Brief on Section 50(1) of GST Act, 2017
Introduction:
Interest is a percentage of amounts that one pays or recovers on the total amount over a certain period of time. Since the inception of money markets, the concept of interest has evolved. It plays a crucial role in money markets and overall economic health. Like other fiscal statutes, In Goods and Services Tax Act, 2017 also, the provisions of interest are no different. In GST Act, interest rate is applicable if assesse fails to pay the due tax amount or claim excess ITC in contrary to the provisions of the Act. In this blog, we will briefly discuss the section 50(1).
Section 50 (1) of Goods and Services Act, 2017:
- 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:
[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.]
This Proviso was substituted by Section 112 of Finance Act, 2021 which came to effect from 01.07.2017.
Earlier the provisions of interest were applicable on Gross Tax Liability which means that the assesse has to pay the interest on Gross Tax Liability (without adjusting Input tax credit available). After the amendment, the Government has substituted the section with “Electronic Cash Ledger” which says that tax payer will pay interest on Net Tax Liability (after adjusting available Input Tax Credit) . In other words, interest @ 18% shall be calculated on the amount of tax which remains unpaid (after adjusting the available ITC from Electronic Credit Ledger), for the period starting from the date on which such tax was due to be paid till the date such tax is actually paid by the assesse. Hence, the interest shall not be levied on the available balance of ITC in Electronic Credit Ledger which is used to pay unpaid tax liability.
(Image Courtesy : Clear Tax)
For Example:
If an Assessee has an unpaid Tax of Rs. 10,000 and he has available balance of Input Tax Credit in Electronic Credit Ledger for Rs.2,000 as on that particular date, then interest @18% shall be levied on Net Tax Liability i.e Rs. 8,000 and not Rs. 10,000/-
Judgments:
In the ruling given by Hon’ble Madras High Court in the case of Maansarovar Motors Pvt. Ltd. V. Assistant Commissioner vide Writ Petition No. 28437 of 2019 whereby the Court has held that no section 50 interest on GST payment made through Inout Tax Credit.
In another ruling of Hon’ble Madras High Court in the case of M/s Refex Industries Limited V. The Assistant Commissioner of CGST and Central Excise [Writ Petition no. 23360 & 23361 of 2019] whereby the Court has held that interest under section 50 can be levied only on belated “cash” component of tax and not “ITC” Component.
Comments:
As per the bare language and amendments in section 50(1), it is ample clear that interest @18% shall be applicable only on that unpaid amount which is paid in cash i.e. on Net Tax Liability only. The assesse is not liable to pay interest on that portion of unpaid amount which he has adjusted through Input Tax Credit. The above cited judgments also discussed the said law points clearly.