Interest on Net Cash Liability

Interest on Net Cash Liability

Amendment to Section 50 notified w.e.f. 01.09.2020

Section 100 of Finance Act inserting a proviso to Section 50(1) has been notified w.e.f. 01.09.2020 vide Notification No. 63/2020-CT dated 25.08.2020.

The proviso to Section 50(1)

Interest on net cash liability where

• Return u/s section 39 (GSTR-3B) is filed after the due date

• Except when return is filed after commencement of proceedings u/s 73 and 74.

Retrospective or Prospective: Story so far

• 31st GSTC meeting dated 31.12.2018
  Interest be charged on net tax liability i.e. after deduction of admissible ITC
• Finance Act (No. 2),2019 dated 01.08.2019
  Section 100 made an amendment to Section 50. The date was not notified.
• Telangana HC: Megha Engineering & Infra Ltd. dated 20.08.2019
  Interest to be levied on gross liability i.e. even on the amount available as ITC
• Madras HC: Refex Industries Ltd dated 06.01.2020
  Levy of interest on delayed payment is compensatory in nature. Interest-only on the net liability and not a gross liability.
• 39th GSTC meeting dated 14.03.2020
  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

Our view

•  The issue of interest whether to be charged on net cash liability or gross tax liability has seen many U-turns. 
• The government has notified 01.09.2020 as the date on which amendment to Section 50(1) will take effect even after the decision of 39th GST Council meeting that amendment to be made retrospective w.e.f. 01.07.2017. 
• It appears that the notification could not be made retrospective effect since 2(b) of the Finance Act (No. 2), 2019 provided that various sections including Section 100 “shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint”. In other words, the date could be only prospective, not retrospective.
• However, since the GST council has already decided, it appears there might be a subsequent amendment in Section 50 to make it retrospective. 
• But the question arises what will happen to the fate of cases till the actual decision of 39th GST council comes into force. Based on the decision of Refex Industries Ltd and past decision, a view can be taken that interest will be levied on net cash liability even without amendment in Section 50.

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