Madras High Court Decision – Interest on delay payment of GST

In some good news for businesses, the Madras High Court in the Refex Industries Limited v. Sherisha Technologies (P) Limited case held that the interest on delayed payment under the Goods and Services Tax (GST) can be levied only on the ‘cash’ component and not on the Input Tax Credit (ITC) component.

In this particular case, the petitioner filed the tax returns late and subsequently, the tax authorities raised demand notices for recovery of arrears of interest. The petitioner objected to demand notices stating that they had sufficient ITC available with the Department and thus interest could be demanded, if at all, only on the cash component of the tax remitted belatedly.

High Court’s ruling

The specific issue which the High Court tried to resolve in this particular case was whether the payment by way of adjustment could be termed ‘belated’ or ‘delayed’ when credit was due to the assessee.

It observed that the use of the word ‘delayed’ connotes a situation of deprival where the State has been deprived of the funds representing tax component till such time the return is filed accompanied by the remittance of tax.

“The availability of ITC runs counter to this, as it connotes the enrichment of the State, to this extent. Thus, Section 50 which is specifically intended to apply to a state of deprival cannot apply in a situation where the State is possessed of sufficient funds to the credit of the assessee.

“In my considered view, the proper application of Section 50 is one where interest is levied on belated cash payment but not on ITC available all the while with the Department to the credit of the assessee. The latter being available with the Department is, in my view, neither belated nor delayed,” the order said, allowing the petition.

Telangana High Court Ruling in case of Megha Engineering & Infrastructures Ltd.

Net liability (after adjusting GST ITC) is knocking the doors of every belated GST return filers. The Hon’ble HC of Telangana in case of Megha Engineering & Infrastructures Ltd. v. CCT [2019] held that interest is liable on the Gross GST liability but the Court has admitted the review petition and granted an interim stay and the other HC’s are yet to deliver the final decision. Thus, the matters still pending before various HC’s and the Government also has not made amendment effective yet (prospective or retrospective!!).

What GST Department is doing now?

While the principal issue of interest liability is still pending, it is observed that the GST department across the country has been issuing letters asking the taxpayers to remit the interest on Gross GST liability and if not paid within 7 days of the letter, the Bank accounts are being attached and the amount is recovered directly. Surprisingly, these recoveries are made without issuing any Show Cause Notices and without providing any opportunity of being heard to the taxpayers.

It is the settled principle that no person should be judged without a fair hearing in which each party is given the opportunity to respond to the evidence against them. Based on this elementary principle of natural justice, every law provides for the issuance of Show Cause Notice (‘SCN’) and the opportunity of being heard before taking any adverse action. In this process, it is required to hear the other side before proposing any action and to do so, the said person must be served a notice detailing the allegations and the basis on which the actions are proposed

Therefore, it is inescapable for the GST department to issue SCN and hear personally before initiating any action against the taxpayers. More so when the issue of interest on Gross GST liability is debatable.

Ref: 

1. Hon’ble SC in case of Dabur India Ltd. v. State of Uttar Pradesh 1990 taxmann.com 101

2. L.C. Infra Projects (P.) Ltd. v. Union of India 2019 (28) G.S.T.L. 3 (Kar.)

3. Godavari Commodities Ltd. v. Union of India [W.P. (T) No. 1786 of 2019, 5-12-2019

We at Balakrishna and Co, GST consultant in Bangalore have good exposure in dealing with GST compliance services. Those who want more information or services may kindly write to prakasha@balakrishnaandco or send WhatsApp messageTAGS: GST SUPER USER  NEWS  20 FEBRUARY 2020  HITS: 237

Chartered Accountant Certificates under GST

Institute of Chartered Accountants of India (ICAI)  has published a guide to Chartered Accountants to help them furnish CA certificates as per various provisions of the Good and Service Tax (GST). The GST and Indirect Taxes Committee has come up with this guide to GST certificates. “In the Guide, an attempt has been made to cover each and every area in GST Law requiring the furnishing of CA Certificates. Further, checkpoints have been included for each Certificate which may be referred by the chartered Accountants before certifying the credential provided by the taxpayers.” – CA Prafulla P. Chhajad, Chartered Accountant and President of ICAI was quoted in the forwarding of the guide.