Clarification by CBIC on whether interest to be charged on Gross Tax Liability or Net Tax Liability?
CBIC has provided a clarification by its twitter handle on the issue.
"There are some discussions in social media w.r.t. interest calculation on delayed GST payments post a few media reports regarding Rs. 46000 Crore interest on the delayed GST payments to be collected by tax authorities. On this issue of interest calculation, it is clarified that-
The GST laws, as of now, permit interest calculation on delayed GST payment on the basis of gross tax liability. This position has been upheld in the Telangana High Court’s decision dated 18.04.2019 in the case of Megha Engineering And ... vs The Commissioner Of Central Tax. In spite of this position of law and Telangana High Court’s order, the Central Government and several State Governments, on the recommendations of GST Council, amended their respective CGST/SGST Acts to charge interest on delayed GST payment on the basis of net tax liability. Such amendment will be made prospectively. The States of Telangana and West Bengal are in the process of amending their State GST Acts. After the process of amendment is complete, the changed provisions can be put in operation for the entire country."
Therefore the crux of above clarification is that -
a) An amendment shall be made in the law to charge interest on Net Tax Liability instead of Gross Tax Liability.
b) Such an amendment shall be effective prospectively i.e. effective for the priod falling after the date of amendment.
c) For the period precceding to the date of amendment, interest shall be charged on the Gross Tax Liability.
Though, It is appeciated that govt has finally waken up and dediced to make an amendment in the law, however restricting its effect for the post amendment period only is not justified at all. There is no sense in charging interest on the GST already paid by taxpayer in the form of ITC on inward supplies, which is already lying in the govt treasury.
The interpretation put upon the provisions in sec 50 of the GST Act by the Telengana High Court and any move to give prospective validity to the amendment subsequently brought in are unconstitutional. Even despite any such amendment the interpretation to charge interest on the gross amount without deducting IPT is ultravires the the Statute. It is against the whole concept of GST. Further, the Legislature having come out with the amendment to remove the mischief in the law, it is remedial and clarificatory in nature with retrospective effort. Any attempt by the legislature to construe the provisions against assessees cannot stand the test of legal principles. Nevertheless, the GSTN Council has to come up with clarification for giving retrospective effect to the amendment rather than putting the taxable persons across the Country to the vegaries of the Tax authorities by implementing the draconian provisions. Despite strong case for favourable decision to dealers the process of appeal/writ remedies will be onerous. Let us hope the Government will resolve the issue in a pragmatic manner.