FEBRUARY 20, 2020

By K Srinivasan

CBIC's letter  dated 10th February 2020 to the officers to make recovery of interest amount from the assessees who have filed their GST returns belatedly, came like a bolt from the blue.

As per this letter, approximately Rs.46,000 crores is reportedly recoverable as interest from such taxpayers.

The letter affirms the following:

1. The interest is payable on the gross tax liability as shown in GSTR-3B and not on net cash liability.

2. The amount is recoverable directly under Section 79 as the situation of delayed filing of return (GSTR-3B) without paying due interest is covered by the provisions of Section 75(12) of the CGST Act.

In a contrasting legal event, in the meantime the Hon'ble Madras High Court in the case of a writ petition filed by  Refex Industries Limited. - 2020-TIOL-382-HC-MAD-GST  had set aside the notices and allowed the Writ Petitions.

While doing so, it has accepted the case made out by the party that such belated payments would attract interest only net of their ITC credits due to them for the taxes borne and paid by them.

The specific question before the High Court was in a case where credit is due to a taxpayer, when such payment is possible by way of adjustment, whether it could still be termed as delayed payment including to the extent of such ITC Credit, if rightfully due to the taxpayer.

The High Court rightly answered to all these ifs and buts that the word 'delayed' connotes an event of deprival, where the State has been actually deprived of the funds representing tax component, till such time the return is filed by due accompaniment of tax payment.

The Court observed that ITC due to the credit of taxpayer runs counter to the view of the Department, to the extent of such amount represented by it, as it already amounts an implicit enrichment of the State, to this extent.

Thus, the Court held that Section 50 which is specifically intended to apply to a context of deprival cannot apply in a context where the State is already in possession of such funds to the credit of the taxpayer.

The relevant part of the High Court judgement is excerpted hereunder:

++ In my considered view, the proper application of Section 50 is one where interest is levied on a belated cash payment but not on ITC available all the while with the Department to the credit of the assessee.

++ The latter being available with the Department is, in my view, neither belated nor delayed.

The above viewpoint of the Department and the Hon'ble Madras HC, are in direct conflict with each other.

The CBIC's letter looks quite truncated by merely referring to un-amended Section 50 as it stands today. It has not referred or committed its stand about the amendment to Section 50 which is already in place, to become effective not as yet, though.

The most redeeming aspect of this entire discussion of the Hon'ble Madras HC is that it has even gone in to the un-amended provision of Section 50 and gone on with its interpretation of it.

It has held that the proper application of Section 50 would be one where interest is levied on a belated cash payment but not on ITC available all the while with the Department to the credit of the taxpayer.

The High Court, however has not failed to notice the amendment and held that the amendment by way of insertion of the proviso when seeks to correct an anomaly, has to be read as declaratory in taxpayer's favour and hence operative retrospectively.

In the stated facts, circumstances and Law above, the sword drawn forth by CBIC, from the un-armed scabbard of Section 50 for realising its dream figure of Rs.46,000 crores looks quite utopian in the eyes of the Author.

While rounding off my discussion, I can't refrain from a mention of another decision of the Hon'ble High Court of Telangana, in the case of  Megha Engineering Infrastructures Ltd  -  2019-TIOL-893-HC-TELANGANA-GST, which is claimed to be in favour of Revenue.

Notably, on an identical issue, while interpreting the un-amended Section 50, the Hon'ble Telangana HC, has no doubt chosen to uphold the Department's contention that interest would be payable on the gross amount of tax declared in the belatedly filed GSTR-3B, by overlooking the ITC due to the credit of the party, completely.

A single most interesting thing here is that while hearing the Refex Industries case, the Madras High Court, has not failed to note the above Telangana High Court decision.

What's more, the Hon'ble Madras HC has further proceeded to distinguish the same, calling to its support the self-same proviso to Section 50.

It observed that the amendment brought to Section 50(1), was only at a press release stage at the time when the Telangana High Court Division Bench passed its order.

While saying so, the Hon'ble Madras High Court has further noted that the Telangana High Court while pronouncing its order could not have interpreted Section 50 in the light of the proposed amendment, as the recommendations of the GST Council were still in draft stage without turning into an amendment.

The Madras High Court went on to conclude, in substance, that the amendment now stands incorporated into the Statute books to come only to the aid of the taxpayer.

There is a famous adage that even if the Gods granted the boon, the Purohit must not stand in the way. On the same lines, I am tempted to ask the following question?

Though the Court has granted the benefit of the Section 50 Amendment retrospectively from 1/7/2017, will the Government refrain from coming in the way of the taxpayer from enjoying the boon, is the eagerly awaited answer to the Author's humble question, by taxpayers across the Country, in unanimity, believe me, my dear readers.

(The Author is a former Assistant Commissioner of GST, Chennai and a CBIC Master Trainer, GST and currently a Senior Associate, Indirect & Corporate Taxes, at a Chennai-based Law Firm, RANK Associates. The views of the Author are purely personal.)