Interest u/sec.50(1) of CGST Act

A prospective amendment in calculation of interest has been made vide Finance (No.2) Act, 2019 and notified from 1st September 2020. We are presenting the highlights of the said amendment.

1. SHAH JAIN & ASSOCIATES
CHARTERED ACCOUNTANTS



INTERST U/S
SEC. 50 SUB-SEC. (1)
OF CGST ACT



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Compiled by
CA Priyank Suresh Shah
Partner
SHAH JAIN & ASSOCIATES
CHARTERED ACCOUNTANTS
601, 6
th
Floor, 307/309 Rajesh Rayon Bhavan, Opp. Kakad Market
Kalbadevi Road, Mumbai –400 005

2. SHAH JAIN & ASSOCIATES
CHARTERED ACCOUNTANTS



ORIGINAL SECTION 50 SUB-SECTION (1) OF CGST ACT

Section 50 subsection (1) of the CGST Act provides that in case of delay in payment of tax within
prescribed time, an interest at 18% per annum shall be payable. Upon reading the payment
provisions of section 49, it is implied that the payment of tax is to be made from both electronic
cash ledger and electronic credit ledger. Thereby applying the Doctrine of literal construction,
failure to pay tax implies payment of interest on the gross tax liability before adjustment of input
tax credit.

Also Telegana High Court in case of M/s. Megha Engineering & Infrastructures Ltd. Vs
Commissioner of Central Tax as per Writ Petition No.44517 of 2018 held that interest was
actually payable on the gross tax liability before setting off input tax credit.


DECISION IN 39
TH
GST COUNCIL MEET

The 39th GST Council meeting declared that the interest on delayed GST payments would be
applicable only on net cash tax liability after the deduction of the available input tax credits. The
interest on a delayed GST payment will no longer be charged based on the gross tax liability. This
change will be applicable retrospectively with effect from 1 July 2017, the date on which GST
legislation came into force.


AMENDMENT IN FINANCE (NO.2) ACT, 2019

Section 100 of the Finance (No.2) Act, 2019, inserted the following proviso in section 50 sub-
section (1):

“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 above section of Finance (No.2) Act, 2019 shall come in to effect from 1
st
of September 2020
as notified by CBIC vide Notification No.63/2020 – Central Tax dated 25
th
August 2020.

3. SHAH JAIN & ASSOCIATES
CHARTERED ACCOUNTANTS



KEY HIGHLIGHTS:

 As per the amendment, interest shall be paid only on that portion of the liability which is paid
by way of debiting electronic cash ledger. Thus, interest is payable on net liability after adjusting
the input tax credit to be utilised from electronic credit ledger.

 It is to be noted that utilisation of input tax credit from credit ledger is mandatory for deduction
to calculate the interest liability. If the amount of input tax credit is not utilised wholly or partly
and the payment is made through electronic cash ledger, interest will be levied on such amount
paid through the cash ledger despite there being balance of unutilised input tax credit in credit
ledger after adjustment.

 If any proceedings are commenced under section 73 and section 74 of CGST Act before
making the payment of such liability for such period, then the interest shall be paid on gross
liability only.

 The said amendment to section 50 sub-section (1) is prospective from 1
st
September 2020 and
not retrospective. Thus, for delay in payment of tax for the period up to 31
st
August 2020,
interest shall be paid on the gross liability as per the original section 50 sub-section (1) and the
newly inserted proviso shall not apply.

 The said amendment is contrary to the decision taken in the 39
th
GST Council meeting. It had
been decided to allow calculation of interest on “Net Liability” with retrospective effect from 1
st

July 2017. However, nothing has been notified yet to give a retrospective effect to the said
amendment.

Recently there have been quite a lot of instances of making contrary amendments to the decisions
and also delaying or not notifying / amending provisions of the Act, despite them being decided
in the GST Council meets. Not adhering to the promises made or delaying the same creates a lot
of trouble for tax payers and hampers the image of GST being a simplified tax.

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