This note briefly sets out the impact of Notification 63/2020-Central Tax dated August 25, 2020.
TEXT OF THE NOTIFICATION
“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 said sub-section after the amendment prescribed above would be as follows –
“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.”
ANALYSIS
SCOPE OF INSERTED PROVISO
The new proviso added can be analysed as below:
• Interest on GST payable in respect of supplies made during a tax period
‘Tax period’ under GST as per section 2(106) of CGST Act refers to the period for which the return is required to be furnished. i.e., for a regular taxpayer (normal registration), tax period shall be a month.
This proviso deals with interest liability that arises in respect of taxable supplies made during a month.
• Declared in the return for the said period furnished after the due date in accordance with the provisions of section 39
The return specified under section 39 refers to GSTR-3B.
The Scenario for this provision getting invoked is when GSTR-3B is filed beyond the prescribed due date for that return.
• 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
Payment in made in the GSTR-3B by adjusting the GST Liabilities against Electronic Credit Ledger balance, and the remaining with Cash payment.
The proviso presupposes existence of adjustment of GST liabilities using balance in Electronic Credit Ledger, availed during the period or otherwise.
On a combined 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:
1. The Gross GST Liability considered under this proviso is the total GST payable during the month. This does not include any GST liability pertaining to earlier months disclosed in the present month GSTR-3B. On same lines, any GST liability for the relevant period not disclosed in the GSTR-3B for the period would also be considered for the computation of Gross GST Liability for this proviso.
2. The interest liability is arising out of delay in filing GSTR-3B for the relevant month, and not on account of any other reason.
3. The GSTR-3B needs to be filed before any proceedings are commenced under section 73 and section 74 of CGST Act.
4. The Net GST Liability on which interest needs to be calculated considers 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. For the purposes of determining the actual ITC balance adjusted in the GSTR-3B in question would be considered.
APPLICABILTY OF PROVISO (PROSPECTIVE OR RETROSPECTIVE)
It has become the talk of the town, whether this notification would be effective on a prospective basis or retrospective basis. The major source of the ambiguity stems 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.
The above is a clear indication from the department on the prospective operation of this new proviso. Further, reference may be taken to the Press release by Ministry of Finance on ‘Interest on delayed payment of GST: CBIC’ dated August 26, 2020, which clarifies that the Notification (supra) is prospective. However, he 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.
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.
Net GST Liability relates to = (Gross GST Liability for the relevant period (whether disclosed properly in GSTR-3B or not) – (ITC adjusted in the GSTR-3B in question)
However, this is subject to filing GSTR-3B before commencement of proceedings under section 73 and 74 of CGST Act.
CBIC has clarified vide Press release that no recoveries would be made for the interest for the earlier periods on the same lines mentioned above.