Not a Penny More
FEBRUARY 19, 2020
By Vijay Kumar
IS the Government really determined to reduce litigation? From what appears on the GST front, it is clear, somebody in Government wants litigation to flourish. Take the case of interest payable on delayed tax.
If my tax liability is one crore rupees and I have a credit of 99 lakhs rupees and if I don't pay this one lakh rupees within due date, as per the law as propagated by the North Block officers, I have to pay interest on 1 Crore and not 1 lakh. There was a case before the Delhi High Court wherein the petitioner submitted that against the total tax liability of Rs.3.31 crores the interest liability works out to 8.19 crores which makes it unreasonable and erroneous.
The liability to pay interest in case of non-payment of tax arises out of the provisions contained in Section 50 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the "CGST Act") which reads as follows:
"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."
It may be seen from the above provision that interest is applicable on the amount of tax that has not been paid by the registered person.
Thus, although the law permits part payment of tax but no such facility has been yet made available on the common portal. This being the case, a registered person cannot even avail his eligible ITC as he cannot furnish his return unless he is in a position to deposit his entire tax liability as self-assessed by him. This inflexibility of the system increases the interest burden.
Presently the interest is not calculated by the IT system. The registered person himself calculates the said interest and deposits the same. It appears, therefore, that any change would not pose any IT related challenge.
The highlighted words are not mine, nor are they from a frustrated taxpayer or an eager tax consultant. They are the words of the Government as submitted before the GST Council in its meeting held on 22nd December 2018. The Government explained the position lucidly as:
Suppose a registered person has self-assessed his tax liability as Rs. 100/- for a particular tax period. He has an amount of Rs. 10/- as balance in his electronic credit ledger and he is eligible to avail Rs. 80/- as input tax credit (which would be credited to his electronic credit ledger only on furnishing of return). He is, therefore, required to pay only Rs. 10/- from his electronic cash ledger. The IT system will not allow the said registered person to furnish his return (and therefore the ITC of Rs. 80/- will not be credited in his electronic credit ledger) until he is in a position to discharge his complete self-assessed liability of Rs. 100/-. He would be liable to pay interest on the entire self-assessed tax liability of Rs. 100/- as he is not able to pay Rs. 10/- or part thereof from his electronic cash ledger.
It may be seen from the above that if the facility for part payment, as permitted under law, was available, the registered person would have been required to pay interest only on Rs. 10/- but presently he is liable for interest on entire tax liability of Rs. 100/-.
Nobody could have explained the position better when the Government submitted to the GST Council,
It is also pertinent to mention that the liability of any registered person is related to the value addition made by him since GST is leviable only on value addition. Accordingly, input tax credit is allowed to the registered person in respect of the tax paid by him on his inward supplies. And, while making the outward supplies, the input tax credit so allowed is permitted to be utilised for discharging his output tax liability. The remaining part which is generally equivalent to the tax on value addition is discharged through electronic cash ledger. Hence, by this mechanism the registered person effectively pays tax only on the value addition made by him. If this concept is applied for interest payable, then, it appears that the interest should also be charged on the tax payable on the value addition only, i.e. the amount of tax which is required to be paid through electronic cash ledger.
And they got the approval of the GST Council to amend Section 50, which they promptly did in the 2019 Budget. Even after a year, the amended provisions are yet to be notified.
The ingenious methods the Revenue Department comes up with, towards the end of the Financial Year, when they realise that their revenue targets are far beyond their reach, is mind boggling. And they found that about Rupees 46,000 crores are OUTSTANDING by way of this interest which they never planned to collect in the first place. It seems a CBIC Member has asked the field to collect this interest on the amounts which were never due to the government. The CBIC has in tweets clarified that:
There are some discussions in social media w.r.t. interest calculation on delayed GST payments post a few media reports regarding Rs. 46000 Cr interest on the delayed GST payments to be collected by tax authorities. On this issue of interest calculation, it is clarified that-
- The GST laws, as of now, permit interest calculation on delayed GST payment on the basis of gross tax liability. 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.
The Telangana High Court had in its order delivered on 18.04.2019 - 2019-TIOL-893-HC-TELANGANA-GST observed,
But, unfortunately, the recommendations of the GST Council are still on paper. Therefore, we cannot interpret Section 50 in the light of the proposed amendment.
At that time, the amendment to Section 50 was yet to be passed by Parliament. But very recently, the Madras High Court - 2020-TIOL-382-HC-MAD-GST held that the amendment, as per which interest shall be levied only on that part of the tax which is paid in cash, has been inserted with effect from 01.08.2019, but clearly seeks to correct an anomaly in the provision as it existed prior to such insertion. It should thus, be read as clarificatory and operative retrospectively.
Perhaps the Madras High Court was not informed that this particular amendment is yet to be notified. But even then, the position that it would have retrospective effect has already been decided. So, the government likes it or not, the amendment, whenever it is notified, will have retrospective effect and logically should have.
In the meanwhile, the machinery at the field level is already activated and notices are being shot off to unsuspecting taxpayers to pay the interest on the gross amount. Already the matter is before several High Courts. And all taxpayers will have to rush soon to their High Courts to get relief from this oppressive and usurious collection of interest.
Actually, there was no need for all this drama. There was no need for a Law Committee to discuss this; there was no need for the GST Council to recommend amending the law; there was no need for Parliament to enact the amendment - if only, IF ONLY the GST Portal would allow part payment of the tax, as permitted by the LAW. Because of the inefficiency of the portal, law had to be amended and the CBIC is not ready to accept the the law as amended by Parliament on the proposal made by the CBIC - all because there is a shortfall in revenue. And the taxpayers are made to fight it out in the courts. When will they end this self-created chaos?
This, certainly is, not the way to collect taxes; your job is to collect the correct taxes; not a penny more, not a penny less!
For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the message was lost.
For want of a message the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.
Until next week
