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Interest on Net Tax Liability – Prospective or Retrospective?

Interest on Net Tax Liability – Prospective or Retrospective?

Interest provisions and Brief History

➢ Interest is on failure to pay the tax within the prescribed period

Section 49 – payment may be through cash/credit ledger

Megha Engineering (Telegana High Court) 

  • Allowed to utilize ITC once it enters the credit ledger 
  • Ownership with taxpayer till such entry 
  • Payment on gross tax liability

➢ Proviso inserted in 50(1) through Finance Act 2019 

  • Where return filed after the due date, interest payable on the portion payable through cash ledger only (except Section 73/74)

➢ 39th GST Council meeting on 14/03/2020 –to be retrospective

➢ Not. 63/2020-CT dtd 25/08/2020 – effective from 01/09/2020

Related Topic:
Tax Liability on Issue of Gift Vouchers.

Grounds for retrospective implications

➢Amendment which only clarifies the intent of the legislature is called as explanatory / declaratory statute

➢Reason for passing declaratory Act is to set aside what the Parliament deems to be a judicial error [Justice G.P. Singh]

➢Explanatory Act is to supply obvious omission and to clear up doubts as to the meanings of the previous Act – to apply retrospectively (Keshavlal Jethmal Shah vs. Mohanlal Bhagwandas – SC)

➢ Where legislature confers benefit on some person without detriment to some other person and such benefit is the legislator’s object, the presumption is that it would have a retrospective effect (Vatika Township – SC)

Other Defenses against gross tax liability

In Adjudication/Appellate process

➢Interest is compensatory in nature [Pratibha Processors (SC)]

➢Fault in the nature of return filing process

➢Credit availed in the books

➢Credit already available with Govt -Revenue neutral process

Direct Recovery u/s 75(12)

➢ Opportunity of being heard u/s 75(4)

➢ Amount payable(unless admitted) to be determined only after adjudication process [Mahadeo Construction (Jharkhand)]

➢ Quantification of interest cannot be by way of unilateral action [CGST v. Daejung Moparts Pvt. Ltd. and ors]

➢ Assessee can still produce material that there was no delay, so opportunity mandatory [LC Infra Projects (Karnataka)]

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Interest on Net Tax Liability – Prospective or Retrospective?

Profile photo of Shubham Khaitan Shubham Khaitan

Kolkata, India

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