AMENDMENT TO THE FINANCE ACT, 2019
The Central Board of Indirect Taxes and Customs (CBIC), through Notification No. 63/2020 – Central Tax, dated 25.08.2020, has notified that the provisions of Section 100 of the Finance Act, 2019 (hereinafter referred to as “the Act”) shall come into force on 01.09.2020. CBIC was empowered under Section 1(2) of the Act to notify the date on which Section 100 shall come into force.
Section 100 of the Act provides for insertion of a proviso in Section 50 of the Central Goods and Service Tax Act, 2017 (hereinafter referred to as “the CGST Act”), in sub-section (1). The proviso states that:
“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.”
Through this Notification, Section 50 of the CGST Act shall be amended to include a proviso to the Section. Therefore, the interest payable on delayed payments of GST shall be applicable only on net cash liability, and not on gross liability.
CLARIFICATION ISSUED BY CBIC REGARDING APPLICABILITY
Further, the CBIC issued a Press Release dated 26.08.2020 clarifying that the above mentioned Notification shall have prospective application due to certain technical restrictions.
The CBIC, through the Press Release, assured taxpayers that the Central and State tax administration will not be making any recoveries in interest payable for the past period.
The sole reason was, as usual, the technical challenge alone to enforce it with retrospective effect.
IMPACT OF THE CLARIFICATION
Previously, Section 50 of the CGST Act was amended in 2019 to change the mode of interest levied on delayed GST payments to be on net basis and not gross.
However, the amendment did not clarify whether it would have a retrospective or prospective effect, which led to a confusion in the minds of taxpayers. This question has now been clarified by the Press Release but at the same Press release can neither override any Notification nor can bring any change which is not existing into the body of the notification itself.
The Press Release affirmed the decision taken by the Ministry of Finance in the 39th Meeting of GST Council on 14.03.2020 regarding interest on delayed payments of GST applicable on net cash tax liability only and not on gross tax liability.
However, the GST Council had declared that the law would be amended retrospectively to make the changes applicable w.e.f. 01.07.2017. The Notification and the Press Release issued by the CBIC are contradictory to the decision of the GST Council regarding the retrospective applicability of the interest payable for delayed GST payments.
The moot question which arises is that CBIC press release or even a circular would have no legal force in law in as much as only Notification airing such an amendment or clarification that the interest will be prospectively applied can be said to be valid in law.
Hence, it will be a grey area between the department and tax payers. The possibility of cropping up of these issues during audit cannot be ruled out in its entirety.
It is a trite law that if there is liability of any tax during any tax period and if it is not paid by the stipulated period of time, it will attract interest.Hence, there has to be an exclusion by virtue of a notification rather than a press release.