Whether Interest is payable for delay in filing of returns?

If interest is payable whether it should be on gross basis or on net basis?

Now a days Revenue Authorities are issuing notices for collection of Interest u/s 50(1) on gross amount of Tax. This is resulting in heavy demand though major portion of the tax payment may had been done through ITC. There may be various grounds for not paying interest as demanded by notices. We have tried to compile the grounds and way to represent the case in form of letter, before authorities. Following are the few points for consideration:

1. Computation and deposit of interest

The  liability  of  interest  (if  any)  works  out to Rs.                                            as per the computation provided herein below:

Financial Year:

There is failure to prescribe the method of calculation of interest by way of the suitable rule as mandated by section 50(2). Therefore, the demanding of interest is not in accordance with Sec.50(2) in absence of any rule for determination of interest.

2.2. Whether delay in filing of GSTR-3B can be basis of calculation of interest :

We humbly submit GSTR-3B has been notified return under rule 61(5) retrospectively w.e.f 01-07-2017 vide Notification No.49/2019 CT Dated 09-10-2019.

Aforesaid retrospective amendment has been done to nullify the verdict of honorable Gujarat High Court in the case of  AAP & Co. Chartered Accountants v/s Union of India [GIB/GUJ/A A P & CO./28-08-2019/HC-56]. As the law has been retrospectively amended on 09-10-2019, interest cannot be charged on the basis of retrospective amendment. As per the cardinal principle of law, taxpayer cannot be punished due to retrospective amendment of law.

As explain in Para 1 and 2 above, we humbly submit that there should not be any interest demanded due to delay in filing of GSTR-3B, till the date of retrospective amendment and till rules are prescribed u/s. 50(2).

3. Interest on Net basis

Without prejudice to above. We humbly submit that if any interest is to be charged, it should be charged on net basis not on the gross basis on following grounds:

3.1 Interest is compensatory in nature

Interest is ordinarily claimed from an assessee who has withheld payment of any tax payable by him and it is always calculated at the prescribed rate on the basis of the actual amount of tax withheld and the extent of delay in paying it. It may not be wrong to say that such interest is compensatory in character and not penal.

3.2 Retrospective application of amendment in CGST Act

Section 50(1) of the CGST Act reads as under:

“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 recommendations of the Council.”

The GST Council in its 31st meeting held on 22 December 2018 gave-principle approval to the amendment of section 50 of the CGST Act to provide that interest should be charged only on the net(cash) tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e., interest would be leviable only on the amount payable through the electronic cash ledger.

Accordingly following Proviso was added to Section 50(1) of the CGST Act, vide CGST Amendment Act, 2019 however to date this amendment is yet to be notified.

“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”

Hon’ble Apex court in CIT v. Vatika Township Private Limited [GIB/DL/VATIKA TOWNSHIP/15-09-2014/SC-4] has explained the cardinal principle of law on Prospective vs. Retrospective amendment as under:

Where a benefit is conferred by legislation, the rule against the retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislator object, then the presumption would be that such a legislation, giving it a purposive construction would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. Where a law is enacted for the benefit of the community as a whole, even in absence of a provision the statute may be held to be retrospective in nature. Change is of retrospective nature.

Reliance is also placed on the decisions in the case of :

M/s Landmark Lifestyle Vs. Union of India and Ors. [GIB/DL/LANDMARK/27-05- 2019/HC-53]