Interest liability arising due to the late filing of GSTR 3B

To

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Sub: Interest liability arising due to late filing of GSTR 3B
Ref: GSTN-…………………….
Sir,
We have received your notice directing us to pay the interest @18% per annum as per Section 50(1) of the CGST & SGST Act on gross output tax liability in respect of delay in payment of tax pertaining to returns in Form GSTR 3B filed after the due date.

In reply thereto we submit that your direction to pay the said interest on gross output tax liability is not according to law. The interest u/s 50(1) of the Act attracts automatically when “tax payable” is paid late. Tax payable means the tax actually payable after adjusting the amount of ITC.

In support of the aforesaid contention, we submit that, though the proviso to sub-section (1) of Section 50 contains the words “that the interest on tax payable in respect of supplies made during a tax period”, it is required to be taken into account that Section 41(2) permits a taxpayer to reduce the said output tax amount by the amount of ITC and pay the balance amount of output tax, in cash. Therefore the words “the interest on tax payable in respect of supplies made during a tax period” used in Section 51(1), cannot be read in isolation but shall be read with Section 41(2).

We further submit that the ITC utilized for the payment of output tax is nothing but a “prepaid tax” and hence Section 41(2) provides that the ITC shall be utilized only for payment of self-assessed output tax as per return. Therefore, a taxpayer pays output tax by way of prepaid tax in the form of ITC and by way of cash payment.

We have also attached a judgment of the Madras High Court in the case of Refex Industries Limited and another in which it is held “the proper application of Section 50 is one where interest is levied on a belated cash payment but not on ITC available all the while with the Department to the credit of the assessee. The latter being available with the Department is, in my view, neither belated nor delayed.”

In view of the aforesaid legal position, we have computed the amount of said interest on the “tax actually payable”, as per return in Form GSTR 3B, which is paid beyond the due date. The Chart, showing the months for which tax was paid late and the interest payable and paid thereon, is attached for your ready reference.

Thanking you,
For ………………….
Name and designation of the signatory