case Study 7 – Interest on wrong Transitional credit 11. Case Study 8 – Wrong nature of tax 12. Case Study 9: Interest on reversal of common ITC 13. Case Study 10: Recovery of interest 14. Case Study 11: Interest on delayed refund 15. Case Study 12: Interest on pre-deposit

Interest under GST

Section 50(1) of CGST Act, 2017

Substituted by Finance Act, 2021 and made effective from 1st July 2017 vide Notification No. 16/2021-CT.

Proviso to Section 50(1) of CGST Act, 2017

• 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.

• 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:

Legal Provisions

Rule 88B – Manner of calculating interest on delayed payment of tax

In case, where the supplies made during a tax period are declared by the registered person in the return for the said period and the said return is furnished after the due date in accordance with 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, the interest on tax payable in respect of such supplies shall be calculated on the portion of tax which is paid by debiting the electronic cash ledger, for the period of delay in filing the said return beyond the due date, at such rate as may be notified under sub section (1) of section 50.

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In all other cases, where interest is payable in accordance with sub section (1) of section 50, the interest shall be calculated on the amount of tax which remains unpaid, for the period starting from the date on which such tax was due to be paid till the date such tax is paid, at such rate as may be notified under sub section (1) of section 50.

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In case, where interest is payable on the amount of input tax credit wrongly availed and utilised in accordance with sub section (3) of section 50, the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub section (3) of section 50.

Interest on delayed payment of tax

Case Study 1 – Late filing of return © Tattvam Advisors, All rights reserved 8 July month tax liability 1,00,000 ITC July month 40,000 Due Date of return 20-08-2022 Actual Date of filing 24-08-2022 When notice has been issued u/s 73 When no notice has been issued Interest liability?

Case Study 2 – Omission of invoice in return © Tattvam Advisors, All rights reserved 9 Invoice Date 15-07-2022 Tax Value 1,00,000 Return in which invoice was to be reported July-2022 Return in which invoice is furnished October-2022 invoiceITCCase1-balancelessthanvalue invoicemoreITCCase2-balancethanvalue Interest liability?

Section 50(2) of CGST Act, 2017

• The interest under sub section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.

Agenda of 31st GST Council Meeting

“The Committee observed that the proposal to charge interest only on the net liability of the taxpayer, after taking into account the admissible credit, may be accepted in principle. Accordingly, the interest would be charged on the delayed payment of the amount payable through the electronic cash ledger. However, where invoices/debit notes have been uploaded in statements pertaining to the period subsequent to the period in which they should have been uploaded, the interest shall be calculated on the amount of tax calculated on the taxable value from the date on which the tax on such invoices was due. This would require amendment to the Law.”

Legal Provisions

Interest when balance lying in credit or cash ledger

Case Study Interest in case balance lying

© Tattvam Advisors, All rights reserved 12 in credit ledger Credit balance maintained in Electronic Credit Ledger balance is maintained. 1 ITC Rs.amountingavailedwronglyto5,00,000 2 Credit Balance not maintained for 2 months and thereafter, the

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As per Memorandum explaining the provisions in The Finance Bill, 2022, sub-section (3) of Section 50 of the CGST Act is being substituted retrospectively, w.e.f. the 01/07/2017, so as to provide for levy of interest on ITC wrongly availed and utilised.

Legal Provisions

• Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four per cent. as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed

Provision before amendment : Section 50(3) of CGST Act, 2017

Provision after amendment : Section 50(3) of CGST Act, 2017

• A taxable person who makes an undue or excess claim of input tax credit under sub section (10) of section 42 or undue or excess reduction in output tax liability under sub section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty four per cent., as may be notified by the Government on the recommendations of the Council.

In case, where interest is payable on the amount of input tax credit wrongly availed and utilised in accordance with sub section (3) of section 50, the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub section (3) of section 50.

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In all other cases, where interest is payable in accordance with sub section (1) of section 50, the interest shall be calculated on the amount of tax which remains unpaid, for the period starting from the date on which such tax was due to be paid till the date such tax is paid, at such rate as may be notified under sub section (1) of section 50.

Rule 88B – Manner of calculating interest on delayed payment of tax

In case, where the supplies made during a tax period are declared by the registered person in the return for the said period and the said return is furnished after the due date in accordance with 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, the interest on tax payable in respect of such supplies shall be calculated on the portion of tax which is paid by debiting the electronic cash ledger, for the period of delay in filing the said return beyond the due date, at such rate as may be notified under sub section (1) of section 50.

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(b) the date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, in all other cases.]

Explanation to Rule 88B

(a) the date, on which the return is due to be furnished under section 39 or the actual date of filing of the said return, whichever is earlier, if the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, on account of payment of tax through the said return; or

(2) the date of utilisation of such input tax credit shall be taken to be, -

Explanation. -For the purposes of this sub-rule, -

(1) input tax credit wrongly availed shall be construed to have been utilised, when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilisation of input tax credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.

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Interest liability? Relevant Judgments • Super Cassettes Industries Ltd vs UOI • CCE Surat I vs Krishak Bharti Cooperative Ltd • Rishab Velveleen Ltd vs CCE Meerut • CIT II vs Modipon Ltd

Invoice

Facts

• Return in which invoice furnished October 2022 Balance in between Aug 22 Oct Rs.5,00,000

to

• Return in which invoice was required to be furnished Aug 2022

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•

in Cash ledger

• value Rs.1,00,000

Electronic Cash Ledger

Section 49(1) of the CGST Act

• Every deposit made towards tax, interest, penalty, fee or any other amount by a person by internet banking or by using credit or debit cards or National Electronic Fund Transfer or Real Time Gross Settlement or by such other mode and subject to such conditions and restrictions as may be prescribed, shall be credited to the electronic cash ledger of such person to be maintained in such manner as may be prescribed.

Legal Provisions

Section 49(3) of the CGST Act

• The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made thereunder in such manner and subject to such conditions and within such time as may be prescribed.

Interesting issues related to interest

Case Study 5: Interest on erroneous refund Refund of ITC on input services in case of inverted duty structure Refund of GST paid on export of goods where benefit of Advance Authorization availed © Tattvam Advisors, All rights reserved 19 1 2

Where a registered person deposits the amount of erroneous refund sanctioned to him,

a. under sub-section (3) of section 54 of the Act, or 20

Interest can not be levied in the absence of a substantive provision for levy.

No provisions exist for levying interest on refunderroneous

1. Indian Carbon Ltd. v. State of Assam [1998] 1998 taxmann.com 1764 (SC)/(1997) 6 SCC 479

2. From when will the interest be charged where consideration is not received in foreign currency within prescribed limit?

Case laws in this regard are as follows

b. under sub rule (3) of rule 96, in contravention of sub rule (10) of rule 96, along with interest and penalty, wherever applicable, through FORM GST DRC-03, by debiting the electronic cash ledger, on his own or on being pointed out, an amount equivalent to the amount of erroneous refund deposited by the registered person shall be re credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT 03A.

2. Khemka & Co. (Agencies) Pvt. Ltd. v. State of Maharashtra [1975] 1975 taxmann.com 66 (All)/ (1975) 2 SCC 22

4. S. Gurunathan v. Deputy Commercial Tax Officer [2014] 48 taxmann.com 160/47 GST 199 (Mad.) 2014 SCC OnlineMad 1829

3. TVL. Hotel Peacock v. Commercial Tax Officer, Chennai 2018 (17) G.S.T.L. 385 (Mad.)

1. What will be the rate at which the interest is to be paid?

CopyrightAdvisorsTattvam

Rule 86 (4B):

1) 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:

3) Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty four per cent. as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed

Section 73(1) of CGST Act, 2017

Legal Provisions

1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder.

Section 50(1) and Section 50(3) of CGST Act, 2017

5: Interest on erroneous refund

Case Study

Legal position:

Unless there is a charging provision by which a liability is created or fixed, there cannot be a machinery provision for the recovery of such liability (J.K. Synthetics Ltd. v. Commercial Taxes Officer, [1994] 1994 taxmann.com 370 (SC)/(1994) 4 SCC 276 )

Hon’ble Supreme Court in the case of Indian Carbon Ltd. & Ors. v. State of Assam, (1997) 6 SCC 479/[1998] 1998 taxmann.com 1764 (SC) held that there is no substantive provision for charging/ levying interest under the Central Sales Tax Act, 1956. Therefore, interest cannot be recovered from the assessee by invoking the machinery provisions of the Assam Sales Tax Act, 1947.

Conclusion - No charging (i.e., substantive) provision for levy of interest in case of erroneous refund under Section 50, - However, Section 73 provides for a machinery provision for recovery of interest in case of inter alia erroneous refund.

 What if contract term provide that payment is to be made within 200 days from date of issuance of invoice?

 Section 16(2) – Where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply of goods or services along with the tax payable thereon, within a period of one hundred and eighty days from the date of issue of invoice by the supplier, the amount equal to Input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed.

 What does failure to pay means?

Interest on Reversal of ITC owing to failure of payment within 180 days

 The recipient shall be entitled to avail Input tax credit on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

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Case study 6 :

Rule 37(3): The registered person shall be liable to pay interest at a rate as specified u/s 50 for the period starting from the date of availing such credit till the date when such amount is added in output tax liability is paid.

Failure of Payment within 180 days from the date of issue of invoice shall furnish the details of such supply, the amount of value not paid and amount of ITC availed but not paid to the supplier in FORM GSTR-2 for the month.

Rule 37(4): The time limit as specified u/s 16(4) shall not apply to a claim for re-availing of any credit, in accordance with the provision, that has been reversed earlier.

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Rule 37(2): The amount of ITC which is not paid to the supplier shall be added to the output tax liability of the registered person for the month in which details are furnished.

Interest on Reversal of ITC owing to failure of payment within 180 days

Provided that the value of supplies made without consideration as specified in Schedule I shall deemed to have been paid for the purpose of second proviso to sub section (2) of section 16.

Reversal of input tax credit in case of non- payment of consideration

As per rule 37

The amount credited under sub rule (3) of rule 117 may be verified and proceedings under section 73 or, as the case may be, section 74 shall be initiated in respect of any credit wrongly availed, whether wholly or partly.

(b) the tax payable under the provisions of sub sections (3) and (4) of section 9;

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(d) the tax payable under the provisions of sub sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act; or

• input tax credit" means the credit of input tax;

(c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;

(e) the tax payable under the provisions of sub sections (3) and (4) of section 7 of the Union Territory

Definition of Input tax and Input Tax Credit

Rule 121

(a) the integrated goods and services tax charged on import of goods;

Case Study

Interest on ineligible transitional credit

2530Tattvam Advisors Copyright

• "input tax" in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes

Case Study

Interest on ineligible transitional credit

Section 140 of the CGST Act

• (2) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, credit of the unavailed CENVAT credit in respect of capital goods, not carried forward in a return, furnished under the existing law by him, for the period ending with the day immediately preceding the appointed day 2[within such time and] in such manner as may be prescribed:

• (1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit 1[of eligible duties] carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law 2[within such time and] in such manner as may be prescribed:

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• Transitional cenvat credit is not an input tax credit as the definition of ‘input tax credit’ does not include credit transitioned in GST regime.

Rule 121 is beyond the scope of main legislation

Transitional credit is not input tax credit

• The provisions of Rule 121 of the CGST Rules are ultra vires the provisions of the main Act. It is the established law that the delegated legislation cannot travel beyond the scope of the main legislation.

• Retrospectively amended Section 50(3) provides recovery of interest only in case of input tax credit and not the wrongly transitioned credit

Case Study 8 – Wrong nature of tax © Tattvam Advisors, All rights reserved 28 On site Security Services Supplier of Security Services Delhi ImmovableDelhiProperty Recipient of KeralaServices Interest liability? CGST and SGST required to be charged, however, IGST was charged by the supplier

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(GST Provisions)

Section 77 of the CGST Act,2017

Case Study Wrong nature of tax

2. A registered person who has paid integrated tax on a transaction considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall not be required to pay any interest on the amount of central tax and State tax or, as the case may be, the Central tax and the Union territory tax payable.

2. A registered person who has paid central tax and State tax or Union territory tax, as the case may be, on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall not be required to pay any interest on the amount of integrated tax payable.

Section 19 of the IGST Act,2017

1. A registered person who has paid the Central tax and State tax or, as the case may be, the Central tax and the Union territory tax on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.

1. A registered person who has paid integrated tax on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of integrated tax so paid in such manner and subject to such conditions as may be prescribed.

Case study 9 : Interest on reversal of common ITC

According to Rule 42(2)(a) of the CGST Ruleswhere the aggregate of the amounts calculated finally in respect of ‘D1’ and ‘D2’ exceeds the aggregate of the amounts determined under sub-rule (1) in respect of ‘D1’ and ‘D2’, such excess shall be reversed by the registered person in FORM GSTR-3B or through FORM GST DRC-03 in the month not later than the month of September following the end of the financial year to which such credit relates and the said person shall be liable to pay interest on the said excess amount at the rate specified in sub-section (1) of section 50 for the period starting from the first day of April of the succeeding financial year till the date of payment.

From when shall the interest be charged in case of delayed reversal of common ITC? - Date of Utilization or - 1st April of succeeding FY or - Date of Utilization or 1st April of succeeding FY, whichever is later

Notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79.

31 Disputed Interest Admitted Interest 2.Whether interest on unpaid self assessed tax be recovered u/s 79? Case Study 10: Recovery of interestadjudicationwithout 1.Can interest fall within the meaning of expression “self assessed”?

Section 75 (12) of the CGST Act, 2017

ForExplanationthepurposes of this sub-section, the expression "self-assessed tax" shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section (Inserted39.vide the Finance Act, 2021. Made effective w.e.f. 01.01.2022 vide Notification No. 39/2021 - Central Tax)

• Godavari Commodities Ltd. Vrs UOI (2020) 114 taxmann.com 563/33 GSTL 16 (Jhar.)

• Jharkhand HC in the case of Mahadeo Construction Co. Vrs UOI (2020) 116 taxmann.com 262/81 GST 271 (Jhar.)

• Madras HC in the case of Asstt. CCGT & CE Vrs Daejung Moparts P Ltd (2020) 116 taxmann.com 372/82 GST 69 (Mad.)

Jurisprudence

Circular on direct recovery of self-assessed tax under Section 75(12) in relation to mismatch between GSTR-1 and GSTR-3B

Case Study 10: Recovery of interest

“….Therefore, in all such cases, an opportunity needs to be provided to the concerned registered person to explain the differences between GSTR-I and GSTR-3B, if any, and for short payment or non-payment of the amount of self-assessed tax liability, and interest thereon, before any action under section 79 of the Act is taken for recovery of the said amount…. the proper officer may send a communication (with DIN, in terms of guidelines issued vide circular No. 12214112019-GST dated 5th November 2019) to the registered person to pay the amount short paid or not paid, or to explain the reasons for such short payment or non-payment of self-assessed tax, within a reasonable time, as prescribed in the communication. If, the concened person is able to justify the differences between GSTR-1 and GSTR-3B, or is able to explain the reasons of such short-payment or non-payment of tax, to the satisfaction of the proper officer, or pays the amount such short paid or not

Case Study 10: Recovery of interest

paid, then there may not be any requirement to initiate proceedings for recovery under section 79”

Karnataka GST Audit Manual

Undisputed arrears

Conclusion

Amounts that are ‘undisputed’ such as self-assessed tax are permitted under Section 75(12) to be recovered under Section 79 of the KGST Act WITHOUT following any procedure of law such as issuance of notice or adjudication. As this is a selfassessment tax regime, once taxpayer has admitted liability in FORM GSTR 3B returns, there is no further requirement to issue any notice for recovery of such admitted tax by following any suitable method available under section 79 of the KGST Act. Interest on such self-assessed tax is also stated to be an ‘undisputed’ arrear under section 75(12) of the KGST and this provision must be taken note of by the authorities.

It is not a true that liability of interest under Section 50 of the CGST Act is automatic, but the said amount of interest is required to be calculated and intimated to an assesse. If an assesse disputes the liability of interest i.e. either disputes its calculation or even the leviability of interest, then the only option left for the Assessing Officer is to initiate proceedings either under Section 73 or 74 of the Act for adjudication of the liability of interest.

Case Study 10: Recovery of interest

Case study : Interest on delayed refunds

Provided that where any claim of refund arises from an order passed by an adjudicating authority or Appellate Authority or Appellate Tribunal or court which has attained finality and the same is not refunded within sixty days from the date of receipt of application filed consequent to such order, interest at such rate not exceeding nine per cent. as may be notified by the Government on the recommendations of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application till the date of refund.

Penal interest upto 9% under the proviso to Section 56 is applicable in a case when a claim of refund arises from an order passed by an adjudicating authority or Appellate Authority or Appellate Tribunal or Court which has attained finality, but refund is not given within sixty days from the date of receipt of application filed consequent to such order.

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Notification No. 13/2017 – Central Tax notifies rate of interest u/s 56 of the CGST Act, 2017

Detailed Agenda Notes of 14th GST Council meeting

Section 56: Interest on delayed refunds

If any tax ordered to be refunded under sub-section (5) of section 54 to any applicant is not refunded within sixty days from the date of receipt of application under subsection (1) of that section, interest at such rate not exceeding six per cent. as may be specified in the notification issued by the Government on the recommendations of the Council shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application under the said sub-section till the date of refund of such tax:

Case study 11 : Illustration © Tattvam Advisors, All rights reserved 36 Particulars Date Application Date 01.04.2022 Date of Appellate Authority order rejecting refund rejection order and granting refund 01.09.2022 Date of Application consequent to order 01.10.2022 Date of Refund 31.01.2023 A. Interest from 01.06.2022 to 30.11.2022 – Section 56 B. Interest from 01.12.2022 to 31.01.2023 – Proviso to Section 56 9%6%

Section 115: Interest on refund of amount paid for admission of appeal

Rate of Tax : 9%

115. Where an amount paid by the appellant under sub-section (6) of section 107 or sub-section (8) of section 112 is required to be refunded consequent to any order of the Appellate Authority or of the Appellate Tribunal, interest at the rate specified under section 56 shall be payable in respect of such refund from the date of payment of the amount till the date of refund of such amount.

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