Burden of Proof

 Burden of proof

Sec.155 Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person. Normally, it is for the person to prove a fact which he asserts. 

Following this, under this Section, the onus of correctness and eligibility of the following claim has been vested with the taxable person: 

• Eligibility to claim input tax credit: Where the taxable person claims any input tax credit under Chapter V (Input Tax Credit) of the CGST Act. 

• Reference may be had to the ‘conditions’ linked to vesting of input tax credit. Taxpayer is responsible for any input tax credit claimed. 

• Doubtful or contentious credits claimed cannot go without responsibility in the form of interest and penalty for erroneous credit claim as GST is a ‘self-assessment’ based tax system and taxpayer is liable for all consequences (tax, interest, and penalty) for all interpretations followed by taxpayer. 

• Taxpayers carry the understanding that input tax credit is a ‘vested and indefeasible’ right. 

But that right is linked to ‘vesting conditions’ in section 16(2) (refer discussion under section 16). And read together with section 155, the burden of proving that all ‘vesting conditions’ are satisfied, rests on Registered Person and not on tax authorities. 

Person who would fail, if nothing further were to be said about it, is the one who bears the burden of proof. 

If Registered Person claims input tax credit and does nothing more, tax authorities are only required to ‘question the credits’ and sit back for Registered Person to bring all the necessary proof pertaining to satisfaction of all ‘vesting conditions. 

‘There is essential distinction between burden of proof and onus of proof. The burden of proof lies upon the person who has to prove a fact and it never shifts. However, the onus of proof shifts. Onus means a duty of adducing evidence.’

To this end, experts are of the view that section 155 attempts to overturn all decisions that had held in favour of taxpayer that ensuring compliance (discharge of tax) by Supplier’s is not the responsibility of the Recipient-taxpayer. 

1.Parliament has enacted certain draconian provisions in the GST laws. The implications of those provisions, relating to burden of proof, are required to be brought to the notice of GST Professionals.

Input Tax Credit

2.Section 155 of the Central Goods & Service Tax Act, 2017 (CGST) casts the burden of proof qua the ITC on the claimant businessman. It reads as follows:

‘Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person.’

3.Parliament should have thought of the capacity and functioning of the bureaucracy before enacting such provision. Several registrations were cancelled for one or the other reason in the year 2017 itself and those were thereafter restored under the Proviso to Section 30(1) in the F. Y. 2019-2020. The data of outward supplies of such persons was not available for matching. Further, the system of allowing ITC is absolutely one sided. In the current return filing scenario, the supplier uploads his invoices through GSTR 1, which eventually reflects in the ITC of claimant dealer’s 2A. If the supplier misses out uploading some invoices the purchaser does not have any facility to upload the invoices on his own. It could have been possible, if original plan of GSTR 1-2-3 had been implemented by the Government. In such circumstances, it is impossible to discharge the burden so cast under Section 155.

4.Even though the terms, ‘Burden of Proof’ and ‘Onus of Proof’ are being used interchangeably, still, those have definite meanings. The Bombay High Court in the case of Phoenix Mill Ltd. Vs. Union of India, 2004 (168) ELT 310 has lucidly explained the difference between the two in the following words,

‘There is essential distinction between burden of proof and onus of proof. The burden of proof lies upon the person who has to prove a fact and it never shifts. However, the onus of proof shifts. Onus means a duty of adducing evidence.’

5.The term burden of proof used in Section 155, in the circumstances narrated above, is required to be interpreted to mean onus of proof. It would shift to the departmental officials if no data or improper or insufficient data is available.

6.No doubt the ITC is the form of concession. Therefore, the law prescribing the grant of ITC subject to the compliance of the conditions is always upheld by the Supreme Court. Thus, the constitutional validity of the law granting ITC qua inter-State sale conditional on the production of C Form has been upheld by the Court in TVS Motors vs. State of Tamil Nadu, 2018 (18) GSTL 769. It be noted that the condition prescribed therein of filing of C form was capable of performance and the legal burden could be cast on the claimant dealer. Therefore, it’s validity was upheld. But even conditions for concessions are governed by Part III of the Constitution and hence cannot be arbitrary or unreasonable, or violative of any constitutional or fundamental right.

Presumption of Culpable Mental State:

7.This is another draconian provision. It is enacted under Section 135 of the Act. However, it applies only to cases wherein the prosecution proceedings have commenced. It does not apply to normal penalty proceedings. The Telangana High Court in the case of P. V. Ramanna Reddy vs. Union of India, 2019(25) GSTL 185 has refused to give an interim protection against the arrest to the high ranking officials of the Corporates which were alleged to be involved in the circular trading. The apex court approved the order of the High Court. It is reported in 2019 (26) GSTL J175. It is now quite possible that to extract the revenue the prosecutions will be liberally sanctioned. Therefore, it is necessary to understand this provision and the onus involved therein.

8.The law was otherwise earlier. The accused was presumed to be innocent and the onus was on the prosecution to prove the guilt of the accused. However, this initial onus on the Department could be sufficiently discharged by the circumstantial evidence. The law did not require the prosecution to prove impossible. All that was required was the establishment of such a degree of probability that a prudent man might, on the basis, believe in the existence of the fact in issue. The legal proof is not necessarily a perfect proof, often it is nothing more than a prudent man’s estimate as to the probabilities of the case. Kindly see Issardas Daulat Ram vs. Union of India (1962) Supp. (1) SCR 358. Also see M/s Kanungo & Co. vs. Union of India, AIR 1972 SC 1236. This principle can be explained with the help of examples. Once it is shown that the accused was travelling without a ticket, prima facie case against him is proved. If he once had such a ticket and lost it, it will be for him to prove this fact within his special knowledge. Similarly, if a person is proved to be in recent possession of stolen goods, the prosecution would be deemed to have established the charge that he was either the thief or had received those stolen goods knowing them to be stolen. If his possession was innocent and lacked the requisite incriminating knowledge, then it will be for him to explain or establish those facts within his peculiar knowledge, failing which the prosecution would be entitled to take advantage of the presumption of fact arising against him, in discharging the burden of proof. Similar is the case when some fake invoices printed in the name of B are found in the possession of A and prosecution proceedings are commenced against A. Thus, the prosecution would be deemed to have discharged its burden if it adduces only so much evidence, circumstantial or direct, as is sufficient, to raise a presumption in its favour with regard to the existence of fact sought to be proved.

9.I have discussed the earlier law only with the intention to prove that it was not at all necessary to introduce a provision providing for reverse burden. Section 135 of the GST laws has now placed reverse burden on the accused. Thus, if A prints fake invoices in the name of B and circulates the same in the market without his knowledge then in the prosecution proceedings against B, the court shall presume the knowledge of this fact on B’s part. This is a draconian provision, and the constitutionality thereof is required to be challenged more particularly because the investigation in our country is never fair. The constitutionality of the similar provision has been upheld by the Supreme Court in the case of Noor Aga vs. State of Punjab and Another (2008) 16 SCC 417. However, this judgement relates to the import of heroin and the law under consideration was Narcotic Drugs and Psychotropic Substances Act,1985.

10.Even if the Court has upheld the constitutionality, Their Lordships have laid down certain principles, some of which would apply to all such enactments in India. The gist thereof is stated below:

I. The procedures laid down in these provisions should be strictly complied with.

II. The prosecution must first establish the basic facts. Placing persuasive burden on the accused persons must justify the loss of protection which would be suffered by the accused.

III. The trial should be a fair trial.

IV. The accused should not suffer punishment on the basis of past experience.

V. Considering the provisions, the heightened scrutiny test would be necessary to be applied.

VI. Suspicion, however high it may be, can under no circumstances, be held to be substitute for legal evidence.

VII. The provision, no doubt, raises presumption with regard to the culpable mental state on the part of the accused as also place burden of proof in this behalf on the accused, but presumption would operate in the trial of the accused only in the event the circumstances contained therein are fully satisfied. An initial burden exists upon the prosecution and only when it stands satisfied, would the legal burden shift. Even then, the standard of proof required for the accused to prove his innocence is not as high as that of the prosecution. Whereas the standard of proof required to prove the guilt of the accused on the prosecution is ‘beyond all reasonable doubts’ but it is, ‘preponderance of probability ‘on the accused. If the prosecution fails to prove the foundational facts so as to attract the rigours of the law, the guilt can’t be said to have been established.

VIII. A confessional statement becomes relevant for the purpose of proving the truth of fact only when it is signed before the competent authority and made during the course of enquiry.

IX. Confessional statement is evidence weak in nature.

X. A retracted confessional statement may be relied upon, but a rider must be attached thereto, namely, it is made voluntary. The burden of proving that such a statement was made voluntarily is on the prosecution.

(Principles stated in Para Nos. I to VII apply to Section 135 and from VIII to X apply to Section 136 of GST laws.)

Retraction

11.The law laid down by the apex court in the case of Vinod Solanki vs. Union of India, 2009 (13) STR 337as regards retraction of confessional statement is now required to be understood considering the reverse burden, as discussed above, and the observations of the Supreme Court in Noor Aga case.

Cross-Examination

12.If the revenue relies on certain material against the assesse for the purpose of fastening the liability, it should provide the copies thereof to the assesse and if need be, also the cross examination of the persons from whom such material was obtained. SeeVasanji Gela vs. The State of Maharashtra, (1977) 40 STC 544.See also the judgment of the Supreme Court in Yashwant Sinha vs. CBI, 2019 (25) GSTL (161). This judgement is under the RTI Act and has given new approach to the provisions of Evidence Act.

Accounts

13.Section 35(6) of the CGST states that the proper officer can determine the tax liability if there is discrepancy. It be noted that even in this provision it is only the onus of proof is involved and the same shall shift after proper explanation.

Transaction Value

14.The transaction value declared by the assesse can’t be rejected on the basis of earlier transactions. The Revenue is required to adduce contemporaneous evidence to reject the value so declared. The burden of proof is on the revenue. See Commissioner of Customs, Mumbai vs. J. D. Orgochem Ltd. 2008 (226) ELT 9 SC.

Classification

15.The burden of proving the correct entry or sub entry which would squarely cover the particular commodity is always on the Revenue. See H. P. L. Chemicals Ltd. vs. Commissioner of Central Excise, Chandigarh, 2006 (197) ELT 324, SC. However, it does not mean that the assesse should not lead any evidence. In fact, at the first available opportunity the assesse should submit entire relevant material before the authorities. The material will include the product composition, literature, label, character, expert’s opinion, user’s certificate etc. Such documents should be submitted even if it is felt that the product is covered by some judgment. The latest controversy relates to the classification of Hand Rub (Sanitiser). The claim is under C. H. No. 3004.90.87 wherein the tax rate is 6%. The entry reads as ,’ Antibacterial Formulation used as medicament for prophylactic or therapeutic use.’ The product Povidone Iodine Cleansing Solution which has been held as medicament by the Supreme Court in the case of Commissioner of C. E. vs. Wockhardt Life Science Ltd. 2012 (277) ELT (299) and the product Hand Rub have similar use. Both of them are for prevention of deceases. However, instead of only relying upon the judgment, evidence as aforesaid should be adduced.

Exemption

16.Onus of proof of fulfilment of conditions subject to which the exemption is granted under the Notification is always on the assesse or the claimant who claims the benefit under that Notification. See Collector of Customs Vs. Presto industries, 2001 (128) ELT 321 SC.

Construction Contracts

 Construction Contracts

a. For Builders/Developers:

i. If the separate value of land is clearly mentioned in the agreement and if the same is higher than 33% of the total flat/unit sale value, the same can be claimed as deduction from the total value charged for the

flat/unit - Munjaal Manishbhai Bhatt vs. Union of India on 6 May 2022

ii. The balance value can be taken as 110% of the cost of construction services.

iii. TDR – RCM – 18% on commercial contracts

iv. RCM on non gst suffered goods if taxable purchase is less than 80%

v. 15% commercial construction allowed in residential flats

vi. 1% affordable constructions, 5% on residential – without input tax credit

vii. Joint venture agreement is key on deciding various aspects

viii. No tax on single residential unit construction

For flat/unit buyers:

i. On the lines of above points, flat buyers can discuss and negotiate with the builders while buying under construction flats/units

ii. Due care may be taken while drafting the agreements

iii. Possibility of lower stamp duties can be examined. Usually, either there is no stamp duty or lower stamp duty on the works contract agreements in most of the States

 

E-Waybill

E – Waybill

 

Gati Kintetsu Express Pvt Ltd. v/s Commissioner, Commercial Tax of MP & others W.P.No. 12399 of 2018 07/05/2018

 

– It is mandatory to file Part-B including vehicle Number before the goods are loaded in the vehicle.

 

 

Garuda Timber Traders V/s Commissioner, State GSD Department, Kerala & Others WP(C).No. 26848 of 2018 08/09/2018

 

Incomplete e-way bill – Part-B not uploaded and carrying printout. – The petitioner shall provide the bank guarantee for the tax & penalty & bond for the value of goods and get the goods provisionally released.

 

Tvl. R K Motors Vs State Tax Officer (Madras High Court) WP (MD)No. 1287 of 2019

 

Seizure of goods as the goods delivered to a different place than specified

In the case of Tvl. R K Motors Vs State Tax Officer (Madras High Court) WP (MD)No. 1287 of 2019, the high court held that when there is no intention to evade tax, the officers should have guided the driver to take the goods to the destined location instead of being harsh and vindictive.

 

M. R. Traders vs. Assistant State Tax Officer ALEXANDER THOMAS, J. WP (C) NO. 2713 OF 2020(L) (JANUARY 31, 2020

 

Minor difference in address cannot be ground for detention and penalty.

Competent Authority had detained goods of assesse under transport as well as vehicle on ground that address shown in invoice was different from address shown in E-Way bill He further issued on assesse a notice under section 129(3) specifying amount of tax and penalty payable for release of goods and vehicle

K.P. Sugandh Ltd vs State Of Chhattisgarh 53 dated 16 March 2020, WP No. 36 of 2020

 

Seizure of goods for reasons such as undervaluation, wrong classification In the case of K.P. Sugandh Ltd vs State Of Chhattisgarh 53 dated 16 March 2020, WP No. 36 of 2020, the high court held that goods cannot be seized for the wrong valuation though the officers have the option of intimating such mistake to assessing authority.

 

Integrated Constructive Solutions v. ACST & E-Cum-Proper Officer 2020

 

Since Competent Authority had passed order in a mechanical manner and had ignored corrected and updated E-way Bill as produced by assessee within two hours of detaining goods, tax and penalty imposed under section 129(3) was unsustainable. As assessee had made procedural lapse and violated provisions of GST Act, it was liable to pay minor penalty under section 122.

 

Neva Plantation (P.) Ltd. v. ACSTE-CUM-PROPER OFFICER NORTH 2020

 

The Assessee was engaged in supply of exempted goods – It sent a machine for repair to its supplier in a vehicle and issued delivery challan – In delivery challan it was specifically mentioned that ‘not for sale’ and ‘only for repair’ – Competent Authority intercepted said machine and having found that E-way Bill had not been generated for movement of machine detained machine and imposed tax and penalty under section 129(3) upon assessee.

Held that: The assessee had transported machine without the cover of proper documents (E-way Bill was one of them). Hence the assessee had violated provisions of the CGST Act/Himachal Pradesh GST Act. For violating provisions of the Act, it would be liable to pay penalty under section 122(1). The tax and penalty imposed upon the assessee under section 129(3) deserved to be set aside.

 

 

Hemanth Motors v. State of Karnataka 2021

 

The Assessee purchased certain goods from a dealer located at Husur, Tamil Nadu under tax invoice dated 31-12-2018 – Said dealer dispatched goods to business premises of assessee situated at Bengaluru after generating e-way bill – E-way bill was valid from 31-12-2018 to 1-1-2019 – Conveyance carrying goods reached at assessee’s business premises on 1-1-2019 before expiry of validity of e-way bill but goods could not be unloaded on same day and were being unloaded on next day, i.e., on 2-1-2019 – In meanwhile Competent Authority visited business premises of assessee and taking view that e-way bill had to be valid even at time of inspection when goods were being unloaded from conveyance passed an order under section 129(3) and raised demand upon assessee – Appellate Authority dismissed appeal filed by assessee.

 

 

  

Consequences of late filing of GSTR 3B Return

 

Consequences of late filing of GSTR 3B Return

1. Late Fees under Section 47 of the CGST Act, 2017 –

Starts Immediately after due date Late fees is the first consequence you will face for non-filing of GSTR 3B. The late fees will increase every day until it hits the capping limit. The fee will automatically be added in the next month’s GSTR 3B. Moreover, you can’t edit it, or you can’t proceed to file the return until you pay the late fees.

2. Interest under section 50 –

Starts Immediately after due date If a taxpayer is required to pay tax within prescribed time but fails to pay, then for the delay in payment, interest @18 percent will be levied. The interest will be payable only if you use cash ledger balance to pay taxes. In other words, if you have enough input tax credit and you do not pay taxes using net banking/challan/balance already added in the cash ledger, then there won’t be any interest leviable on you. There is no concept of maximum capping in case of interest.

3. Restricting E-Waybill Generation Under Rule 138E-

Restriction will be applicable if two consecutive GSTR 3B is not filled: If a person has not furnished the returns for a consecutive period of two tax periods, then the generation of E-Way Bill will be restricted for all types of outward supply of that person. Once the GST Returns are filled, the restrictions will be lifted.

4. Penalty Under Section 122(1)(iii) –

Levy after 3 months of due date for certain specific offences, there are provisions of penalties in GST. One of such offences is not paying collected tax amount within 3 months from the due date. The Penalty will be equal to the amount of tax collected subjected to a minimum of Rs. 20,000.

5. Suspension and subsequent cancellation of GST Registration under Section 29(2) –

May be initiated after 6 Months of Due date If a regular taxpayer does not file a return for a continuous period of six months, then the GST Officer may cancel the GST registration of such person. Before cancellation, the officer will issue a Notice seeking clarification from such person and that person is required to reply in 7 working days, giving reasons to the officer for not cancelling the GST registration.

6. Recovery Proceedings under Section 79

This is the strictest step that can be taken for not filling GSTR 3B. Lots of reminders and notices are required to be served before initiation of the recovery. The flow of reminders and procedure is as under:

1. First Reminder – 3 Days before Due Date to nudge taxpayer to file Return on or before due date

2. Second Reminder – Immediately after due date to inform that return was not filled on due date

3. Notice – 5 Days after Due date, notice in Form GSTR 3A, requiring the person to file returns in 15 Days

4. Order – Any time after the lapse of 15 Days of service of notice in form GSTR 3A, provided return is not filled. Officer may proceed for assessment. Here the officer will compute the tax liability to the best of his/her judgement. The Officer may consider the details of outward supply furnished by the person, inward supply shown by his/her suppliers, e-waybill details etc. Order will be issued in ASMT – 13 and summary will be uploaded in Form DRC -07 by officer.

5. Initiation of proceedings: After 30 Days of serving of order in form ASMT -13, the Officer may initiate the recovery proceeding under section 78 and actual recovery under section 79. In the GST regime, officers are empowered to recover the tax payable from your debtors, refund dues, seized Goods, Property etc.

7. The last consequence: Restriction of Input Tax Credit of recipients: One of the main conditions for claiming Input Tax Credit is payment of tax to the Government by supplier on supplies, for which the recipient is claiming Input Tax Credit. Now, If the GSTR 3B is not filled then it can be assumed that the supplier hasn’t yet paid the taxes to the Government.

 

10 Common Mistakes made by a Taxpayer in GST

 10 Common Mistakes made by a Taxpayer in GST

10 Common Mistakes made by a Taxpayer in GST

1. Forgetting Filing of GST Returns in case of NO BUSINESS.

Many times, it had been seen that taxpayers take GST registration to start a business idea or simply to open a current account in a nationalized bank. But to save the money in fees of GST Consultant Services they avoid filing of GST Returns, if they do not have any transaction in the business. So, this is to tell you that even NIL GST returns attracts late

fees if not filed on due time.

2. Update contact information of taxpayers and not of tax professionals.

In the view of saving some time in filing of GST Returns most of the tax practitioners update Phone Number and Email ID of themselves and not of taxpayers. This may create problem as sometimes it has been seen that department of GST was not able to communicate the taxpayer due to non-availability of contact info and ultimately may result to harsh provisions for taxpayers and even for tax practitioners.

3. Booking ITC (Input Tax Credit) without following rules properly.

In GST it is clearly stated that for booking and availing ITC one has to adhere some rules and conditions, one of the important rule is that taxpayer should have possessed the Tax Invoice for the purchases on which he is booking ITC, second main rule is the invoice for which ITC is going to be booked should be visible in GSTR-2A/2B but in many cases this is found that taxpayers takes ITC on the basis of invoices only which may result in dis-allowance of credit so booked.

4. Non-Payment of GST in Reverse Charge Mechanism.

Reverse charge was imposed by GST as same as it was in VAT or Service Tax previously. There are certain supplies in GST which attracts GST on reverse charge manner, which means GST on those supplies have to be paid by the receiver or buyer of the supply and not by the supplier or seller of the supply.

Most common supply in RCM is supply of services by goods transport agencies, hence one should take care for the payment of GST under reverse charge mechanism. On the other hand, supplier of such services has to be cautious that he needs not to pay GST on his supplies otherwise it will be counted as double payment of tax.

5. Non-Filing of Final Return GSTR-10.

Person takes GST registration in view of starting a business but not everyone gets successful in having a good business. So, they finally decide to surrender the GST number they have taken but, in this case, they don’t know, or they forget to file Final Return, i.e., GSTR-10.

GSTR-10 has to be filed within stipulated time after cancellation of GST number otherwise it will attract late fees at rate of Rs.100 per day in CGST and Rs.100 per day in SGST (maximum to Rs.10000). So be careful that you need to file Final Return GSTR- 10 if you get your GST number cancelled.

6. Wrong understanding of LUT.

LUT (Letter of Undertaking) is a document which is required to be filed by the exporters if they are opting for the export of goods or services without payment of tax. On many websites and many blogs, we can read that LUT is valid for 1 year, but that’s not completely true. As per the rules LUT filed during the year is valid till the end of the particular Financial Year. For Ex- LUT filed on 01st April 2019 will be valid till 31st march 2020 and LUT filed on 01st January 2020 will also be valid till 31st March 2020. So please update your LUTs on time.

7. Non Updation of Additional Place of Business (APOB).

Taxpayers may have more than one business premise in the same state, but they show only their main office in the GST Registration. Although non updation of additional place of business does not affect GST revenue nor taxabilities but still this is a violation of GST law which can ultimately result in impose of penalties on the taxpayer.

8. Not mentioning Exempted Turnover in GST Returns.

Exempted supplies or zero-rated supplies does not have any effect on the GST liability to be paid, this fact makes taxpayers lenient for the reporting rules for this sale.

Every business has to show its exempted or nil rated or zero-rated sales in its GST returns 3B and GST Return 1. Otherwise, it will be considered as concealment of facts.

9. Enjoying benefits of Composition Scheme without being eligible.

Composition Scheme was launched to provide benefits or relaxations to the small taxpayers of the industry, but all benefits have its own conditions. For taking benefits of Composition Scheme, one has to adhere with some conditions otherwise he will be considered as ineligible and may result in unplanned GST liability.

10. Not mentioning HSN summary in GSTR-1.

Yes, it is important to mention HSN wise summary in the GST Return-1, though it’s not mandatory for all but everyone seems to take this condition as an option which is not good and will take you on the wrong side at the end.

Pure Agent under GST

 Pure Agent under GST

Pure agent

• Agent works as a mediator. 

• Takes supply of goods or services on behalf of principal.

• Incurs and receives expenditure on behalf of principal.  

CGST Rule 33 says that a “Pure agent” means: - 

• A person who enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both 

• Neither intends to hold or holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply.

• Does not use for his own interest such goods or services so procured as pure agent. 

• Receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account. 

Conditions 

• The supplier acts as a pure agent of the recipient of the supply when he makes the payment to the third party on authorization by such recipient. 

• The payment made by the pure agent on behalf of the recipient of supply has been separately indicated in the invoice issued by the pure agent to the recipient of service and 

• The supplies in the form of goods or services procured by the pure agent from the third party are in addition to the services he supplies on his own account. 

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’.