The 39th GST Council meeting made a much-needed correction by clarifying the interest for delay in GST payment would be charged on net cash tax liability and not gross tax liability. The announcement was made after the council meeting, saying the relevant law had been amended with effect from July 1, 2017, the day the GST came into force.
Net cash tax liability is arrived at after deducting the input tax credits available from gross tax liability. The retrospective amendment in the law gives a big sigh of relief to taxpayers and also averts several litigations in future.
Parag Mehta, Partner, NA Shah Associates LLP, said: "Substantial litigation was expected due to notices issued by the department to recover interest in case of late filing of GST returns on liability paid by utilising Input Tax Credit. The issue is now settled as GST council has proposed to charge interest only on the net amount, that is, cash liability and amend the law retrospectively. This will almost nullify the recovery notices for interest amounting to Rs 49,000 crore."
Though Central Board of Indirect Taxes and Customs (CBIC) had clarified earlier the interest would be charged on net tax liability, and that the law in this regard would be amended, it was believed that any amendment in the law would be applicable only in the future. The GST Council has now clarified the amendment would be applicable retrospectively.
Ritesh Kanodia, Partner, Dhruva Advisors, says: "The government has earlier taken a view that the amendment will be applicable prospectively. The demand notices were called before various high courts basis that credit available is equivalent to tax paid and interest is compensatory unpaid tax. In a welcome move, the council has made the amendment retrospectively from July 1, 2017, setting at rest any future litigation on the issue."
However, it is yet to be seen if excess interest paid will be refunded or not to taxpayers who have already paid the interest on gross amount.