Section 50 Of Gst Interest On Delayed Payment Of Tax

Section 50 of GST – Interest on delayed payment of tax

(1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall, for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent, as may be notified by the Government, on the recommendation of the Council. 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. The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which tax was due to be paid. (3) A taxable person who makes an undue or excess claim of input tax credit under subsection (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty four per cent, as may be notified by the Government on the recommendations of the Council Related provisions of the Statute

Analysis and Updates

Introduction This section lays down the provisions for payment of interest under the Act for delayed payment of tax. Analysis Section 50 of CGST Act makes it mandatory for a tax payer to pay interest on belated payment of tax i.e. when he fails to pay tax (or any part of tax) to the Government’s account within the due date/s. Interest – When Payable Interest under section 50 of CGST Act is payable in the following three circumstances It may be recalled that –

(a) section 42 (10) CGST/SGST Act deals with contravention of provisions for matching of claims for input tax credit by a recipient and(b) section 43 (10) CGST/SGST Act deals with contravention of provisions for matching of claims for reduction in output tax liability by a supplier

Section 42(7) and 43(7) only deals with discrepancies in matching of credits & reduction in output tax liability against credit notes issued, between a supplier / recipient. All other discrepancies that do not relate to matching would attract interest at the higher rate of 24%. For instance if the supplier discloses output taxes in respect of a particular invoice – say after the 30th of September (which is technically the due date for taking of all credits) then the recipient would not be in a position to avail the entire credit in the first place while the supplier would need to pay the output taxes as well as interest. In this situation what would be the rate of interest – 18% pa or at 24% pa. The readers may debate this issue Rate of Interest

Manner of Computation of Interest

The manner of computation of period for which interest under sub-section (1) or subsection (3) is to be paid has not been addressed in the Rules. Generally, the period of interest shall be from the date following the due date of payment to the actual date of payment of tax. Payment of tax as per rule 85(3) be considered only when electronic cash ledger or electronic credit ledger of the registered person is being debited. Mere, credit entry in cash ledger or credit ledger will not tantamount to payment of tax. It may be noted that Section 39 (7) lays down the last date for remittance, as the last date on which the taxable person is required to furnish such return. Also, Section 2 (117) lays down that a return shall be considered valid, only if the tax payable as per the return is paid in full.
Sections 73 (5) & 73 (6) provide that if the tax along with interest has been paid, the adjudicating authority shall not serve any show cause notice.
Section 73 (8) provides that where a person has been served with show cause notice but has made the payment of tax and penal interest under Section 50 within thirty days of issue of notice, no penalty is payable and all proceedings in respect of that tax amount are deemed to be concluded. The issue is – whether interest is payable u/s 50(1) or 50(3).
On a conjoint reading of Sections 50 (1), 73 (5), 73 (6) and 73 (8) of the Act, it is evident that where a person makes a voluntary payment of interest along with belated payment of tax whether admitted on his own or within thirty days from the date of issue of show cause notice, then the proceedings are deemed to be concluded and no penalty is leviable. Other Important Points to Note

Issues and Concerns:

(i) Unlike Central Excise or Service Tax Law, where interest was to be paid only when CENVAT Credit was availed and utilised incorrectly. In a GST regime availing of incorrect input tax credit is sufficient cause to attract the provisions of liability to pay interest. However, due to deferment of GSTR 2 and GSTR 3, section 50(3) may not become operational to demand interest on ineligible credit availed but not utilized. (ii) Further, due to section 50(2) stating that the ‘manner of computation is to be prescribed’ some experts hold the view that until any method is prescribed; merely prescribing the rate of interest would not suffice to demand interest. (iii) When there is change in the value of input tax credit (common credit) to be reversed to the extent it relates to exempt turnover on the basis of amounts calculated finally at the end of the financial year is liable to interest immediately from first day of subsequent financial year, whereas Central Excise Act, 1944, Finance Act 1994 read with CENVAT Credit Rules, 2004 allowed time for reversal without interest upto 30.06 of the subsequent financial year.(iv) In previous law amount credited to PLA or paid by challan was considered to be a payment of tax and interest is payable till the amount is paid through challan. In GST interest is to be paid till the electronic cash or electronic credit ledgers are not debited. (v) The amendment to Section 50(1) by Finance Act, 2020 and subsequent announcements by GST Council in March 2020 one can expect retrospective changes in Interest in terms of it being applicable only on the net liability. But one has to wait till the legal changes are carried out as well as notified.