AUGUST 31, 2020

By Gunjan Prabhakaran & Sarvesh Saraogi

THE Central Board of Indirect Taxes & Customs (CBIC) through a notification dated 25 August 2020, has notified 01 September 2020 as the date from which Section 100 of Finance (No. 2) Act, 2019 would be effective. In other words, with effect from 01 September 2020, interest under Section 50 of CGST Act, 2017 for delayed filing of returns would be levied on the GST liability payable in cash.

Though it was a very welcome step taken by the CBIC, it was quite baffling for the industry at the same time, since the notification was contrary to the recommendation of the GST council in the 39th GST Council meeting, wherein it was proposed to provide the said relief retrospectively. The said notification could have opened doors for a plethora of litigations revolving around the legality of the notification which is contrary to the recommendation of the GST Council. However, in order to put the ambiguities to rest, the CBIC proactively released a press note on 26 August 2020, which clarified that no recoveries would be made by the Revenue Authorities for the past periods as well.

Though a combined reading of the notification and the press release gives the impression that a retrospective effect has been given to the amendment in Section 50, there are a couple of pertinent questions that still needs to be answered -

- CBIC's press release only states that no recoveries would be initiated for the past periods. However, it is silent about the fate of the recovery proceedings already initiated or concluded. Since the power to levy interest for the period up to 31 August 2020 still exists under Section 50 of CGST Act, 2017, the Department may not drop the recovery proceedings initiated before the press release.

- Further, neither the press release nor the amendment in Section 50 provides any clarity as to whether any refund would be granted by the Authorities in respect of the interest amounts already paid. Since for the period up to 31 August 2020, the legal sanctity for levy of interest on the gross amount cannot be questioned, the Department may not grant refund of the amount already paid by the taxpayers. The Revenue Authorities may hold a view that although recovery proceedings cannot be initiated, refund for the past periods can be legally denied to the taxpayers.

In view of the aforesaid practical questions, it cannot be comfortably said that post amendment in Section 50, the levy of interest on net GST liability is retrospective in nature. Moreover, it is also pertinent to note that unlike Circulars, press releases do not have a binding applicability on the Department. Hence, till the time an appropriate Circular is issued by the CBIC, the press release does not have any legal validity.

It may be concluded that unless these questions are specifically addressed by the policy makers, the impugned amendment is likely to open up a flood of litigations in the near future. Hence, it would be prudent for the CBIC to come out with proper circulars/ notifications to clear the ambiguities born due to the said amendment.

[The authors are Partner & Leader, Indirect Taxes and Assistant Manager, Indirect Tax, BDO India LLP, Kolkata. The views expressed are strictly personal.]