Page 23 - GSTL_7th May 2020_Vol 36_Part 1

INTEREST ON NET TAX LIABILITY UNDER GST —
RETROSPECTIVE AMENDMENT AND ITS CONSEQUENCES
By
CA Venkat Prasad P. and CA Ajay M.

Background
GST law provides for interest @ 18% on the remittance of the tax which is
paid after the due date. There was an ambiguity as to whether the interest has to
be paid on Gross Tax Liability (i.e., the total output tax) or on the Net Tax Liabil-
ity (the Tax liability to be paid in cash after adjusting the Input Tax Credit).
When the Department started demanding the interest on gross tax, the
same was challenged before various High Courts. The Hon’ble HC of Telangana
initially held that the interest has to be paid on Gross Tax Liability which matter
was subsequently reopened by admitting a review petition and the other HC’s
have granted an interim stay against recovery.
Meanwhile, the Government has enacted an amendment to clarify that
the interest is chargeable only on the net tax liability. However, the same has not
been notified as yet leaving room for confusion on its operation for past period.
The department started issuing notices/letters and initiated recovery proceed-
ings by attaching bank accounts to recover the interest directly from the Bank
accounts of the taxpayers. Further, the CBIC twitter handle has tweeted to say
that the aforesaid amendment will be prospective & till the amendment is made
effective the interest has to be paid on Gross Tax Liability. In this process, certain
taxpayers have filed writ petitions contesting the demands and got a stay while some tax-
payers paid/recovered by the revenue department.
Recently, the GST Council in its 39th Meeting has proposed for retro-
spective amendment to State that the interest will be paid only on the net tax lia-
bility. The statutory effect of the retrospective amendment is awaited.
Consequences and Course of Action
The proposed retrospective amendment is certainly a huge relief to the
taxpayers and avoids unnecessary disputes.
[Continued on page J16]
GST LAW TIMES  7th May 2020  23