Demand for interest payable on delayed payment of GST dues being raised on the Gross amount of tax payable

Demand for interest payable on delayed payment of GST dues being raised on the Gross amount of tax payable

One of the present acute problems being faced by many taxpayers is the flurry of demands being initiated by the GST departments of several states where demand

for interest payable on delayed payment of GST dues is being raised by the Department
on the Gross amount of tax payable before the availment of Input Tax Credit (ITC)

The Notice being sent by the Department looks like the one reproduced below after
modifying figures for secrecy


In terms of Section 50(1) of the CGST Act 2017, which has been reproduced below

Section 50(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 per cent., as may be notified by the Government on the recommendations
of the Council.

It is seen that you have paid the tax to Government after prescribed due dates
during FY 2018-2019 and thus interest on delayed payment has to be paid as per Section
50(1) of the CGST Act 2017. Detailed delay along with GST Paid and interest is as

GSTR 3B of the MonthTotal GST Paid


Delay in filing the Return (in days)Total Interest Due @18%
April 201816XXXXX00.00
May 2018000.00
June 2018000.00
July 20181870XXX00.00
August 201820735XX101022XX
September 2018000.00
October 2018191377XX194XX
November 2018000.00
December 2018204242XX1100XXX
January 201923843XXX00.00
February 201918556XX191XX
March 20191983XXXX29283XXX

You are advised to deposit the total interest as calculated above under appropriate
heads (CGST/SGST/IGST) for the respective periods immediately under intimation to
this office. In case the opportunity for voluntary compliance as suggested is not
availed, appropriate action for recovery of interest shall be initiated as per law.

If you have already remitted the interest, the payment particulars may be intimated
to this office through Email – [email protected]

You are also advised to verify the above provided details of delayed filing/total
liability/Interest calculated @18% etc. with your records and if any error/discrepancies
are noticed, the same may also be brought to notice of this office, urgently.

It is informed that the present CGST Act mandates to levy Interest on total GST
liability i.e. Cash & Input Tax Credit for delayed payment and the same has been
reiterated by the Telangana High Court in the case of M/s Megha Engineering & Infrastructures
Ltd. Vs. Commissioner of Central tax for Writ Petition No.44517 of 2018.

It is also informed that amendment to Section 50(1) of The CGST Act 2017 was
brought through Section 100 of The Finance (No.2) Act 2019 and as per Section 1(2)(b)
of The Finance (No.2) Act Sections 92 to 112 and section 114 shall come into force
on such date as the Central Government may, by notification in the Official Gazette,
appoint. The said amendment is yet to be notified and the same shall have prospective
effect as clarified by CBIC.


While the department is conveniently quoting the Telangana High Court Verdict
which was delivered before the amendment in the Finance Act, 2019 was proposed the
Madras High Court has quashed any attempts to levy interest on the gross amount
before availment of ITC stating that the Finance Act ,2019 has inserted a proviso
to Section 50(1) which is nothing but curative and clarificatory in nature and would
be applicable retrospectively meaning that Interest would be chargeable on the Net
amount after availment of ITC and not the gross amount vide M/S. REFEX INDUSTRIES
and 23108 of 2019 Dated: – 06 January 2020

The gist of the above judgement of the Honorable Madras High Court is as given

Levy of Interest on belated payments – Section 50 of CGST Act – whether in a
case, where credit is due to an assessee, payment by way of adjustment can still
be termed ‘belated’ or ‘delayed’?

  • HELD THAT: – The use of 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 the remittance of tax. The availability
    of ITC runs counter to this, as it connotes the 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.
  • The proper application of Section 50 is one where interest is levied on
    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, thus, neither belated nor delayed.
  • The proviso to Section 50(1), as per which interest shall be levied only
    on that part of the tax which is paid in cash, has been inserted with effect
    from 01.08.2019, but clearly seeks to correct an anomaly in the provision as
    it existed prior to such insertion. It should thus be read as clarificatory
    and operative retrospectively.
  • Petition allowed – Decided in favour of petitioner.

There are several judgements which state the same logic which has been put forth
by the Honorable Madras High Court stating that as the proviso seeks to correct
an anomaly in the provision the same should be read as clarificatory and operative

One such Supreme Court decision which clearly propounds this logic is as stated

Allied Motors (P) Ltd vs CIT (1997) 91 Taxmann 205 SC, the Hon’ble Supreme Court,
has held as under:-

“A proviso which is inserted to remedy unintended consequences and to make the
provision workable, a proviso which supplies an obvious omission in the section
and is required to be read into the section to give the section a reasonable interpretation,
requires to be treated as retrospective in operation so that a reasonable interpretation
can be given to the section as a whole”

What is not being understood in this context that if it was the intention of
the Legislature to collect interest on the Gross Tax amount there was no need for
the Finance Act, 2019 to bring in a proviso to Section 50(1) which cures an existing

Under the circumstances, it seems that the notices being issued by the Department
for collection of interest on the gross tax amount is totally illogical and being
done with sole intention of harassment of the taxpayer. It may also be an attempt
to boost collections to the extent possible by making such illogical demands

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