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Interest Calculation on Late GST Payment/ ITC Reversal

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GST ITC Reversal and Interest on Late Payment of GST

CGST Act, 2017 Section 50 of Legal Language

A. Every individual who is responsible to furnish the tax as per the provision of the act or the compliance incurred in it, however, unable to furnish the tax or any portion in it to the government with the duration mentioned, would be for the duration towards which the tax or any portion in it would stay unpaid, pay on itself, interest at that rate, mot more than 18%, as might be reported via government on the council's suggestion.

Mentioned that the interest on the levied tax for the supplies incurred a tax duration and mentioned in the return for the particular duration filed post to the last date as per the provisions of section 39, besides where these returns would file post to the start of any proceedings under section 73 or section 74 for the mentioned duration would be subjected to pay on that tax segment which would be paid through debiting the electronic cash ledger.

B. The interest under sub-section (1) will be computed in a way that might be mentioned, from the next day on which this tax was not paid.

C. In which the ITC claimed was wrong and used, the enrolled individual would furnish the interest on these ITC claiming, at that rate, not more than 24%. As the same might be reported through the Government, on the suggestions of the council, the interest would be computed, in a way as might be specified.

Suggested to replaced vide clause 110 of the Finance Bill, 2022 (notification pending) prior it was read as:

3. An assessee who performed an excess claim of ITC beneath sub-section (10) of section 42 or excess reduction in output tax liability under sub-section (10) of section 43, would furnish the interest on the mentioned undue or surplus claim or on these undue or excess reduction under the case might be at the rate, not more than 24%, as might be reported through the Government upon the council's recommendations.

Method of Interest Calculations Beneath Section 50(1) of CGST Act :

Section 5(2) of the CGST act mentioned that the interest beneath section 50(1) of the CGST act would be calculated via the next day on which this tax was not furnished. Hence the interest calculation would be performed from the subsequent day of the last date of the tax payment till the actual tax payment date.

Example:

The IGST of Rs 1,00,000 is to be deposited in cash of M/s ABC Enterprises for the month of April 2022 was due on 20.05.2022, but M/s ABC Enterprises deposited that on 18.06.2022.

In the same case interest to be deposited Rs. 1430 (i.e. 1,00,000 x 18% x 29 days/ 365 days)

Note:
  • The same poses no particular provision in GST for the payment of interest on the interest due amount.
  • Interest liability would be settled down only from the balance in the electronic cash ledger; the same would not be settled through the balance in the electronic credit ledger.

Whether the Interest Could be Imposable on the Total Liability or the Net Tax Liability:

Since the GST execution, there would be an argument that whether the interest on the late GST payment is to be computed on the total GST liability or on the net GST liability. The meaning of sec 50 of the CGST Act, provides the impression that the assessee should furnish an 18% interest on the total liability.

Proviso to Sec 50(1) w.e.f. 01.07.2017:

To furnish the clarity on the mentioned problem, a proviso was inserted in sec 50(1), vide the finance act, 2019 mentioned vide notification no. 63/2020-central tax on 25.08.2022 w.e.f. 01.09.2020, to furnish for the interest calculation on the total tax liability that is the left amount post adjusting the available ITC from the total tax liability which was later replaced vide clause 112 of the Finance Act, 2021 on 28.03.2021 notified vide notification no. 16/2021- central tax dated 01.06.2021 retrospectively w.e.f. 01.07.2017.

Is the Interest Imposable on the Credit Available But Not Used?

Sec 50 of the CGST act is used to furnish for the payment of the interest in the mentioned below two conditions only:

In which an individual is obligated to furnish the tax, but not able to furnish that [Sec 50(1)],
In which an individual makes a surplus claim of ITC beneath the provision pertaining to matching and mismatching of ITC [Sec 50(3)]

“Thus, prima facie for leaving interest, one has to fall under either of the above cases, discussed as under along with other provisions w.r.t. ITC availed but not utilized”

It has been proposed to vide clause 110 of the Finance Bill 2022, to replace sec 50(3) correspondingly w.e.f. 01.07.2017 to explain that interest will be imposed only when ITC would be used and not just claimed and that 18% for bogus use of ITC, not 24% would be levied.

It mentioned that where the Input tax credit would be claimed wrongly and used the same, the enrolled individual at that rate, not more than 24% as might be reported through the government, on the suggestions of the authority, and the interest would be computed, in a way as might be specified.

Subsequently, it has been proposed to revamp notification no. 13/2017- central tax, notification no. 6/2017- integrated tax, notification no. 10/2017- union territory tax, on 27.06.2017, retrospectively w.e.f. 01.07.2017 vide clauses 116, 118, and 121 of the Finance Bill, 2022 correspondingly, to report the interest rate on late GST payment From 24% per annum to 18% per annum. Beneath section 50(3) of the CGST Act read with section 20 of the IGST Act & Sec 21 of the Union Territory GST (UTGST) Act.

Interest Liability of Credit in Electronic Ledger Not Enough

The identical case towards the recovery of the interest beneath sec 73 of the Bihar GST act, 2017 towards the fake claim of the transitional credit was investigated through the Patna HC in M/s Commercial Steel Engineering Corporation Vs State of Bihar [2019 (28) G.S.T.I. 579 (Pat)], in which the Input tax credit was shown in the electronic credit ledger but was not utilized towards netting off any outward tax liability.

The interest beneath sec 73 of CGST Act read with sec 50 can be recovered when some positive act of ITC usage is represented via department and only credit shown in the electronic ledger is not enough to invoke the interest liability.

Note: the mentioned decision of the Patna HC underlines the positive act of the assessee under which the claim associated with the usage is important to classify the case beneath the bogus ITC claim beneath sec 73 of the CGST Act, and therefore, no interest liability appears if ITC is not utilized.

Closure: The same is to be specified that there shall be no interest liability with respect to the ITC claimed through the bogus way but not been used.

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