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28th April 2019

Interest applicable on Gross Liability (including ITC portion), if GSTR-3B is filed late

 question was raised in the writ petition filed by M/s Megha Engineering & Infrastructures Limited in the High Court for the State of Telangana, Hyderabad wherein the issue raised was whether interest on the ITC portion of the tax paid would be payable as per the provision of Section 50(1) of the CGST Act'2017?

The petitioner is engaged in the manufacture of MS pipes and in execution of infrastructure projects and were unable to file the returns for the period July'2017 to May'2018, due to shortage of funds. When the said returns were filed, the petitioner deposited the total tax liability by way of ITC available and the shortfall by way of cash along with interest @ 18% calculated on the Net tax liability (i.e. amount paid through Electronic Cash Ledger).

However, Superintendent of the Central Tax issued letters demanding interest @ 18% on the total tax liability including the portion which was adjusted through input tax credit. In response to the same, the petitioner filed writ petition no. 44517 of 2018.

Major Observations of the Court

As per the provisions of section 41(1), input tax credit becomes available for utilisation for payment of tax only on filing of returns. Once it is determined that the payment can be made either by way of cash or out of credit in electronic credit ledger, the date of payment of both becomes significant for determining the liability to pay interest.

Until a return is filed, no entitlement of credit in the electronic credit ledger takes place. It is only after a claim is made in the return; the credit entered in the electronic credit ledger can be used for making the payment.

Further as per the provision of Section 50(1) the liability to pay interest is in respect of the period for which the tax remains unpaid.  It was observed in the said judgment that the Government gets right over the money available in the Electronic Credit Ledger only when the payment is made. Since the ownership of money is with the dealer till the time of actual payment, the Government becomes entitled to interest as per the provision of Section 50(1) up to the date of entitlement.


In view of the above observation, it was held that the claim of the petitioner for interest on the net tax liability was found faulty i.e. tax is payable on gross amount charged irrespective of ITC available.

It is pertinent to note here that the recommendation given by the GST Council in its 31st Meeting that the interest should be charged only on the net tax liability i.e. only on the amount payable through the electronic cash ledger was not taken into consideration by the learned Counsel as no notification/amendment was issued in this respect.