Section 50 of GST – Interest on delayed payment of tax

Section 50 of GST – Interest on delayed payment of tax. Check GST Section 50 In this section you may find all details for Interest on delayed payment of tax as per GST Act 2017Detailed Analysis of GST Section 50 of GST Act 2017 – Interest on delayed payment of tax. This Act may be called the CGST Act, 2017.

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Section 50 of GST – Interest on delayed payment of tax

(1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall, for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent, as may be notified by the Government, on the recommendation of the Council.

Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is paid by debiting the electronic cash ledger.

The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which tax was due to be paid.

(3) A taxable person who makes an undue or excess claim of input tax credit under subsection (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty four per cent, as may be notified by the Government on the recommendations of the Council

Related provisions of the Statute

Section or RuleDescription
Section 2(62)Definition of Input Tax
Section 2(82)Definition of Output Tax
Section 2(94)Definition of Registered Person
Section 2(97)Definition of Return
Section 2(117)Definition of Valid Return
Section 9Levy and Collection
Section 16Eligibility and Conditions for Taking Input Tax Credit
Section 17Apportionment of Credits and Blocked Credits
Section 39Furnishing of Returns
Section 42Matching, reversal and reclaim of input tax credit
Section 43Matching, reversal and reclaim of reduction in output tax liability
Section 77Tax Wrongfully Collected and Paid to Central or State Government
Section 19 (IGST)Tax Wrongfully Collected and Paid to Central or State Government

Analysis and Updates

Introduction

This section lays down the provisions for payment of interest under the Act for delayed payment of tax.

Analysis

Section 50 of CGST Act makes it mandatory for a tax payer to pay interest on belated payment of tax i.e. when he fails to pay tax (or any part of tax) to the Government’s account within the due date/s.

Interest – When Payable

Interest under section 50 of CGST Act is payable in the following three circumstances

  1. Sub-section (1):period for which there is a delay in payment of tax, in full or in part
  2. Sub-section (3): Undue or excess claim of input tax credit under section 42 (10) contravening the provisions of section 42(7)
  3. Sub-section (3): Undue or excess reduction in output tax liability under section 43 (10) contravening the provisions of section 43(7)

It may be recalled that –

  • (a) section 42 (10) CGST/SGST Act deals with contravention of provisions for matching of claims for input tax credit by a recipient and
  • (b) section 43 (10) CGST/SGST Act deals with contravention of provisions for matching of claims for reduction in output tax liability by a supplier

Section 42(7) and 43(7) only deals with discrepancies in matching of credits & reduction in output tax liability against credit notes issued, between a supplier / recipient. All other discrepancies that do not relate to matching would attract interest at the higher rate of 24%.

For instance if the supplier discloses output taxes in respect of a particular invoice – say after the 30th of September (which is technically the due date for taking of all credits) then the recipient would not be in a position to avail the entire credit in the first place while the supplier would need to pay the output taxes as well as interest. In this situation what would be the rate of interest – 18% pa or at 24% pa. The readers may debate this issue

Rate of Interest

S. No.CGST Act, 2017
Sections
Section descriptionRate of interest
150(1)Failure to pay tax or part thereof to the Government within period prescribed18%
250(3)For undue or excess claim of ITC or reduction of output tax liability24%
354(12)Interest on withheld refund6%
456Interest on delayed refunds6%
5Proviso to 56Interest on refund arising from order passed by Adjudicating Authority/ Appellate Authority/ Tribunal/ Court and not refunded within 60 days9%

Manner of Computation of Interest

1. The manner of computation of period for which interest under sub-section (1) or subsection (3) is to be paid has not been addressed in the Rules. Generally, the period of interest shall be from the date following the due date of payment to the actual date of payment of tax. Payment of tax as per rule 85(3) be considered only when electronic cash ledger or electronic credit ledger of the registered person is being debited. Mere, credit entry in cash ledger or credit ledger will not tantamount to payment of tax.

It may be noted that Section 39 (7) lays down the last date for remittance, as the last date on which the taxable person is required to furnish such return. Also, Section 2 (117) lays down that a return shall be considered valid, only if the tax payable as per the return is paid in full.

2. Sections 73 (5) & 73 (6) provide that if the tax along with interest has been paid, the adjudicating authority shall not serve any show cause notice.

3. Section 73 (8) provides that where a person has been served with show cause notice but has made the payment of tax and penal interest under Section 50 within thirty days of issue of notice, no penalty is payable and all proceedings in respect of that tax amount are deemed to be concluded. The issue is – whether interest is payable u/s 50(1) or 50(3).

4. On a conjoint reading of Sections 50 (1), 73 (5), 73 (6) and 73 (8) of the Act, it is evident that where a person makes a voluntary payment of interest along with belated payment of tax whether admitted on his own or within thirty days from the date of issue of show cause notice, then the proceedings are deemed to be concluded and no penalty is leviable.

Other Important Points to Note

  1. The term ‘tax’ here means the tax payable under the Act or Rules made thereunder.
  2. The phrase ‘on his own’ used in sub-section (1) indicates that such payment of interest should be made voluntarily (i.e.) even without a demand.
  3. There are no specific provisions for payment of interest on the interest amount due.
  4. The interest payable under this section shall be debited to the Electronic Tax Liability Register as per sub Rule 1 of Rule 85
  5. Such liability for interest can be settled by adjustment with balance in Electronic Cash Ledger but not with balance in Electronic Credit Ledger

Issues and Concerns:

  • (i) Unlike Central Excise or Service Tax Law, where interest was to be paid only when CENVAT Credit was availed and utilised incorrectly. In a GST regime availing of incorrect input tax credit is sufficient cause to attract the provisions of liability to pay interest. However, due to deferment of GSTR 2 and GSTR 3, section 50(3) may not become operational to demand interest on ineligible credit availed but not utilized.
  • (ii) Further, due to section 50(2) stating that the ‘manner of computation is to be prescribed’ some experts hold the view that until any method is prescribed; merely prescribing the rate of interest would not suffice to demand interest.
  • (iii) When there is change in the value of input tax credit (common credit) to be reversed to the extent it relates to exempt turnover on the basis of amounts calculated finally at the end of the financial year is liable to interest immediately from first day of subsequent financial year, whereas Central Excise Act, 1944, Finance Act 1994 read with CENVAT Credit Rules, 2004 allowed time for reversal without interest upto 30.06 of the subsequent financial year.
  • (iv) In previous law amount credited to PLA or paid by challan was considered to be a payment of tax and interest is payable till the amount is paid through challan. In GST interest is to be paid till the electronic cash or electronic credit ledgers are not debited.
  • (v) The amendment to Section 50(1) by Finance Act, 2020 and subsequent announcements by GST Council in March 2020 one can expect retrospective changes in Interest in terms of it being applicable only on the net liability. But one has to wait till the legal changes are carried out as well as notified.

Comparative Review

  1. This provision is similar to that in service tax and excise laws. In the case of VAT laws, if the payment of tax and interest is after issuance of show cause notice, it is at the discretion of the adjudicating authority to drop the penalty. Some State VAT laws have mandatory penalty provisions.
  2. The view laid down by the Hon’ble Supreme Court in [Prathibha Processors v. UOI (1996) 11 SCC 101] that interest is automatic as it is compensatory in nature and not penal in character, holds good even under the subject Act.

Frequently Asked Questions

When is a person liable to pay interest?

When a person who is liable to pay tax under the provisions of the Act or the respective rules made thereunder, fails to pay the whole/ part of the tax due, to the account of the Government, within the prescribed time, he shall be liable to pay interest.

How is the interest computed?

Interest is computed for the period for which the tax remains unpaid at the notified rate not exceeding 18%, i.e., from the date following the day on which tax becomes due to be paid, till the date of payment of tax.

Is penalty still payable if a person pays the tax and interest as per show cause notice?

Where the person has made payment of tax and interest under Section 50 within thirty days of issue of the show cause notice, no penalty is payable and all proceedings in respect of that tax amount is deemed to be concluded.

Is interest leviable on excess reduction of reduction of Output tax liability?

Yes, interest is also leviable where there is undue or excess reduction in output tax liability under section 43 (10) of CGST Act at the rate of 24% per annum.

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Latest Comments

  1. Tax collected for a period is 100/-.
    Input Tax Credit for the period is 120/-.
    Return is filed late.
    On what amount is Interest levied?

    Reply

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