Even after completion of five years of GST laws implementation in India, still, things getting evolved. And, this evolution is in such manner that after five years, it is being imposed/applied with retrospective effect from very first day of implementation of original law. If a provision comes into law for the benefit of society at large, then, such provision is humbly accepted by the stakeholders.
However, if a notching provision comes into law after five years for which nobody even expects about and have imposed from back date, then, it is a big slap on society. Further, it also diminish the faith and credibility endangering sustainability of a person in such environment.
Recently, on 05th July 2022, CBIC has issued a notification No. 14/2022 amending CGST Rules, 2017, whereby, it has brought up a new rule no. 88B with title as “Manner of calculating interest on delayed payment of tax”. This rule has been inserted with effect from 01st July 2017 (i.e. date of implementation of GST).
After reading this rule, you definitely need to check what you did in past 5 years, and, how to avoid mistakes to be saviour from the provisions of this rule.
This rules comes with three sub-rules providing manner of calculation of Interest in different scenarios :-
- Sub-Rule (1) : Where Tax Invoice (for sale) reported in return of same tax period to which it belongs to.
- Sub-Rule (2) : Where Tax Invoice (for sale) reported in return of later tax period(s) to which it does not belongs to.
- Sub-Rule (3) : Where ITC availed wrongly and also utilized the same for settling liability under GST.
We will first discuss Sub-Rule (2) which we consider as Notching Provision being slapped after 5 years of implementation of law.
It provides that where a person has issued a Tax Invoice for his outward supply and forget to report it (intentionally/unintentionally) in the tax return of its relevant tax period, And, later on, he comes to know about the same and file it in return of such later period, the interest shall be calculated on the whole amount of Tax even if there is sufficient ITC available in Electronic Credit Ledger to settle the whole liability.
Here, interest shall be calculated on Gross amount of Tax at the rate as prescribed from the due date of return for its relevant tax period to the date of payment of tax in return of later period.
for example : In July 2018, a person has issued a tax invoice of Rs 5,00,000/- plus Tax of Rs 90,000/-. He forget to report/pay tax for the same in GSTR-3B of July 2018. Later on in December 2018, he comes to know that the invoice is pending to file and he file it in GSTR-3B of December 2018 on 20/01/2019. He has sufficient ITC balance in E-credit ledger to settle all his liability of output tax of December 2018 and he settle the same through ITC. In this case, while filing return of December 2018, he has additional liability of Interest @ 18% p.a. on Rs 90,000/- for the number of days counted from 20/08/2018 to 20/01/2019.
Till date, it was the understanding that there is no interest on late filing of return/invoice unless tax is paid in cash. However, it comes to a new thought that there is an interest liability on gross amount where liability of one tax-period reported through return of another tax period. Even if, there are ITC carry forwards from the same tax period for which invoice belongs to. Even if, there is a genuine case where sale invoice for supply of service is issued in first tax period, but the purchase bill received from vendor in next month.
The interesting thing is that the provision is applicable with effect from 01/07/2017.
Sub-Rule (1) : Where Tax Invoice (for sale) reported in return of same tax period to which it belongs to.
Sub-Rule (1) provides that, in case, where the supplies made during a tax period are declared by the registered person in the return for the said period and the said return is furnished after the due date in accordance with provisions of section 39, the interest on tax payable in respect of such supplies shall be calculated on the portion of tax which is paid by debiting the electronic cash ledger, for the period of delay in filing the said.
This is a favorable provision and it is also brought up w.e.f. 01/07/2017.
However, where a return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, then, interest shall be calculated on Gross Tax liability even if such liability pay by debiting Electronic Credit Ledger.
Sub-Rule (3) : Where ITC availed wrongly and also utilized the same for settling liability under GST.
In case, where interest is payable on the amount of input tax credit wrongly availed and utilised, the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub-section (3) of section 50.
Here, Input tax credit wrongly availed shall be construed to have been utilised, when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilisation of input tax credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.
The date of utilisation of such input tax credit shall be taken to be :
(a)the date, on which the return is due to be furnished under section 39 or the actual date of filing of the said return, whichever is earlier, if the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, on account of payment of tax through the said return; or
(b) the date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, in all other cases (like payment through DRC-03, adjustment of ITC for Refund)