Interest Under GST

The GST law provides for the payment of interest on delayed payment of tax, as well as on excess ITC availed and utilised.

Section 50-

(1) 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 payable on that portion of the tax which is paid by debiting the electronic cash ledger.

(2) The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.

(3) Where the input tax credit has been wrongly availed and utilised, the registered person shall pay interest on such input tax credit wrongly availed and utilised, at such rate not exceeding twenty-four per cent. as may be notified by the Government, on the recommendations of the Council, and the interest shall be calculated, in such manner as may be prescribed.

Analysis-

Interest can be levied under the following two cases-

• Where tax payable is not paid or short paid Section 50(1)

• Where ITC is wrongly availed and utilised Section 50(3)

Where tax payable is not paid or short paid Section 50(1)

Plain reading of said section 50(1) of the act makes clear that every person who is liable to pay tax as per provisions of act or rule, has failed to pay tax within prescribed period, should pay interest @18 per annum for the period of delay of such unpaid tax. Where there is delay in payment of tax and filing of return for any tax period, as per proviso which is inserted wef 1-7-2017, interest is payable on amount of net tax liability, which is discharged by debiting electronic cash ledger, from the due date of return till the date of debit to cash ledger. Section 50 (2) provides for manner and method of calculation of interest under section 50 and accordingly rule 88B has been inserted vide Notification no 14/2022 Central Tax.

Section 50(1) of the GST Act provides for the payment of interest on any unpaid taxes under the Act. This includes taxes imposed by the Act or rules, as well as self-assessed taxes declared in returns. If a taxpayer fails to pay their taxes on time and file their return by the due date, they will be liable to pay interest at the rate of 18% per annum.

A registered person who files their return for a tax period within the prescribed time may discharge their tax liability by debiting either their electronic credit ledger or their electronic cash ledger. However, if a registered person files their return and pays their taxes for a tax period after the due date, the proviso to section 50(1) will apply. This means 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, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger.

In other words, interest will only be payable on the net tax liability that is paid by debiting the cash ledger. However, the benefit of this proviso (i.e., the payment of interest on net tax liability) is only applicable to the extent of supplies that are made during a tax period and declared in the return for the said period furnished after the due date. For example, if supplies related to an earlier tax period are declared in the return for the current tax period, the benefit of the proviso cannot be granted.

Similarly, the benefit of the proviso cannot be extended to cases where proceedings under sections 73 or 74 have already been initiated. Therefore, it is important for registered persons to declare all supplies made in their returns correctly when filing their returns for the relevant tax period. If a registered person declares supplies from an earlier tax period in the next tax period, interest will be payable on the gross tax payable for those supplies from the earlier period, in accordance with the proviso.

Under the provision of act proper officer issues adjudication and assessment orders and create demand of tax, which commonly known as differential tax dues. As a result of such orders taxable persons are liable to pay such additional tax and consequential interest. Such tax is liable to pay as per provisions of the act and hence comes within ambit of section 50 of the act. Such interest should be calculated at the notified rate (18 %) from the day succeeding the day on which such tax was due to be paid till the date of order. Further provisions of section 75(9) is reproduced before you which states as under-

“(9) The interest on the tax short paid or not paid shall be payable whether or not specified in the order determining the tax liability.”

Where ITC is wrongly availed and utilised Section 50(3)

As per section 50(3) every registered person, who has wrongly availed and utilised amount of ITC should pay interest and same interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount. Interest is consequential liability and has to be discharged by person on his own whenever there is default in payment of tax beyond due date.

Section 50(3) of the GST Act provides for the payment of interest on any input tax credit (ITC) that is wrongly availed and utilized. In order to attract interest under this section, both the components of wrong availment and utilization must be present. If ITC is claimed wrongly in the return but is not utilized, interest will not be payable.

The interest is calculated in accordance with the manner prescribed in Rule 88B. An interest shall be calculated on the amount of ITC wrongly availed and utilized, for the period starting from the date of utilization of such wrongly availed ITC till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub-section (3) of section 50.

Rule 88B(3) read with Explanation 1 and 2, prescribes the criteria for deciding the issue of wrong utilization of ITC and determination of the quantum of such utilized ITC and date of utilization. The proper officer and the taxable person are required to first decide whether there is wrong utilization of ITC. If there is wrong utilization, then they are required to determine the quantum and date of such utilization of ITC by applying the criteria prescribed in the said rule. The registered person is required to pay interest accordingly.

The rate of interest applicable under section 50(3) of the Act was proposed to be reduced from 24% to 18% in the Finance Act, 2022. However, the notification to this effect has not yet been issued.

If a registered person has failed to pay the interest under section 50(3), the proper officer is required to issue an order under the said section to recover such interest, after giving the registered person an opportunity to prove the non-applicability of the interest and present their case.

Rule 88B-

Rule 88B. Manner of calculating interest on delayed payment of tax.-

(1) In case, where the supplies made during a tax period are declared by the registered person in the return for the said period and the said return is furnished after the due date in accordance with 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, the interest on tax payable in respect of such supplies shall be calculated on the portion of tax which is paid by debiting the electronic cash ledger, for the period of delay in filing the said return beyond the due date, at such rate as may be notified under sub-section (1) of section 50.

(2) In all other cases, where interest is payable in accordance with sub section (1) of section 50, the interest shall be calculated on the amount of tax which remains unpaid, for the period starting from the date on which such tax was due to be paid till the date such tax is paid, at such rate as may be notified under sub-section (1) of section 50.

(3) In case, where interest is payable on the amount of input tax credit wrongly availed and utilised in accordance with sub-section (3) of section 50, the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub-section (3) of section 50.

Explanation. —For the purposes of this sub-rule, —

(1) input tax credit wrongly availed shall be construed to have been utilised, when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilisation of input tax credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.

(2) the date of utilisation of such input tax credit shall be taken to be, —

(a) the date, on which the return is due to be furnished under section 39 or the actual date of filing of the said return, whichever is earlier, if the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, on account of payment of tax through the said return; or

(b) the date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, in all other

As per recently issued Circular dt. 17.07.2023 following was clarified-

“Since the amount of input tax credit available in electronic credit ledger, under any of the heads of IGST, CGST or SGST, can be utilized for payment of liability of IGST, it is the total input tax credit available in electronic credit ledger, under the heads of IGST, CGST and SGST taken together, that has to be considered for calculation of interest under rule 88B of CGST Rules and for determining as to whether the balance in the electronic credit ledger has fallen below the amount of wrongly availed input tax credit of IGST, and to what extent the balance in electronic credit ledger has fallen below the said amount of wrongly availed credit.

Thus, in the cases where IGST credit has been wrongly availed and subsequently reversed on a certain date, there will not be any interest liability under sub-section (3) of section 50 of CGST Act if, during the time period starting from such availment and up to such reversal, the balance of input tax credit (ITC) in the electronic credit ledger, under the heads of IGST, CGST and SGST taken together, has never fallen below the amount of such wrongly availed ITC, even if available balance of IGST credit in electronic credit ledger individually falls below the amount of such wrongly availed IGST credit. However, when the balance of ITC, under the heads of IGST, CGST and SGST of electronic credit ledger taken together, falls below such wrongly availed amount of IGST credit, then it will amount to the utilization of such wrongly availed IGST credit and the extent of utilization will be the extent to which the total balance in electronic credit ledger under heads of IGST, CGST and SGST taken together falls below such amount of wrongly availed IGST credit, and will attract interest as per sub-section (3) of section 50 of CGST Act, read with section 20 of Integrated Goods and Services Tax Act, 2017 and sub-rule (3) of rule 88B of CGST Rules.”

The liability of interest is automatic and mandatory and requires to pay on his own by concerned person. Where person liable to pay interest has not paid the interest, the proper officer has powers to demand and recover such interest.

Further as per section 75(12) of the of the CGST Act, 2017 interest on self assessed can be demanded straight way without even following the procedures laid down under section 73 and 74 of the Act. Relevant extract of section 75 is reproduced asunder-

“(12) Notwithstanding anything contained in section 73 or section 74, where any amount of self-assessed tax in accordance with a return furnished under section 39 remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of section 79.

Explanation.-For the purposes of this sub-section, the expression "self-assessed tax" shall include the tax payable in respect of details of outward supplies furnished under section 37, but not included in the return furnished under section 39.”