Retrospective amendment in the CGST Rules – impact on liability to pay interest on delayed payment of taxes
This is to apprise you regarding recent amendment in the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’) vide Notification No. 49/2019-Central Tax dated October 9, 2019. Vide this, the Government has amended Rule 61(5) of the CGST Rules to make Form GSTR-3B a return under Section 39(1) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) where due date of filing return under Form GSTR-1 or Form GSTR-2 is extended. The amendment has effectively replaced Form GSTR-3 with Form GSTR-3B with effect from July 1, 2017.
In this update, we have discussed the impact of this amendment on applicability of interest on delayed payment of taxes.
Interest liability under the CGST Act:
- Section 50 of the CGST Act levies interest on every person who fails to pay tax to the Government within the period prescribed, for the period for which the tax remains unpaid.
- Section 2(87) of the CGST Act defines the term ‘prescribed’ to mean ‘prescribed by rules made under this Act on the recommendations of the Council’. Interestingly, the timeline for payment of tax has not been prescribed in the CGST Rules.
- Important to note that Section 49 of the CGST Act, which specifically deals with payment of taxes, does not prescribe any timeline within which taxes need to be paid.
- The only provision under the GST law which deals with the timeline for payment of taxes is Section 39(7) of the CGST Act. As per this provision, tax should be paid within the due date of filing of return under Section 39(1). Before this amendment, return under Section 39(1) of the CGST Act was Form GSTR-3 which was never made operational by the Government.
- Hence, it could be reasonably inferred that no due date was prescribed for payment of taxes in the past as well as going forward.
- The relevant provisions under the GST law levy interest in case there is ‘failure’ and ‘delay’ on the part of the taxpayer to pay tax. The term ‘failure’ or ‘delay’ means a fault where a person was expected to do something but did not do the same.
- Prior to this amendment, there were no due date for payment of taxes. Hence, no delay can be attributed to the taxpayers for non-payment of taxes. The situation will be squarely covered by the latin maxim “lex non cogit ad impossibilia” meaning that the law cannot compel a person to do an impossible act.
- While the Government has power to prescribe due dates for payment of tax for the past period, it cannot demand interest from a person who did not pay tax within due date of filing of Form GSTR-3B in the absence of prescription of due date of payment of tax at that time.
- Section 49 of the CGST Act prescribes due date for payment of taxes. Further, Section 50 of the CGST Act specifically provides for payment of interest if taxes are not paid within the ‘prescribed period’. Hence, in the absence of any due date prescribed for payment of tax, interest cannot be demanded for delay in payment of tax.
- Further, the condition prescribed under Section 39(7) of the CGST Act can at best be seen as a condition of filing of return and not due date of payment of tax. The consequence of violation of this provision can be late fee etc. and not interest.
- Resultantly, the liability to pay interest under Section 50 can be contested in future as well.