Interest on Net GST liability retrospectively : Discussion in GST Council meeting
Businesses facing the prospect of paying around Rs 46,000 crore as interest on delayed payment of Goods and Services Tax (GST) may obtain a waiver. As the GST Council is considering calculating interest only on their net tax liability retrospectively. The finance ministry has not yet calculated the savings resulting from this that will come to assessees.
“The issue is expected to be raised at the next meeting of the GST Council on March 14, which will take a final call on this matter,” said one official. The GST Council is the main decision-making body on matters relating to GST, and is chaired by the Union finance minister. It has state representation as well.
The Present case of Central Board of Indirect Taxes and Customs (CBIC) is a rigid one— that interest will be based on gross GST liability. And therefore, it has computed the Interest on Gross GST liabilities of the taxpayers. Many have got the notices for payment on Gross Liability.
Meanwhile, citing a decision of the GST Council, taxpayers in various tribunals challenged the methodology. They argue that interest should be measured on the basis of net tax liability after taking into account the input tax credit (ITC) available to assesses.
Experts said on February 10, when CBIC released an internal memo directing field officers to collect around Rs 46,000 crore from GST assesses, the problem worried the taxpayers.
The CBIC action was not in accordance with the decision of the GST Council at its 31st meeting on 22 December 2018. The Council decided to amend Section 50 of the Central GST Act. It provides that interest would only be paid on the taxpayer’s net tax liability, after taking into account the eligible input tax credit. Parliament passed the amendment in July 2019 along with the Budget [ Finance (No.2) Act, 2019] and received a presidential nod on August 1.
According to CBIC, since the amended Act has not yet been notified, the legal position is the old status on calculating the interest, hence taxpayers should pay interest on the gross amount of tax. “The GST laws, as of now, permit interest calculation on delayed GST payment on the basis of gross tax liability. This position has been upheld in the Telangana high court’s decision dated 18.04.2019,” CBIC said in a series of tweets on February 15.
The ministry of finance did not respond to emails requesting comment yet.
CBIC also clarified that interest will be calculated prospectively on the basis of net tax liability only after the GST Council Decision of 22 December 2018 gets notified by the Government.
Mekhla Anand, partner at the legal firm Cyril Amarchand Mangaldas, said that the provisions of amended laws should be notified retrospectively from 1 July 2017.
The another official, who works in the finance ministry, said the amended law will be notified soon after two remaining states–Telangana and West Bengal –also amended their respective GST laws.
“However, the notification will have prospective effect unless the GST Council decides otherwise,” he added on condition of anonymity.
MS Mani, partner at Deloitte India, said: “Several businesses which had made a delayed payment during the early days of GST have been grappling with show cause notices, which have been issued due to the prospective nature of the amendment. Industry would heave a sigh of relief if the GST Council takes up the matter in the next meeting and decides that the amendment was effective from July 1, 2017.”
Source: Hindustan Times