WHETHER INTEREST IS PAYABLE OR NOT???, Goods and Services Tax - GST

[BARUN MUKHERJEE]

Respected sir,

One of my client has wrongly incorporated output cess amounting to Rs. 3,76,215.98 instead of Rs. 37,62,215.98 in GSTR 3B for the month of Aug'19. But GSTR 1 was rightly been filed for the said month. In this connection this is also to be noted that outward supply was correctly been shown in GSTR 3B for the said month. The apparent mistake was purely an inadvertent typographical human error and the same has also been rectified and disburse the short output cess through GSTR 3B for the subsequent F.Y. i.e. month of July'20 by debiting electronic credit ledger from before commencement of any proceedings u/s 73 or 74. This is for your information my client has maintained sufficient balance in his electronic credit ledger from Aug'19 to July,20. Now during audit u/s 65 Dept has pointed out the short payment of interest due to delay payment of output cess which i have discussed earlier. Now my question is that is there any possibility to save interest? If yes please share valuable suggestions of yours.

Posts / Replies

[KASTURI SETHI]

Sh.Barun Mukherjee Ji,

Are you 100 % sure that your client has paid due tax before commencement of any proceedings u/s 73 or 74. ? Pl. reply.

[giri gattupalli]

respected sir,

as per gst provisions you have to pay interest even you have discharged your out tax liability by crediting electronic credit ledger...

but i have some doubts. if it was a settled principle by supreme court that ' interest is compensatory in nature". ,in this particular transaction where there is no payment of tax in cash ,as there is no loss to govt , and how the question of compensation arises .and what is the basis for generation of of interest. and further i want to know whether definition of interest under gst act is in lines with supreme court setteled principle or not .please discuss .and please let me know if any any caselaw available in this matter .

thanking you

[Padmanathan Kollengode]

Barun Mukherjee sir,

As per the current provisions of law, you are required to pay interest since your case is not covered under proviso to section 50(1), which reads as below:

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 payable on that portion of the tax which is paid by debiting the electronic cash ledger.

Hence, proviso to section 50(1) covered only where supply relating to a period are declared in return of the same period but furnished belatedly. In your case, the supply made during Aug 19 has been declared in GSTR-3B of July 20. Therefore, the proviso is not applicable in this case and interest will be liable in my opinion.

[Padmanathan Kollengode]

Having shared my view in above post, I also feel that there is a workable argument which you can build in this case:

Proviso to section 50

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 payable on that portion of the tax which is paid by debiting the electronic cash ledger.

Factual points to be considered:-

1. The supplies made in Aug 2019 for Rs.37,62,215.98 as cess has been duly declared in GSTR-1 of August 2019.

2. The supplies made in Aug 2019 has also been duly declared in GSTR-3B of August 2019 but at a lesser value of Rs. 3,76,215.98 under Cess.

3. Section 39(9) read with Circular 26/26 also provides for rectification of errors/ omission:-

(9) Where any registered person after furnishing a return under sub-section (1) or sub-section (2) or sub-section (3) or sub-section (4) or sub-section (5) discovers any omission or incorrect particulars therein, other than as a result of scrutiny, audit, inspection or enforcement activity by the tax authorities, he shall rectify such omission or incorrect particulars in such form and manner as may be perscribed, subject to payment of interest under this Act:

Provided that no such rectification of any omission or incorrect particulars shall be allowed after the thirtieth day of November following the end of the financial year to which such details pertain, or the actual date of furnishing of relevant annual return, whichever is earlier.

In this case, above rectification has been done in September 2020 also. Hence, it is not a case where supply was not declared in the return, but only a case where the supply was incorrectly declared and later rectified under section 39(9).

4. No new supply was declared in September 2020 pertaining to August 2019 as all the supplies made in August 2019 was already declared in GSTR-1 (and GSTR-3B as well) and only a rectification of the same is done in September 2020

Therefore. on the above grounds you can argue that you are covered within proviso to section 50(1) and you need to pay interest on cash portion payable.

[KASTURI SETHI]

Sh.Barun Mukherjee Ji,

(i) Waiting for your response on all the replies.

(ii) You have not replied to my question.

Here 'silence' means acceptance of replies ?? or your problem has been solved ?

[KASTURI SETHI]

'Any proceeding' in Section 98(2) of CGST Act will encompass within its fold the investigation proceedings under Section 70 of CGST Act------AAR Gujarat reported as 2021 (9) TMI 1062 ( M/s. V.L.Traders). Decided on 27.8.2021

[Amit Agrawal]

@ Shri PadmanathanJi,

Interesting arguments in your above post at serial No. 4 above!

Definitely worth trying in given factual scenario ...... despite the fact that Section 39(9) allows correction in certain cases, subject to payment of interest.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Padmanathan Kollengode]

Dear Kasturi Sir,

in my humble opinion, "commencement of any proceedings under section 73 or section 74 in respect of the said period" u/proviso to 50(1) will not include proceedings under section 70 in my humble opinion.

Whereas the context of section 98 is:

"Provided that the Authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act:"

Here the words used are "in any proceedings....under any of the provisions of this Act" is different from "any proceedings under section 73 or section 74". Hence, the AAR referred may not be relevant here in my opinion.

[BARUN MUKHERJEE]

@ Kasturi Sethi sir, I am 100% sure that my said client had paid his liabilty before commencement of any proceeding u/s 73 or 74 through GSTR 3B.

[Amit Agrawal]

I concur with the views Shri PadmanathanJi in his post at serial No. 8 above.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Sh.Padmanathan Kollengode Ji,

(i) W.r.t. your observations about posting the decision of AAR, Gujarat, I have not opined to the extent or ratio of applicability. . I have just posted to make the querist aware of the legal meaning and scope of the term, 'Any Proceeding'. The querist is himself consultant/Advocate so there was no need to discuss in detail about the applicability of the decision of AAR.

(ii) Further, such situation requires deep penetration into the meaning, essence and scope of the words, 'ANY' and 'PROCEEDING'' separately and, thereafter, conjointly. as legal term to arrive at the exact meaning and message de jure.

(iii) The meaning of 'ANY' cannot be taken lightly.

(iv) From drafting of query, it appears the querist is very intelligent and he needed only cue which is present in the decision of AAR.

[Amit Agrawal]

From drafting of query, it appears the querist is very intelligent & himself consultant/Advocate. Hence, when he categorically states - in original query itself - that subject correction is done before commencement of any proceedings u/s 73 or 74, I find no reason to doubt his understanding of those words.

These are ex facie views of mine and the same should not be construed as professional advice/suggestion.

[Sadanand Bulbule]

Dear all

For me it appears, the querist does not have a serious query. In the sense, he is aware of the potential solution. But the query is camouflaged to get the second opinion from the co-experts. So my request to all the querists is to post the queries in simple and transparent words, so that the other interested visitors can also derive the benefit of mindful discussion. To post a reply, experts need sufficient time, devotion, dedication and determination.Time is very precious and it cannot be rewound.

[Amit Agrawal]

I find subject query as a serious query which is not having any easy solutions. I do not see any camouflage in the query so raised.

I also find that Shri PadmanathanJi has taken time & efforts to provide potential arguments to defend non-levy of interest in given situation.

Lastly, I also feel that this will not be easy case to defend ..... though worth trying if someone wants to defend.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KALLESHAMURTHY MURTHY]

Issue Id: - 118832

Sri Barun Mukherjee Sir,

I would like to attempt to put forth the provisions for the manner of calculation of interest on tax not paid in the relevant tax period but paid in the subsequent tax period.

The typographical error has caused a gross mistake here which is not free from payment of interest as applicable under the provisions of the Sec. 50 (1) of the CGST Act.

In the case of Gammon India Ltd. 2013 (6) TMI 559 - BOMBAY HIGH COURT, the Bombay High Court has held that liability to pay interest on short payment of duty is absolute and reasons for such short payment were not germane.

Interest on the unpaid portion of the tax under CGST Act:-

Section 50 (2) provides the manner and method of calculation of interest vide Notification No. 16/2021 Central Tax w.e.f. 1-7-2017, for which rule 88B has been inserted vide Notification no 14/2022 Central Tax.

Whenever the tax is collected as per tax invoice on outward supplies but fails to discharge within the due date, section 50 (1) of the act will attract to levy interest on the delayed payment of unpaid taxes. Such tax payable may be self-assessed or admitted in the returns GSTR-1 or by way of an order issued by the department.

If the person has failed to pay the tax due and furnish the return for any tax period within the due date of such return, interest shall be payable on his own @ 18% p.a. on that portion of the tax which is paid by debiting the electronic cash ledger. That is on net tax payable.

However, the benefit of proviso (levy of interest on net tax liability) is applicable only to the extent of supplies made during a tax period and declared in the return for the said period furnished after the due date. In other words, where supplies related to earlier tax period/s are declared in the return of the current tax period benefit of the said proviso cannot be granted.

Similarly, the benefit of the said proviso will not be extended to cases where proceeding u/s 73 or 74 has already been initiated, interest will be payable on gross tax payable of such supplies of the earlier period in view of said proviso.

Under these circumstances, rule 88B would not be helpful in the above case

With respects,

[giri gattupalli]

respected sir,

very useful discussion is happening in this issue. i request all panelists to shed light on the concept of compensative nature of interest. whether payment of interest on gross liability is in the lines of supreme court settled principle about nature of interest that is "compensative in nature".

thanking you

[Sadanand Bulbule]

Dear all

"Let noble thoughts come to us from every side"-- Rigveda.

Truth is of all-round benefit to man; it is not for binding in an attractive cover to be reverently enshrined in a bookcase.

Everyone in this D-forum is selflessly striving with full energy and open mind to dispel the darkness surrounding the query. Everybody is conscious and right in his own standpoint. Therefore let this platform be used only for exchange of pure intelligence. We are all sailing in the same boat travelling to reach the ultimate destination, to spread the legal enlightenment, free of cost. There is nothing to say more than this from my side. Others are also welcome on this comment.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Yes, Sir. I appreciate your constructive ideas.

We are NOT rivals, There is no race.

[Amit Agrawal]

@ Shri Giri Gattupalli Ji,

W.r.t. your post at 16 above, it appears that you are raising very same issue again & again on TMI either by raising multiple queries or through your intervention in queries raised by others. And same is answered by contributors of TMI at various times.

For example, you had raised similar issue under Issue-Id: 118657 bearing subject-line as 'SEC 50 ; CONSTITUTIONAL VALIDITY' and same was duly answered there by many contributors.

As you seem not satisfied with the replies received over TMI forum, you always have a option to file writ petition before jurisdictional HC challenging constitutional validity of subject provision read with its rules.

I wish you all the very best!

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

Madam Giri Gattupalli Ji,

(i) You are seeing one side of the issue.

(ii) You are inter-mingling pre-GST era and post-GST regime in this context..

(iii) The provision (facility) of interest on 'net cash liability only' was not available in pre-GST era. In other words, Govt. has forgone the interest on payment of tax through ITC account retrospectively which was being paid by the assessees hitherto in pre GST era. Hence in GST regime the tax payers stand benefitted.

(iv) The date of setting off the liability whether from Electronic Cash Ledger or Credit Ledger is actual date of payment of tax. This factum cannot be denied by any stretch of imagination. One may be having crores of rupees in Electronic Credit Ledger or Cash Ledger unless and until due tax is debited from the assessee's account, it cannot be treated as paid. Thus non-payment of interest on payment of tax through ITC is in favour tax payers. The date of debit is crucial.

(v) You are seeking for the benefits of both worlds. It is correct that interest is always compensatory in nature as held by Hon'ble Supreme Court in the case of Pratibha Processors (pertaining to pre-GST era) but you have not seen another judgement of the Apex Court in the case of Jaswal Neco Ltd. Vs. CCE reported as  - 2015 (8) TMI 404 - SUPREME COURT wherein it has been held that payment through Cenvat Credit Account is as good as payment in cash. In GST both modes of payment of tax are not equal and not at par. Thus this benefit can be termed as more than compensation.

(vi) Now if you talk of ‘compensatory nature of interest’ on the basis of judgement of the Supreme Court in the case of Pratibha Processors, then as per the judgement of Supreme Court in the case Jaswal Neco Ltd. interest should also be paid on the amount of tax paid through ITC account but this is not possible inasmuch as in view of amendment in Section 50, interest on tax paid through Electronic Credit Ledger Account is not payable except in certain conditions.

(vii) Hence in view of the above, the judgement of Supreme Court regarding compensatory nature of interest and amended Section 50 does not help the tax payer and interest is payable in the situation detailed in the query by the querist.

DISCLAIMER : These are my personal views and are for education purpose and NOT meant for legal purposes in Court proceedings.

[Amit Agrawal]

@ Shri Giri Gattupalli Ji,

In continuation of my last post at serial No. 19 above as well as my posts in Issue-Id: 118657 bearing subject-line as 'SEC 50 ; CONSTITUTIONAL VALIDITY', following Supreme Court's observations in case of UOI AND ORS. VERSUS IND-SWIFT LABORATORIES LTD. (2011 (2) TMI 6 - SUPREME COURT) are worth noting:

"19. A taxing statute must be interpreted in the light of what is clearly expressed. It is not permissible to import provisions in a taxing statute so as to supply any assumed deficiency. In support of the same we may refer to the decision of this Court in COMMISSIONER OF SALES TAX, UP. VERSUS MODI SUGAR MILLS LTD.   - 1960 (10) TMI 65 - SUPREME COURT wherein this Court at Para 10 has observed as follows:-

"10......... In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed: it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency."

20. Therefore, the attempt of the High Court to read down the provision by way of substituting the word "OR" by an "and" so as to give relief to the assessee is found to be erroneous. In that regard the submission of the counsel for the appellant is well-founded that once the said credit is taken the beneficiary is at liberty to utilize the same, immediately thereafter, subject to the Credit rules."

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[BARUN MUKHERJEE]

Thank you so much to all Ld. participants for valuable suggestions of yours. It will help me to knock higher authority regarding that matter.

[Shyam Naik]

Compensatory nature of interest cannot be brushed aside in my humble view. If interest is not compensatory, is it penal in nature? Is in in effect additional late fee in case of delay in GSTR-3B? Is Additional late fee is being collected camouflaged as interest?

So far collection is concerned, the amount is credit to consolidated fund on the date of challan. The GST collection figure is summation of PMT-06 challan for the given period. These facts has been informed by RBI and CBIC under RTI.

The situation is, Revenue receives the tax on the challan date, but there is no payment of tax on the part of tax payer, which result in absurdity. The collection of interest in case of no loss to revenue can be challenged on the ground of absurdity in my humble view.

[Sadanand Bulbule]

Dear all

The word 'Compensation’ has been defined in P. Ramanatha Aiyar's Advanced Law Lexicon 3rd Edition 2005 page 918 as follows:

"An act which a Court orders to be done, or money which a Court orders to be paid, by a person whose acts or omissions have caused loss or injury to another in order that thereby the person damnified may receive equal value for his loss, or be made whole in respect of his injury; the consideration or price of a privilege purchased; some thing given or obtained as an equivalent; the rendering of an equivalent in value or amount; an equivalent given for property taken or for an injury done to another; the giving back an equivalent in either money which is but the measure of value, or in actual value otherwise conferred; a recompense in value; a recompense given for a thing received recompense for the whole injury suffered; remuneration or satisfaction for injury or damage of every description; remuneration for loss of time, necessary expenditures, and for permanent disability if such be the result; remuneration for the injury directly and proximately caused by a breach of contract or duty; remuneration or wages given to an employee or officer."

Hope this definition might expand understanding of the concept of " compensation".