This means that tax authorities can levy interest on the gross tax liability of an assessee if there is any delay in tax payment.
The Telangana high court has rejected a writ petition challenging the imposition of interest on total goods and services tax liability including input tax credit, a ruling that has significant implications for industry.
This means that tax authorities can levy interest on the gross tax liability of an assessee if there is any delay in tax payment.
The GST Council had at its 31st meeting on December 22 recommended changing the law to provide that interest should be charged only on the net liability of a taxpayer, after taking into account the admissible input tax credit (ITC). The court declined to take into account the council’s decision because the law hasn’t been amended accordingly.
“…the claim made by the respondents for interest on the ITC portion of the tax cannot be found fault with. Hence, the writ petition is dismissed,” the court said.
“The decision of the Telangana high court seems contrary to the government’s intention and the practice which industry would have been following in general, as was followed during the erstwhile regime,” said Pratik Jain, national leader, indirect tax, PwC.
The council’s recommendations will become effective only after the state and Central GST acts are amended.
“With an adverse decision of the high court, the government may consider issuing immediate instruction/clarification to provide that no recovery proceedings should be initiated by any state government where the taxpayer had sufficient credit balance to discharge output GST liability, which shall be in line with the amendment proposed to Section 50 of the CGST Act,” Jain said.
Megha Engineering and Infrastructure, the petitioner, had filedthe petition after tax authorities asked it to pay interest on the input tax credit portion of the tax due. The petitioner submitted that the GST portal is designed not to accept returns in the GSTR-3B form unless the entire tax liability is charged by the assessee.
As a result, even if an assessee was entitled to set off liabilities against input tax credit to the extent of 95%, the returns could not be filed unless the remaining 5% was also paid.
There was a delay on the part of the petitioner in filing the returns. The petitioner submitted that the delay in filing the returns was also not huge.
The court said that until returns are filed as self-assessed, no entitlement to credit and no actual entry of credit in the electronic credit ledger takes place. It is only after a claim is made in the returns that it gets credited in the electronic credit ledger, it said.
Once payment is made from such electronic credit ledger, the government gets a right over the money available in the ledger.
Since ownership of such money is with the taxpayer till the time of actual payment, the government is entitled to interest up to the date of entitlement to appropriate it, the court said.
