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29 August 2020

Interest under GST to be charged on Net liability, i.e. cash portion only

Last year in 2019, GST department at mass scale, started recovery of interest on cash as well as ITC portion, i.e. gross tax liability from the taxpayers who filed their GSTR-3B with delay. This led to a litigation nationwide where it was the argued/debated that Interest must not be levied on gross tax liability (Cash as well as ITC portion) rather must be imposed on net tax liability (Cash portion).

An amendment, as proviso to Section 50 of CGST Act, 2019, to the effect that interest will be levied on net tax liability, i.e. cash portion only, was inserted in Finance Act, 2019 w.e.f. 01 August 2019 but the same was to be made applicable w.e.f. date to be notified later. Subsequently, GST council vide its 39th meeting held on 14 March 2020 clarified that this amendment in Section 50 must be brought retrospectively from 01 July 2017.

CBIC now vide Notification No. 63/2020 - Central Tax dated 25 August 2020, notified 01 September 2020 as the date on which proviso to Section 50 shall come into force.

This notification Releasesd by CBIC bringing provisions of Section 50 from a prospective date led to many speculations that the amendment which was discussed in GST Council meeting to be made effective retrospectively from 01 July 2017 has rather been inserted prospectively from 01 September 2020. This prospective amendment may result in interest being levied and recovered by GST department on both cash as well as ITC component during the period 01 July 2017 to 31 August 2020.

However, CBIC vide Press Releases dated 26 August 2020 has clarified that Notification No. 63/2020 - Central Tax dated 25 August 2020 relating to interest on delayed payment of GST was issued prospectively due to certain technical limitations and no recoveries shall be made for the past period by Central as well as State tax administration in accordance with the decision taken by the GST council vide 39th meeting.