Goods & Services Tax (GST) in IndiaInterest on Applicable on Late Filing of GST Returns Despite Payment from Credit Ledger

The Patna High Court, in the case of Sincon Infrastructure Pvt. Ltd Vs. The Union of India and Ors. [Civil Writ Jurisdiction Case No.11621 of 2023] decided on 19.04.2024, held that interest liability arises for delayed payments under the CGST Act, irrespective of the ledger used for payment.

FACTS

Sincon Infrastructure Pvt Ltd., (herein referred to as the “Petitioner”), is an assessee registered under the Central Goods and Services Tax Act, 2017 (herein referred to as the “CGST Act”). Department Audit was conducted and pursuant to the same a reply was filed by the Petitioner. The Proper Officer after considering the reply invoked Section 74 read with Section 65 (7) of the Act and issued a show cause notice for the Interest on late payment of Tax.

The Petitioner was aggrieved with the abrupt demand and recovery actions taken, especially considering that objections against the interest demand were not taken into account by the Proper Officer.

ISSUES BEFORE THE HIGH COURT

1. Whether the Credit due to an assessee, if paid by way of adjustment can still be termed belated or delayed?

2. The determination of interest liability under the CGST Act concerning payments made from the Electronic Cash Ledger and the Electronic Credit Ledger?

CONTENTIONS OF THE PARTIES

The Petitioner submitted that the Proper Officer failed to consider objections regarding the interest demand.

The Petitioner argued that interest determination under the Act depends on factors such as when the tax was due, payment timing, and the payment method. In the GST regime, interest imposition relies on whether the payment was debited from the Electronic Credit Ledger or the Electronic Cash Ledger.

Moreover, the Petitioner contended that Section 50(1) of the CGST Act imposes interest liability only when tax payment is debited from the Electronic Cash Ledger. The Repsondent explained that the Electronic Cash Ledger represents Input Tax Credit to the tax payer’s account, already remitted to the government by suppliers. As this amount is with the government, and the set-off towards output tax is a mere book adjustment, the Petitioner argued it exempts them from interest liability

Whereas, the Respondent argued that the proviso to Section 50(1) of the CGST Act allows for the imposition of interest only when the debit is made from a cash ledger, without prohibiting interest imposition when the debit originates from a credit ledger. The Respondent emphasized that regardless of whether the payment is made from the credit ledger or the cash ledger, tax payment occurs only upon filing the return, and any delay in this process incurs interest liability as per Section 50(1).

Furthermore, Respondent argued that the Proper Officer acted on the directives of the Monitoring Committee, the Respondent referred to Section 2(16) to highlight that the Central Board of Indirect Taxes and Customs, constituted under the Central Boards of Revenue Act, 1963, holds authority over the CGST Act.

The Respondent pointed out Section 168(1), which empowers the Board to issue instructions or directions. Based on this conferred power, the administrative officers of the department are obligated to adhere to such directives.

Additionally, the Respondent mentioned Rule 88B of the CGST Rules, 2017, which delineates the method of calculating interest on delayed tax payment. Sub-rule (1) of this rule closely mirrors the proviso to Section 50, further supporting the Respondent’s argument.

DECISION AND FINDINGS

The Hon’ble High Court emphasized that Section 50(1) and its proviso cannot be interpreted in isolation but must be considered in conjunction with other sections of the CGST Act, including sections 39, 41, 2(43), 2(46), and 49 of the CGST Act.

The High Court observed that interest liability on delayed GST returns is automatic, irrespective of whether payments originate from the Electronic Credit Ledger or the Electronic Cash Ledger, as outlined in Section 50(1) of the CGST Act. The Hon’ble Court highlighted the simultaneous requirement of tax payment and return filing, noting that input tax credit and subsequent tax payments from the Electronic Credit Ledger are contingent upon return submission. Thus, any delay in return filing results in a delay in input tax credit and subsequent tax payments to the government.

Addressing conflicting judgments , the Court favoured the perspective that tax liabilities are recognized only upon filing returns and debiting relevant ledgers. It stressed the significance of return filing in acknowledging input tax credit, which impacts interest liability for delayed returns.

Consequently, the Court rejected the Petitioner’s claim that the proviso of Section 50(1) mandates interest levy solely in cases of delayed return filing and payment from the Electronic Cash Ledger. It affirmed that interest accrues on delayed tax payments, as per Section 50(1), regardless of whether payment is made from the Electronic Credit Ledger or the Electronic Cash Ledger.

Regarding procedural aspects, the Court clarified that directives from a Monitoring Committee Meeting do not bind Proper Officers, emphasizing the non-delegable nature of the authority to issue instructions. The ruling underscored that interest for delayed filing accrues based on the statutory mechanism of return filing, which activates the tax and credit process under the CGST Act.

AMLEGALS REMARKS

The case revolves around the interpretation of Section 50(1) of the CGST Act, which governs interest liability for delayed tax payments.

One of the notable aspects of this case is the existence of conflicting judgments from different High Courts, particularly the Madras High Court. However, the Hon’ble Patna High Court leans towards a broader interpretation, emphasizing the automatic nature of interest liability for delayed returns, regardless of the ledger used for payment. This conflict underscores the need for a clear and uniform interpretation of statutory provisions across jurisdictions.

In addition to the substantive legal issues, the case also addresses procedural matters and the authority of the Monitoring Committee. The Court underscores that directives from such committees are not binding on Proper Officers, reaffirming the principle that the authority to issue instructions cannot be delegated. This underscores the importance of adherence to established procedures and statutory provisions in tax matters, ensuring consistency and fairness in tax administration.

The Hon’ble  Patna High Court’s decision in this case sets a significant precedent for the interpretation of interest liability provisions under the CGST Act.

– Team AMLEGALS assisted by Ms. Pragati Agarwal (Intern)