Interest Payment on net Liability under GST w.e.f. 1st Sep, 2020 By Rohit Kumar

Update Category Interest payment on net Liability w.e.f. 1st Sep’ 20
Update Source Central Tax Notification – Finance Act provision made effective
Release No. TM/GST/085 dated 26th August, 2020

Notification No 63/2020 – Central Tax dated 25th August, 2020 -

CBIC has issued Notification No 63/2020 – Central Tax dated 25th August, 2020 bringing into effect the provisions of Sec 100 of the Finance Act, 2019, which is reproduced below -

Sec 100. In section 50 of the Central Goods and Services Tax Act, in sub-section (1), the following proviso shall be inserted, namely –

Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.”

Impact of the Notification –

Section 50 of CGST Act 2017 was amended by Finance (No. 2) Act, 2019 (23 of 2019) by inserting a proviso to section 50(1) of the CGST Act, 2017 from a date which the government notify in this regard. Section 50 deals with payment of Interest on GST on Gross tax liability instead of net amount.

Government has now notified that the interest will be applicable on net amount with effect from 1st day of September, 2020 vide Notification No. 63/2020-Central Tax, dated. 25th August, 2020.

Legal Battles:

  1. Telangana High Court – Megha Engineering & Infra Ltd dated 20th Aug 2019 - Interest is to be levied on Gross Liability
  2. Madras High Court – Reflex Industries Ltd dated 6th Jan 2020 – Interest to be levied on net liability and not on gross liability.
D. GST Council Outcome

In its 39th Meeting on 14th March 2020, the Council declared that Interest on delayed payment of GST to be charged on New cash tax liability w.e.f 1st July 2017 (date of introduction of GST). Law shall be amended retrospectively.

So the amendment is prospective?

Yes, you read it right. Even though GST Council declared that law shall be amended retrospectively, the notification is made effective from 1st September 2020.

F. What is the impact on your business –

Meaning if you have delayed in furnishing GSTR 3B for the tax periods July 2017 to July 2020 and have not paid interest on gross liability or paid interest only on net cash tax liability, it is likely that you may get Show Cause Notice (SCN) from department for additional interest. Also in case any existing Show Cause notice is pending, department may press for payment of interest on gross tax liability.

Will this benefit be extended where proceedings U/s 73 or 74 is initiated?

No, the benefit of payment of interest is not applicable where proceedings U/s 73 or 74 (Determination of short payment/ non-payment of Tax) is initiated by the Department.  

TaxMarvel Comments –

We request you not to panic as yet and wait for more clarity in the matter. Meanwhile you may -

  1. Review if there is any delay in furnishing in GSTR 3B for the tax periods July 2017 to July 2020 (Prior to 1st September 2020)
  2. Ascertain Interest liability on gross tax liability
  3. Check if you have paid any interest (on net tax liability or gross tax liability)
In case of any Show Cause Notice (SCN) from Department for nonpayment/short payment of Interest, the aforesaid workings may assist you.
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