Calculation of Interest on Net Liability of GST

The Government has said that interest on delayed payment of goods and services tax (GST) will be charged on net tax liability with effect from September 1, 2020. The industry had earlier this year raised concern over the directive of recovery of about Rs 46,000 crore of unpaid interest on delayed GST payment. The interest was charged on gross tax liability.

The GST Council, comprising center and state finance ministers, at its 39th meeting in March had decided that interest for delay in payment of GST to be charged on net tax liability with effect from July 1, 2017, & law would be amended retrospectively. However, the Central Board of Indirect Taxes and Customs (CBIC) on August 25, notified September 1, 2020, as the date from which interest would be charged on net tax liability.

This notification seems to be in disconnect with decisions of GST Council wherein it was assured to the taxpayers that benefit would be available retrospectively from July 1, 2017. Prospective availability of this benefit would mean that millions of taxpayers may be looking at demand of interest for over 3 years from the date of GST implementation. This would be an issue which may go into litigation before the Courts.

The CBIC had earlier said that GST law permits interest calculation on the delayed GST payment on the basis of gross tax liability. This position has been upheld in the Telangana High Court’s decision dated April 18, 2019. The net GST liability is arrived at after deducting input tax credit from gross GST liability.

Hence, calculating interest on gross GST liability increases the pay-out burden on businesses.

There have been cases where GST assesses have paid taxes after the due date but did not pay the interest due on an account of delayed payment. There were doubts on the fact whether the interest was to be paid on gross tax liability or net tax liability.

The Interest at the rate of 18 per cent is levied on delayed tax payment. Thus a retrospective amendment called for as even though the Business has ITC to its credit, however they still have to pay interest on the gross liability.

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