GST - IS IT FAIR?

In this fortnightly column, RAJEEV VARAIYA, partner at Varaiya & Shah LLP (Chartered Accountants) writes on the knotty subject of Goods and Service Tax

BACKGROUND:

Every revenue law provides for levy of interest whenever there is delay in payment of tax under the particular law. Such interest (arising out of delay in payment) is supposed to be calculated on that amount of tax which is required to be paid/deposited in Government treasury within prescribed date but paid after due date.

POSITION UNDER GST LAW: Let us consider the case of GST:

Suppose your gross GST liability for a particular period is Rs.80,000/- and you have legitimate claim of ITC (Input Tax Credit) of Rs.30,000/-, then your net liability is Rs.50,000/-. If you pay said Rs. 50,000/- after due date, then interest should be calculated on Rs.80,000/- or Rs.50,000/-?

Yes, it should be calculated on Rs.50,000/-. But GST department demands interest on Rs.80,000/-!!!

Shocked and surprised?

Recently, Ministry of Finance have issued letter addressed to all Commissioners of GST across the country, directing them to recover interest on gross dues in all cases where there was delay in payment. The letter further states that such interest (on gross dues) payable across the country is app. Rs.45,996/crores!!! And it further demands strict recovery action.

There are valid reasons to object to such interest to be calculated on gross dues:

An amendment has already been made saying that interest should be on net dues. But unfortunately, the effective date of amendment has not been notified (for reasons best known to Government!!!)

Government is relying on the decision of Telangana High Court which supports interest on gross dues.

But thereafter Madras High Court (after considering Telangana High Court decision) has clearly decided in January 2020 that interest should be on net dues only.

In all fairness, there is a cardinal principle that interest should be calculated only on that amount which the treasury has been deprived off. Considering our above example, treasury has been deprived off only Rs. 50,000/- (Rs.30,000/- being already with Government) and hence Government can and should claim interest only on Rs. 50,000/-.

CONSEQUENCES:

GST department has started issuing notices directing the assesses to pay interest or gross dues. Coercive steps of recovery are being threatened. Incidentally Gujarat High Court has already directed Government not to take any coercive steps for the purpose of recovery of interest. Karnataka High Court has ruled in July 2019 that such interest determined by Authority without issuing showcause notice is in breach of principles of natural justice.

In many cases, mistakes have been noticed in calculation of interest demanded by the GST department. But the department sticks to their figure and does not provide how calculation has been done.

As against this, GST refunds are issued after a long span of time.

My question to the Government, Hon. Prime Minister and Hon. Finance Minister:

Is this fair?

Where is the ease of doing business in India? Is this not contempt of Madras High Court?