JANUARY 17, 2020

By Abhijit Saha

THERE is something peculiar happening with respect to Section 50 of the CGST Act. This section deals with interest on delayed payment of tax. The relevant portion is reproduced below for ease of reference:

Section 50. 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 percent., as may be notified by the Government on the recommendation of the Council.

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

(3) …

It is evident from above that the word  tax  has not been defined in the above section 50. So, it can be gross amount of tax or the net amount of tax. It is a matter of interpretation since the statute does not clarify. So, there is a room for interpretation. There was ambiguity as to whether interest is to be charged on gross amount of tax payable or the net amount of tax payable. The ambiguity was appreciated and admitted by the GST Council and accordingly the amendment of the of Section 50 of the CGST Act approved, to provide that interest should be charged only on the net amount of tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e. interest would be leviable only on the amount payable through the electronic cash ledger.  

The Government brought in this amendment in the Budget, 2019 which was enacted as the Finance Act (2) of 2019 on 1st August 2019. This Finance Act by Section 100 inserted the following proviso in Section 50(1) of the CGST Act.

"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".

So far so good. Now the problem comes. The above proviso would be effective from the date to be notified by the Central Government. Such notification has not yet been done. Hence, it is not yet effective. So, what will happen now? Should the tax payer pay interest on gross amount of tax or net amount of tax?

It is a settled position of the law that if the amendment of the law is clarificatory in nature, then it would have retrospective effect. But what would happen if the clarificatory law has not seen the light of the day? The present situation is fluid because the provision of Section 50 is not clear. The proviso to section 50 is enacted as law but the same is not effective till date. Central Government has not justified as to why the said enactment is not given effect to. It is causing immense hardship and confusion to the taxpayers at large. That is why the author has said in the beginning that something peculiar is happening with respect to Section 50 of the CGST Act.

Since the amendment is clarificatory in nature, if made effective, it would have retrospective effect. So, even if it is not made effective, the legislative intent is loud and clear that it is meant to be effective retrospectively. Hence by reasonable implication and permissible inference, it may be concluded that now, during the fluid situation, the interest is payable on the net amount of tax payable. Any other interpretation would negate the legislative intent and purpose. Also, if the interest is not calculated now on the net amount of tax payable, then once, the amendment is made effective, its retrospective effect would warrant a re-calculation of the interest amount which is payable now and unnecessary refund claim would increase the workload of both the taxpayer as well as the Department.

In passing, the author wants to raise the following questions as food for thought -

(i) Is there any time limit for the government to notify the effective date?

(ii) If the effective date is not notified at all, does it violate any provision of any law?

(The views expressed are strictly personal)