This note briefly sets out the impact of interest payment on delayed filing of GSTR-3B on account of changes made to section 50 of CGST Act, 2017 (as amended)
FINANCE ACT, 2019
NOTIFICATION 63/2020-Central Tax
Notification 63/2020-Central Tax dated August 25, 2020 reads as below:
“G.S.R. 527(E).—In exercise of the powers conferred by sub-section (2) of section 1 of the Finance (No. 2) Act, 2019 (23 of 2019), the Central Government hereby appoints the 1st day of September, 2020, as the date on which the provisions of section 100 of the Finance (No. 2) Act, 2019 (23 of 2019), shall come into force.”
IMPLICATIONS OF THE NOTIFICATION
Section 100 of the Finance (No.2) Act, 2019 sets out a proviso to be added to section 50 sub-section (1) of the Central Goods and Services Tax Act, 2017 (hereinafter “CGST Act”).
The sub-section (1) of section 50 after the amendment would read as below–
“Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council.
Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.”
[Note: The insertion is italicised and underlined above]
FINANCE BILL, 2021
Section 103 of Finance Bill, 2021 seeks to amend section 50 of CGST Act, in sub-section (1), by substituting the following proviso with effect from the 1st day of July, 2017, namely:––
“Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger.”
ANALYSIS
DIFFERENCE BETWEEN THE PROVISO INSERTED THROUGH THE FINANCE ACT 2019 AND FINANCE BILL 2021
Upon reading the two, it is evident that there is no difference between the wordings of the proviso inserted vide Finance Act, 2019 and the amendment to the proviso sought to be made through Finance Bill, 2021.
The difference distinctly lies in the time period from which the proviso is considered to be part of section 50. The proviso was inserted with effect from September 01, 2020 vide Finance Act, 2019. The Finance Bill 2021 however seeks to insert this proviso retrospectively with effect from July 01, 2017.
SCOPE OF THE INSERTED PROVISO
The scope of the new proviso can be analysed as below:
Interest on GST payable in respect of supplies made during a tax period
It is pertinent to understand the definition of a ‘Tax period’. The same has been defined as per section 2(106) of CGST Act, 2017 as the period for which a return is required to be furnished, i.e., for a regular taxpayer (normal registration), tax period refers to a month.
This proviso deals with interest liability that arises in respect of taxable supplies made during a particular month. Supplies of a particular tax period disclosed in GSTR-3Bs of later tax periods would not fall within the scope of this proviso.
Filing the return after the due date
The return specified under section 39 refers to GSTR-3B.
This provision would be invoked only when GSTR-3B is filed beyond the prescribed due date for the same.
Except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period
Section 74 and Section 73 deals with ‘Determination of tax not paid or erroneously refunded or input tax credit wrongly availed or utilised’, by reason of fraud or any wilful-misstatement or suppression of facts or any other reason, respectively.
The proviso excludes the cases where GSTR-3B is filed for the period after proceedings have been initiated for the same period under section 73 and/or section 74.
Shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger
The payments against the outward liability is made throughGSTR-3B by utilizing the Electronic Credit Ledger balance, and/or through cash payments
The proviso presupposes existence of adjustment of GST liabilities using balance in Electronic Credit Ledger, availed during the period or otherwise.
From a reading of the above, it is clear that the proviso seeks to allow a taxpayer to pay interest on GST liability arising out of delayed filing of GSTR-3B on net amount after adjusting ITC in the said GSTR-3B.
The following needs to be borne in mind while applying the above proviso to the benefit of taxpayer:
- The Gross GST Liability considered under this proviso refers to the total GST payable disclosed during the month. This does not include any GST liability pertaining to earlier months disclosed in the present month GSTR-3B.
- The interest liability shall arise from delay in filing GSTR-3B for the relevant month, and not on account of any other reason.
- The GSTR-3B needs to be filed before any proceedings are commenced under section 73 and section 74 of CGST Act.
- The Net GST Liability on which interest is computed shall consider the adjustment of balance of Electronic Credit Ledger, availed before or during the relevant period. However, the existence of the balance in the Electronic Credit Ledger would not be sufficient.
- The amount of tax liability adjusted through Cash ledger in a GSTR-3B would determine the tax on which interest has to be paid for supplies made during the period of the said GSTR-3B.
APPLICABILTY OF PROVISO
Earlier, it was the talk of the town, whether the notification supra would be effective on a prospective basis or retrospective basis. The major source of the ambiguity had stemmed from the recommendation made by GST Council in the Press release issued dated March 14, 2020. Under the head for ‘Measures for Trade Facilitation’, they had recommended the following:
“a. Interest for delay in payment of GST to be charged on the net cash tax liability w.e.f. 01.07.2017 (Law to be amended retrospectively).”
However, the recommendation failed to translate into a Notification in its entirety. The Notification supra instead of making the section 100 of the Finance (No. 2) Act, 2019 (23 of 2019) effective from July 01, 2017, as envisaged in the recommendation specified that it would be effective from September 01, 2020. Press release by Ministry of Finance on ‘Interest on delayed payment of GST: CBIC’ dated August 26, 2020, also clarified that the Notification supra is prospective.
Meanwhile, the Central Board of Indirect Taxes & Customs (CBIC) has clarified that no recoveries shall be made for the past period as well by the Central and State tax administration in accordance with the decision taken in the 39th Meeting of GST Council so as to ensure full relief to the taxpayers as decided by the GST Council.
The substitution of the proviso sought to be made through Finance Bill, 2021 seeks to make the application of proviso retrospectively from July 01, 2017, as envisaged by the GST Council.
SCENARIO:
Supplies made in December 2020 where the outward liability amounts to INR 100 was not disclosed in GSTR-3B for December 2020 filed January 2021. Supplies made in January 2021 where tax amounts to INR 200 was disclosed in GSTR-3B for the month of January 2021 along with the tax of INR 100 relating to December 2020 (missed out in earlier 3B).
ITC utilized against such liabilities in January 2021 amounts to INR 250.
If there is any delay in filing of GSTR-3B for the month of January 2021, the interest would be payable as follows:
For liability of December 2020 – Interest from the due date of December 2020 GSTR-3B till the date of filing GSTR-3B for January 2021 (where the liability was disclosed in a 3B for a later period)
For liability of January 2021 – Interest to be paid on the portion of liability adjusted using Electronic Cash Ledger for the period of delay in filing of GSTR-3B – INR 50 (200+100 [Total Liability] – 250 [ITC adjusted against in 3B])
CONCLUSION
- Interest of GST arising out of delayed filing of GSTR-3B is reduced to the extent of Net GST liability from September 01, 2020. This benefit would be applied retrospectively from July 01, 2017, once the Finance Bill 2021 receives Presidential assent and becomes Finance Act.
- Interest needs to be paid in respect of all supplies made during a month but not disclosed in the GSTR-3B filed for the same month e.g., Supplies made in December 2020 and disclosed in December 2020 GSTR-3B will not be eligible for the benefit of reduced interest under the proviso.
- The amount of interest payable in case of delayed filing of GSTR-3B need to be seen separately from the interest on supplies which ought to have been disclosed in earlier GSTR-3Bs. E.g., Supplies made in December 2020 but disclosed in January 2020 GSTR-3B will not be eligible for the benefit of reduced interest under the proviso in January 2020.
- Benefit of this proviso is subject to filing GSTR-3B before commencement of proceedings under section 73 and 74 of CGST Act for the said period.
- The taxpayers may consider going for refund of interest paid during earlier periods in case they have made significant amount of tax payments on account of delayed filing of interest and significant portion of liability during the periods of delay was made though ITC utilisation.
- Taxpayers may need to be prepared to receive notices at all GSTINs where there was delay in filing of GSTR-3Bs if whole or part of the liability was discharged through cash.