Interest Under Section 50 of CGST

Interest Under Section 50 of CGST is automatic?

With rapid changes in the Goods & Services Tax regime, it is cumbersome for the taxpayers to keep a regular check on the updates and notifications brought by the department. The late fee structure under GST is applicable on per day or monthly basis is a question hinders the mind of all taxpayers.

As per the provision of the Central Goods & Services Tax Act, 2017 (“CGST Act, 2017”), the registered taxpayers need to file the returns based on the turnover as normal assessee or composition assessee.

The GST is payable upon generation of challan i.e., GST PMT -06, which is valid for 15 days from the date of generation of such challan.

The payment of challan can be made by online mode as well as challan in offline mode. The net banking, NEFT, IMPS or another payment method as prescribed can be used for making payments and completing the process before the due date.

As per Section 50 of CGST Act, 2017, the interest is leviable on the GST returns filed under certain circumstances which are as follows:

  • When the registered person makes late payment of GST liability attracts interest @18% p.a. on outstanding tax liability that has been delayed.
  • When the registered person takes undue/more than the eligible claim of the input tax credit, interest is leviable @24%p.a. on such amount of excess.
  • In case the registered person takes undue/more than the eligible reduction of output tax liability, then interest is leviable @24% p.a. on such amount of excess output tax.

Calculation of interest:

  • Suppose, the GST payable is Rs. 5 lakhs on or before 20th June 2019 but due to some circumstances, the assessee cannot pay by 31st July 2019. In such case:
    • Interest is liable to be paid on tax liability under section 50 of the Act.
    • The number of default days is 41 days.
    • The amount of outstanding tax amounting to Rs. 5 lakhs.

Hence, the amount of interest leviable is Rs. 10,109.

Note: Rs. 10,109 is calculated as 500,000*18%*41/365.

  • In case, excess input tax has been claimed amounting to Rs. 50,000 by the filings on portal on 18th February, 2020 which later revised on 13th March, 2020. The treatment shall be as follows:
    • The interest is leviable on such excess amount claimed as input tax credit under section 50 of the act.
    • The number of default days is 26 days.
    • The excess amount claimed is Rs. 50,000.

Hence, the amount of interest leviable is Rs. 855.

Note: Rs. 50,000 is calculated as 50,000*24%*26/365.

Taking into consideration, the Megha Engineering and Infrastructures Limited vs Commissioner of Central Tax & Ors., raises question whether the liability of payment of interest under different circumstances is determinable by the assessee or the department along with other matters.

Following the judgment, many things have been concluded which have been summarized as follows:

  • The interest under section 50 of the CGST Act, 2017 is determinable under such exhaustive circumstances based on the number of days of default.
  • The assessee himself is liable for determining the liability on and from the date of surpassing of date or excess claim of Input tax credit or excess claim of taxes paid and not the department. Hence, the onus lies only on the assessee.

There are numerous judgments supporting this view and authorities are not liable for determining and making it automatic for the taxpayers to deposit on time the liability as accrued. The regulations under compliance of such laws are civil in nature unless it involves the fraud or deliberate misrepresentation. Supporting this, in case of M/s Amar Cars  Private Limited, following important points have been highlighted:

  • The court observed that section  provides  for interest  under following circumstances and is treated automatic:
    • Interest on belated payment of taxes
    • Interest on delayed payment of taxes – which stands for tax element which the state is deprived of and return has not been filed for the same.
  • To note, this section is not applicable in cases where the input tax credit is available for settlement of liability. Therefore, the interest shall only be applicable and to be paid in cash.

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Also Read: Service Level Agreement: Factors & Essentials

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