Interest under Section 50 of the CGST Act can be levied on belated cash component of tax and not on Input Tax Credit.
Madras High Court: Dr Anita Sumanth, J., while allowing the present petitions and setting aside the impugned notices, and referring to the decision of Telangana High Court in Megha Engineeering and Infrastructures Ltd. v. Commr. Of Central Tax, (2019-TIOL-893), with regard to the interpretation of Section 50 of CGST Act, wherein it was stated that,
“Amendment to Section 50(1), was only at the stage of press release by Ministry of Finance at the time when division bench passed its order and thus stated that ‘unfortunately, the recommendations of the GST Council are still on paper. Therefore, we cannot interpret Section 50 in light of the proposed amendment’.”
Bench, however, stated that now the amendment stands incorporated into the Statute and comes to the aid of assessee.
In the present case, petitioners had filed Returns of Income belatedly for the period of 2017-18. Respondent 2 had issued the delay in filing of returns and consequently the interest to be remitted on the tax accompanying returns. Further, the demand notices were issued seeking to recover arrears of interest.
Petitioners had objected to the above submitting that they had sufficient Input Tax Credit (ITC) available with the Department and thus interest could be demanded, if at all, only on the cash component of the tax remitted belatedly.
Thus proceedings for coercive recovery of the interest are impugned in the present writ petitions.
Only issue agitated was the legal issue as to whether interest would at all be payable on the component of ITC that was, admittedly, available with the Department throughout and that has been adjusted towards the tax demands for period of August, 2017 to March, 2018.
Analysis & Decision of the Court
Bench noted that, according to the petitioners, Section 50 of CGST Act provides for levy of interest on belated payments would apply to payments of tax by cash, belatedly, and would not stand triggered in the case of available ITC, since such ITC represents credit due to an assessee by the Department held as such.
Court considered it important to understand what Section 50 talks about in order to decide the legal issue raised by the petitioners. Thus, the said Section provides for interest on belated payment of tax and such levy is ‘automatic’ and is intended to compensate the revenue for the remittance of tax belatedly and beyond the time frames permitted under law.
Proceeding to conclude its decision, the bench stated that the word ‘delayed’ connotes a situation of deprival, where the State has been deprived of the funds representing tax component till such time the Return is filed accompanied by remittance of tax. Availability of ITC runs counter to this, as it connotes enrichment of the State, to this extent.
Thus, Section 50 which is specifically intended to apply to a state of deprival cannot apply in a situation where the State is possessed of sufficient funds to the credit of the assessee.
Hence in Court’s view,
Proper application of Section 50 is one where interest is levied on a belated cash payment but not on ITC available all the while with the Department to the credit of the assessee. The latter being available with the Department is, neither belated nor delayed.
Court also added that availment and utilization of ITC are two separate events as both are subject to satisfaction of statutory conditions and it is always possible for an officer to reverse the claim if they are found to be untenable or not in line with the statutory prescription. Credit will be valid till such time it is invalidated by recourse to the mechanisms provided under the Statute and Rules.
Hence, proviso inserted to Section 50(1) which states that interest shall be levied only on that part of the tax which is paid in cash, was inserted with effect from 01-08-2019 but that seeks to correct an anomaly in the provision as it existed prior to such insertion. [Refex Industries Ltd. v. Sherisha Technologies (P) Ltd., Writ Petition Nos. 23360 and 23361 of 2019 & WMP Nos. 23106 and 23108 of 2019, decided on 06-02-2020]
