GST Provisions related to Interest.

Provisions related to Interest Payable or Receivable under GST Law.

Every tax law contains certain measures against tax offenders generally in the form interest, penalty or prosecution, where interest is compensatory in nature and penalty and prosecution are penal in nature. These measures demotivate taxable person to make default with the taxation laws and hence they play the most important role in ensuring the successful implementation of tax laws.

In some cases viz., delayed refunds, GST department also pays interest to the taxable person, however the rate of interest given by the department is substantially low as compared to the rate of interest charged by them on delayed payment of taxes.

In this article, we will discuss the provisions of Interest under GST Law:

Statutory Provisions

Section 50 of CGST Act deals with the provisions of Interest. The liability to pay interest arises in following two circumstances

1. On account of late payment of GST (The maximum rate at which interest can be charged is 18%);
2. On account of excess claim of ITC or excess reduction of output tax liability (The maximum rate at which interest can be charged is 24%)

Rate of Interest prescribed

The government of India vide Notification No. 13/2017-Central Tax dated 28.06.2017 has notified the following rate of interest

1. Late payment of GST – 18% per annum
2. Excess claim of ITC or excess reduction of output tax liability – 24% per annum

Interest Chargeable on Late payment of GST

It is a very important question as to on which amount a taxable person is liable to pay i.e. whether interest is payable on gross tax liability (before adjusting ITC) or whether it is payable on Net tax liability.

According to Section 16(2), in order to avail Input Tax Credit, a taxable person is required to file its periodical return and once the credit is transferred to Electronic Credit Ledger, the same is available for utilization. Thus, Input Tax Credit becomes available for adjustment only after filing of return. Since the amount is not available for adjustment before the filing of return, every taxable person who makes default in payment of taxes is liable to pay interest on gross tax liability.

The above view was also upheld by Hon’ble Telangana High Court in its recent judgment in the case of M/s. Megha Engineering & Infrastructures Ltd. Vs. The Commissioner of Central Tax, Hyderabad. In the aforesaid judgment hon’ble High Court decided in favor of revenue and held that interest is payable on Gross GST liability before adjusting Input Tax Credit.

Illustration:

Turnover of A Ltd           – Rs. 10 crores

Tax payable                    – Rs. 1.80 crore

Input Credit available    – Rs. 1 crore

Net Tax payable             – Rs. 80 lakhs

Concerned Month         – Oct 2018

Due date of payment    – 20-11-2018

Date of Filing of return  – 29-11-2018

Delay in payment of tax – 9 days

Interest payable – 1.80 crore * 9/365 * 18%   = Rs. 79890/-

Interest on excess claim of Input Tax Credit/excess reduction of output tax liability

GST Act provides for higher rate of interest for tax evaders who have claimed excess input tax credit or who have reduced their outward tax liability. A taxable person shall be liable to pay interest at the higher rate of interest of 24% in following scenarios

1. Where the recipient has availed the input tax credit but supplier has not disclosed the same in its GSTR-1;
2. Where the supplier has issued credit note and has reduced its outward tax liability but the recipient has not reversed the ITC in its return.

Mode of Payment

Interest under GST Act needs to be paid in cash i.e. it cannot be adjusted with the input tax credit lying in electronic credit ledger of taxable person.

Cases where Interest is paid by GST Department

A taxable person is entitle to receive interest in cases where the refund is withheld or where the refund is not issued within prescribed time limit by the department.

Notification No. 13/2017-Central Tax has prescribed a rate of interest of 6% in following cases:

1. Where an order is passed resulting into refund and such order is subject matter of appeal or further proceeding and such refund is withheld by the commissioner on the ground that such refund will adversely affect the interest of revenue till the final disposal of appeal.
2. Where the refund on account of zero rated supplies and inverted duty structure is not issued within 60 days from the date of receipt of application.

Further a taxable person shall be entitled to receive interest at the rate of 9% where an amount becomes refundable on account of any order passed by 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.

Summary

Note:

GST council in its 31^st meeting has given in principal approval to charging of interest on net tax liability, however the said recommendation has not yet been notified by the government. Till the time necessary amendments are made in the CGST Act, all taxpayers are obligated to pay interest on gross tax liability for delayed payment of taxes.