Interest under GST

 Interest Under GST


Section 50(1) 

i) where tax is liable to be paid and 

ii) such person has failed to pay either full or part thereof. 

iii) Interest shall be paid for the default period i.e for the period for which the tax or any part thereof remains unpaid.

Notification no. 13/2017 CT dated 28.06.2017

APPLICABILITY OF NORMAL RATE OF INTEREST

Section 50(1) and 50(2) – Normal rate – 18%

APPLICABILITY OF HIGHER RATE OF INTEREST

It emanates from the foregoing provision that section 50(3) is applicable only in following two situations namely:

(a) undue or excess claim of ITC u/s 42 (10), or

(b) undue or excess reduction in output tax liability u/s 43 (10)

Therefore, since the mechanism as required for the applicability of interest under the enabling provision section 42 has not been implemented till date, there cannot be applicability of interest section 50(3) read with section 42.

Taxability of any transaction there are two provisions, 

one is charging provisions which provides the conditions for taxability of any event and 

other is machinery provision which takes care of computation of tax. 

It is now a settled legal position that in the absence of machinery provision, charging provisions cannot be applied on isolation. Reliance is place on the decision of Hon’ble Supreme Court in the case of Govind Saran Ganga Saran Vs. CST AIR reported at 1985 SC 1041.


INTEREST ON GROSS OR NET TAX LIABILITY

GST Council in its 39th meeting held on 14.03.2020 had decided that interest shall be payable on net tax liability after adjusting ITC and the provisions to be made retrospective effect from 01.07.2017.

LIABILITY TO PAY INTEREST – WHETHER AUTOMATIC?

Hon’ble Madras HC in the case of AC CGT Vrs Daejung Moparts P Ltd WA 2127 of 2019 in Para 29 of the order has held as below:

i) Liability fastened on the assessee to pay Interest is an automatic liability.

ii) The term Automatic does not mean or to be construed as excluding ‘the arithmetic exercise’

iii) In other words though liability is automatic, quantification of such liability shall have to be made by doing arithmetical exercise

CAN INTEREST BE DEMANDED WITHOUT ADJUDICATION?

Hon’ble Jharkhand HC in the case of Mahadeo Construction Co. WP 3571 of 2019, after considering the judgment of Hon’ble Madras HC in the case of AC CGT Vrs Daejung Moparts P Ltd and its own judgement in the case of Godavari Commodities Ltd WP 1786 of 2019, has held in Para 22 that the department has to mandatorily go through the process of adjudication u/s 73 or 74 in the event assessee disputes the computation of very liveability of interest. Without completing such adjudication process interest amount cannot be termed as ‘amount payable under the Act’.


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