Sec 50 – Interest on delayed payment of tax

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Sec 50 – Interest on delayed payment of tax 2017-04-14T14:57:34+00:00

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  • Ashish BadalaCA Ashish Badala
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    (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.
    (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) A taxable person who makes an undue or excess claim of input tax credit under sub-section (10) of section 42 or undue or excess reduction in output tax liability under sub-section (10) of section 43, shall pay interest on such undue or excess claim or on such undue or excess reduction, as the case may be, at such rate not exceeding twenty-four per cent., as may be notified by the Government on the recommendations of the Council.

    Priya MadrechaPriya Madrecha
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    50.1    Introduction
    This section lays down the provisions for payment of interest under the Act for delayed payment of tax.
    Provisions which are common under CGST (UTGST) and SGST Act have been analyzed hereunder.
    50.2    Analysis
    Section 50 of CGST Act makes it mandatory for a tax payer to pay interest on belated payment of tax i.e. when he fails to pay tax (or part of tax) to the Government’s account within the due date.
    50.2.1 Interest – When Payable
    Interest under section 50 of CGST Act is payable in the following three circumstances
    1.    Sub-section (1) : Delay in payment of tax, in full or in part
    2.    Sub-section (3) : Undue or excess claim of input tax credit under section 42 (10)
    3.    Sub-section (3) : Undue or excess reduction in output tax liability under section 43 (10)
    It may also be recalled that –
    a)    section 42 (10) CGST/SGST Act deals with contravention of provisions for matching of claims for input tax credit by a recipient and
    b)    section 43 (10) CGST/SGST Act deals with contravention of provisions for matching of claims for reduction in output tax liability by a supplier
    50.2.2 Rate of Interest
    The actual rate of interest shall be notified by the Government on a future date on the basis of recommendation of the council. However, such rate to be notified shall not exceed –
    1.    Eighteen percent in the case of tax dues as per sub-section (1)
    2.    Twenty-four percent in case tax dues as per of sub-section (3)
    50.2.3 Manner of Computation of Interest
    1.    The manner of computation of period of interest under sub-section (1) or sub-section (3) has not been addressed in the Revised Draft Rules. It is hence expected that it may be included in the final version of the Rules or may be notified by the Government on a future date, based on the recommendation of the Council. The period of interest shall be from the date following the due date of payment to the actual date of payment of tax.
    2.    Where the tax admitted by the taxable person in his return has not been deposited along with the returns, interest is leviable immediately on the payment of the admitted tax.
    It may be noted that, Section 39 (7) lays down the last date for remittance as the last date on which the taxable person is required to furnish such return. Also, Section 2 (117) lays down that a return shall be considered valid only if the tax payable as per the return is paid in full.
    3.    Section 73 (5) & 73 (6) provide that if the tax along with interest has been paid, the adjudicating authority shall not serve any show cause notice.
    4.    Section 73 (8) provides that where a person has been served with show cause notice but has made the payment of tax and penal interest under Section 50 within thirty days of issue of notice, no penalty is payable and all proceedings in respect of that tax amount are deemed to be concluded.
    5.    Thus from a conjoint reading of Section 50 (1), 73 (5), 73 (6) and 73 (8) of the Act, it is evident that where a person makes a voluntary payment of interest along with belated payment of tax whether admitted and on his own or within thirty days from the date of issue of show cause notice, then the proceedings are deemed to be concluded and no penalty is leviable.
    50.2.4 Other Important Points to Note
    1.    The term ‘tax’ here means the tax payable under the Act or Rules made thereunder.
    2.    The phrase ‘on his own’ used in sub-section (1) indicates that such payment of interest should be made voluntarily (i.e.) even without a demand.
    3.    There are no specific provisions for payment of interest on the interest amount due.
    4.    The interest payable under this section shall be debited to the Electronic Tax Liability Register as per Rule 1 (1) of Draft Payment of Tax Rules
    5.    Such liability for interest can be settled by adjustment with balance in Electronic Cash Ledger but not with balance in Electronic Credit Ledger
    50.3  Comparative Review
    1.    This provision is similar to that in service tax and excise laws. In the case of VAT laws, if the payment of tax and interest is after issuance of show cause notice, it is at the discretion of the adjudicating authority to drop the penalty. Some State VAT laws have mandatory penalty provisions.
    2.    The view laid down by the Hon’ble Supreme Court in [Prathibha Processors v. UOI (1996) 11 SCC 101] that interest is automatic as it is compensatory in nature and not penal in character, holds good even under the subject Act.
    50.4  FAQ
    Q1.     When is a person liable to pay interest?
    Ans. When a person who is liable to pay tax under the provisions of the Act or the respective rules made thereunder, fails to pay the whole/ part of the tax due, to the account of the Government, within the prescribed time, he shall be liable to pay interest.
    Q2.     How is the interest computed?
    Ans. Interest is computed for the period for which the tax remains unpaid at the notified rate, i.e., from the date following the day on which tax becomes due to be paid, till the date of payment of tax.
    Q3.     Is penalty still payable if a person pays the tax and interest as per show cause notice?
    Ans. Where the person has made payment of tax and interest under Section 50 within thirty days of issue of the show cause notice, no penalty is payable and all proceedings in respect of that tax amount is deemed to be concluded.
    Q4. Is interest leviable on excess claim of Input Tax Credit or undue claim of Input Tax Credit?
    Ans. Yes, interest is also leviable where there is undue or excess claim of ITC under Section 42 (10)
    Q5.     Is interest leviable on excess reduction of reduction of Output tax liability ?
    Ans. Yes, interest is also leviable where there is undue or excess reduction in output tax liability under section 43 (10).
    Q6.     Is a show cause notice or demand required to determine the liability to pay interest?
    Ans. No, there is no requirement of demand from the department to determine the interest liability. It is the responsibility of the person liable to pay tax to compute and pay the interest ‘on his own’.
    50.5  MCQ
    Q1.     Interest is payable on :-
    (a)    Belated payment of tax
    (b)    Undue/excess claim of Input Tax Credit.
    (c)    Undue/Excess reduction in output tax liability
    (d)    All of the above Ans. (d) All of the above
    Q2.     Interest is calculated :-
    (a)    From the date following the day on which tax becomes due to be paid
    (b)    Last day such tax was due to be paid
    (c)    No periods specified
    (d)    None of the above
    Ans. (a) From the date following the day on which tax becomes due to be paid

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