NOVEMBER 04, 2019

By Puneet Bansal, Managing Partner & Shivam Bansal, Associate, NITYA Tax Associates

"THE art of taxation consists of so plucking the goose as to obtain the largest number of feathers with the smallest amount of hissing" - Jean Baptiste Colbert

The levy and collection of taxes have always been a subject matter of dispute. Often the taxpayers and the government find themselves at loggerheads when tax legislation is involved. The story is no different even with a law like Goods and Services Tax ('GST') which is at its nascent stages.

One of the most significant issues surfacing in the GST law is the lack of consensus between the Legislature and the Government in implementing the same. Resultantly, the colossal gap exists between the substantive law vis-à-vis the procedural law. The issues are blowing out of proportion due to an overzealous approach of the Government in changing the procedural law even if it is incongruent with the substantive law.

The latest example is the retrospective amendment of Rule 61(5) of the Central Goods and Services Tax Rules, 2017 ('CGST Rules') vide Notification No.49/2019-CT dated October 9, 2019. This amendment effectively replaces the now redundant Form GSTR-3 with Form GSTR-3B with effect from July 1, 2017.

This amendment has far-reaching implications under GST law and will lead to unintended consequences. Through this article, the authors attempt to analyse the validity of the amendment vis-à-vis the leviability of interest for delayed payment of taxes in the past.

Before an in-depth analysis, one must ask a pertinent question - 'Can the tax officials go back in time to fasten liability on a taxpayer which, hitherto, did not exist in the law?'. With an obvious answer to this question, let us now delve into the amendment made and the mischief it intends to create.

Payment of GST - Legislative background

The only provision under the GST law providing a timeline for payment of tax is Section 39(7) of the Central Goods and Services Tax Act, 2017 ('CGST Act'). As per this provision, the outer limit for payment of tax is the due date of filing Form GSTR-3 (return prescribed under Section 39). Since the Government never made Form GSTR-3 operational, due date of payment of tax never got triggered.

Further, it is pertinent to note that Form GSTR-3B [introduced vide Notification No.10/2017 - CT dated June 28, 2017 by amending Rule 61(5) of the CGST Rules] was a temporary measure till the process for filing Form GSTR-3 got streamlined¹. In fact, the Gujarat High Court² also observed that Form GSTR-3B was introduced only as a stop-gap arrangement till Form GSTR-3 is implemented. The Court also noted that Form GSTR-3 is the return under Section 39 of the CGST Act and not Form GSTR-3B.

The instant amendment to altogether replace Form GSTR-3 with Form GSTR-3B from the advent of the GST regime comes as a shock since this was never intended by the GST Council or the Government.

Levy of interest for the past period as well as going forward

The machinery provisions for payment of taxes are extensively laid down under Chapter X of the CGST Act. The specific provisions viz. Section 49(3) and Section 49(4) of the CGST Act deals with payment of taxes but do not provide any timeline. These provisions have left it to the wisdom of the Government to prescribe the timelines within which the taxpayer has to pay tax ³. Even after two years of implementation of GST, the Government has not 'prescribed' any timeline for the same. Thus, in the absence of prescription of any timeline, no interest can be levied even if there is an actual delay in payment of tax. This argument should hold true for past as well as future.

Another aspect worth noting is that Form GSTR-3B was initially introduced vide an amendment in Rule 61(5) of the CGST Rules. Yet again, Rule 61(5) has been amended to replace Form GSTR-3 with Form GSTR-3B as the prescribed return under Section 39. Curiously enough, both Section 39 of the CGST Act and Rule 61(5) of the CGST Rules only deal with the form, manner, and conditions to be fulfilled for filing of returns. Thus, any violation of these provisions should only trigger the consequences pertaining to the non-filing or delayed filing of returns, namely the late fee ⁴.

The million-dollar question that arises now is whether interest can be demanded for non-filing of returns as per the prescribed procedure, especially when there is no specific provision under the GST law for levying interest in such situations.

This question assumes greater significance for the levy of interest for the past period. Irrespective of grounds for non-sustenance of levy of interest going forward, it would be grossly inequitable and unjust to demand interest for the past period for supposed 'delays' when there was no "prescribed period" for payment of taxes in the past.

Being in the compensatory nature for the time value of money, interest should trigger only where tax was 'due', and there was 'failure' or 'default' on the taxpayer's part to pay tax within due date. The tax amount has utmost become 'due' now only. Thus, interest cannot be demanded retrospectively from the taxpayers in the absence of any 'delay' or 'failure' on the part of the taxpayer.

Another interesting dimension for viewing this issue is Section 164 of the CGST Act. This provision empowers the Government to make rules for carrying out the provisions of the CGST Act, on the recommendations of the GST Council. This includes the power to amend the rules retrospectively. What is interesting (rather shocking!) to note is that this amendment was not coming out in the Press Release issued after the conclusion of 37th GST Council Meeting, nor the Notification supra mentions that the amendment has been carried out on the recommendations of the GST Council. In the absence of such an express mandate, the present amendment will be invalid.

To sum up, the aforesaid amendment has opened a pandora's box of various interesting issues for the levy of interest. The amendment will give rise to a plethora of litigations in times to come.

Conclusion

The instant amendment is amenable to challenge on multiple counts as far as it levies interest for delayed payment of taxes for the past as well as the future. We need to watch out the Courts' final call on the validity of the same.

[The views expressed are strictly personal.]

¹ The decision to introduce Form GSTR-3B was taken in 18th GST Council Meeting for the reason stated as 'shorter return for first two months of roll out'.

² AAP and Co. v. Union of India - 2019-TIOL-1422-HC-AHM-GST

³ Section 49(3) of the CGST Act provides that deposit of tax in the electronic cash ledger may be used for making payment of tax etc. "within such time as may be prescribed". Similar provision exists under Section 49(4) of the CGST Act

⁴ Section 47 of the CGST Act provides for the levy of late fee in case there is delay or non-filing of returns by the taxpayer