Notification 63/2020- Central tax dt. 25.08.2020 - Complete story
History
As per Sections 50 (1) & 50 (2) of the CGST Act, 2017 which are as below:-
50 (1) “Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made there under, 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.”
50 (2) “The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.”
Interpretation of Section 50(1)
Two interpretation of section 50(1) were being made by the professionals. One school of thought was suggesting that since the section does not specify the amount on which the interest to be levied, thus interest to be paid only on net cash laibility. However, on the other hand, some people were of the opinion that as per this sub-section interest is leviable on the gross amount of output GST.
Let us understand the confusion with an example:-
Suppose a registered trader has output liability of Rs. 100 for the month of April 20XX and on the other hand, he has Rs. 80 in his GST credit ledger. Now, if he fails to pay the tax the output tax liability of Rs. 100 by using Rs. 80 from Credit ledger and Rs. 20 from cash credit ledger, he would be liable to pay interest @18% on Rs. 100. Some people opine to pay interest on Rs. 100 and some on Rs.20.
39th Meeting of the GST Council:-
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.
Issue involved:-
Finance Act (No. 2) Act, 2019 dated 01/08/2019 in its section 100 contained:-
In section 50 of the Central Goods and Services Tax Act, in sub-section (1), the following proviso shall be inserted, namely:––
“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.”.
Since then, section 100 of Finance Act(No.2 )Act 2019 was not notified and people were paying interest only on net cash liability on the basis of 39th GST council meeting. Notices were also issued to assessee regarding compliance of section 50 keeping aside the 39th GST council meeting recommendation since it was not notified yet.
Finally Section 100 of the Finance Act (No. 2), 2019 has been notified
Section 100 of the Finance Act (No. 2), 2019 has been notified on 25/08/2020 vide Notification no. 63/2020-Central Tax Dated 25.08.2020 but with effect from 01.09.2020. Strong reactions were witnessed within few hours of notifying the said sections.
Clarification from CBIC
Within 24 hours of notifying section 100 of Finance Act (no.2), 2019, CBIC issued press release clarifying that notification 63/2020 relating to interest on delayed payment has been issued prospectively due to technical limitations. No recovery shall be made for the past period. Due to this, deptt. gave full assurance to taxpayer of releif as recommended in 39th GST council meeting.
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Thanks,
CA Amarjeet Jaiswal
B.com (H), M.Com, DISA, IFRS diploma