Judgement Update | Interest applicability on late payment of GST

This is to update you regarding a recent decision of the Telangana High Court in the writ petition filed by Megha Engineering and Infrastructures Limited, 2019-VIL-175-TEL. In this case, the Court held that interest is payable on delayed payment of tax even if the Input Tax Credit (‘ITC’) is lying with the taxpayer.

Background

In this case, the taxpayer filed Form GSTR-3B for the months of October 2017 to May 2018 after the due date of filing such form. The taxpayer paid tax at the time of filing GSTR-3B.

The department contended that the taxpayer discharged its tax liability after the due date and thus, it is liable to pay interest on delayed payment of tax.

The taxpayer accepted interest liability but disputed the quantum of tax on which interest is payable. According to the taxpayer, interest should have been calculated on the net tax liability i.e. tax liability after adjusting ITC as the same is already available in the government account.

The High Court observed that ITC is used for payment of tax only when the same is set-off with output liability on filing of return. Since the taxpayer filed returns after the due date, ITC can be considered to be used for payment of tax only on filing of return.

Therefore, interest under Section 50 of the Central Goods and Services Tax Act, 2017 (‘CGST’) shall be computed on the gross amount of tax without excluding the amount of ITC available to the taxpayer. 

NITYA Comments:

The instant ruling is correct in its interpretation that ITC cannot be said to be used for payment of tax till the same is set-off with output tax liability.

It is interesting to note that the taxpayer did not take an alternate argument that it is not liable to pay interest at the first place. The legal reasoning of the same is as under:

• Interest liability under Section 50 of the CGST Act, arises on delay in payment of tax from due date of payment of tax;
• Section 39(7) of the CGST Act states that due date of payment of tax shall be the last date of filing of return under Section 39(1) i.e. GSTR-3. It is notable that GSTR-3 for the period July 2017 onwards stands deferred as on date.
• GSTR-3B is neither a return under Section 39(1) nor a substitute of GSTR-3. Therefore, the taxpayer is liable to deposit tax before due date of filing of GSTR-3.