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Prejudicial Interest Liability U/s 50 On ITC Standing To The Credit Of Electronic Credit Ledger

INDIRECT TAX / CA. HARDIK JIVRAJBHAI KAKADIYA 13 February 2019

Ref: CAAS/Representations/2018-19/06                                                     Date: 13/02/2019

 

To,

The Chairman,

Central Board of Indirect Taxes & Custom,

The Ministry of Finance,

New Delhi - 110001

 

Sub.: Prejudicial Interest liability u/s 50 on ITC standing to the credit of Electronic Credit Ledger

 

Respected Sir,

 

Namaskaram from Chartered Accountants Association, Surat. As a part of its objectives, Chartered Accountant’s Association, Surat, a non-profit organization, works for the betterment of Chartered Accountancy profession, more specifically with respect to softer issues like better working conditions and standards for members of Chartered Accountancy profession, through representation like this. The present representation concerns around the prejudicial and vicious interest liability u/s 50 on Input Tax Credit (ITC) standing to the credit of Electronic Credit Ledger, which is causing hardship for stakeholders.

 

As per our previous representations, we had re-iterated about the utter mechanical approach of GST Law, which does not take into account that it is being applied on human beings. Firstly, the late fees were so unbearable, that a suitable modification had to be suggested by the GST Council to relax the same. However, recently, it is proved that GST Law is in fact still law of machines and not meant for human beings who may err in delaying the filing of returns (whether due to illness, marriages, death, inability, paucity of funds or other reasons).

 

Our Honorable Finance Minister, Shri Arun Jaitleyji while addressing the 67th batch of Indian Revenue Service (IRS) Officer in October 2017, advised as follows:

“You officers don’t have to extort taxes from those not liable to pay… as tax people, you are not entitled to invite fear. You have to invite respect that you are somebody who wants people to comply with national duty.” 

 

A recent “Standing Order” No.01/2019 [C.No: IV/16/32/2019–CT (Tech.)] (Copy Enclosed) issued by the Principal Commissioner of Central Tax, Hyderabad on 04-02-2019, instructs GST Tax Officials and field formation Officers to dig out cases of late filing of returns, where asseseees has paid interest only on the net tax liability of GST and further instructing to issue recovery notices u/s 79 of CGST/SGST Act in all such cases where interest on the ITC Component of overall tax liability is not paid, arising or accruing due to late filing of GSTR-3B returns.

 

This “Standing Order” was issued without any regards to the already made announcement of the outcome of the 31st GST Council duly declared through press release dt.22-12-2018, that suitable amendment in section 50 of the CGST Act is to be made to provide that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e.  interest  would  be  leviable  only  on  the  amount  payable  through  the electronic cash ledger.

It is pertinent to note that Sec.50 states as follows:

50. Interest on Delayed Payment of Interest

(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.”

Our Representation

1.       It is clear that the intention of the policy makers is to clarify the ambiguity which emerged out of unclear term of word "Unpaid" u/s Sec.50 of CGST Act, 2017. Now, when the policy makers are accepting a literal mistake which resulted into an illogical confusion which has no place in a sane world, recommendations of the 31st GST Council meeting w.r.t. suitable amendment of Sec.50 are most welcome. These recommendations are mere minutes until they are converted to actionable law. Until such time, when the existing machinery makes a mockery of the overall sane and justifiable idea by issuing "Standing Orders", the very purpose of the GST Council recommendations is defeated. Hence, we demand that appropriate notification be issued to give effect to the recommendations of the 31st GST Council meeting, which all stakeholders carefully listen in anticipation and with high regards.

 

2.       Since, it is evident that an inadvertent mistake had been left out in the loose wordings of Sec.50, and the fact of such mistake is duly acknowledged by the 31st GST Council meeting favouring the tax payers, we demand that a suitable notification be issued to safeguard the interest of the stakeholders, with a retrospective effect duly amending of Sec.50 of CGST Act, so that taxpayers rightfully pay for their delayed behaviour, non magis quam culpa.

 

3.       Further, there seems to be a logical problem into the thinking of the department, when such "Standing Orders" treat interest as a right, even before it has accrued or become due. Such thinking may well remind us all of the infamous "Sahukaars", in whose vicious circle, the fate of ordinary men usually ended during the pre-independence era. The dire desire of the department to earn interest out of the balance of ITC which is already in credit of the its own Government Treasury, is in no way justifiable, and even may not be acceptable to the most unscrupulous businessmen.

 

4.       It is a well-accepted fact that the balance of ITC remaining in the Electronic Credit Ledger is lying in the Government Treasury in the safe hands of the Government and which is already paid by the tax payers in advance. If due to late filing of GSTR-3B return, an incidence of levy of interest takes place, a grave question arises as where does the monies of ITC lying in the Government Treasury paid by tax payers in advance, in the form of ITC, really go.? Thus, such portion of demand of any person represented by its ITC lying in the electronic credit ledger should never attract interest as the same is not logical and against the spirit of law. Hence, we demand cancellation of "Standing Orders" like the ones enclosed with this letter.

 

5.       Delay in filling of monthly return is a mere procedural lapse/ technical breach and as a consequence, tax payers should not be punished. Further the taxpayers are already subjected to various penalties for the delay in filing return in Form 3B. Provisions of Sec.50 can be interpreted in both ways. But, any interpretation creating additional interest liability for any sum of monies already available to the credit of Government can be termed as "Vicious" - Deliberately cruel and hurtful.

 

6.       Honorable Supreme Court in case of MCFL V/S DCCT 1 SCC 21(1992) while laying down the principal for interpreting the provision of law stated: “Distinction should be made between the provisions of the Statute, which are substantive in character and those which are merely procedural & technical, consistent with the specific objective of the policy."

 

7.       Interest is levied whenever there is delay in recovery of tax due to the government. However, when any sum of monies represented as ITC are already available to the credit of the Government, then there is no loss of revenue or delay in collection of tax wherever GST liability is settled with balance in credit ledger since to the extent of credit balance, tax is not payable in cash.

 

8.       We demand that your GST Officials and Field Formation Officers may be appropriately guided, and instructed, to carry out productive tasks of increasing revenue, beneficial to the nation, instead of reading between the lines of law and creating an environment of tax terrorism.

 

We hope the above representation would have enlightened your good self in appraising the adverse situation faced by the stakeholders, and inspired your good self to take some remedial action in the aforesaid matter at the earliest on priority.

 

Thanks & Regards,

For Chartered Accountants Association, Surat.

 

 

Chairman – Indirect Tax Committee   |  Secretary

Copy to: -

(1)    Finance Minister,

Ministry of Finance,

134, North Block, New Delhi – 110011.

 

(2)    Secretary (Revenue),

128/A, North Block, New Delhi – 110001

 

(3)    GST Council Secretariat,

Tower II, 5th Floor, Jeevan Bharti Building, New Delhi – 110001

Ref: CAAS/Representations/2018-19/06                                                     Date: 13/02/2019

 

To,

The Chairman,

Central Board of Indirect Taxes & Custom,

The Ministry of Finance,

New Delhi - 110001

 

Sub.: Prejudicial Interest liability u/s 50 on ITC standing to the credit of Electronic Credit Ledger

 

Respected Sir,

 

Namaskaram from Chartered Accountants Association, Surat. As a part of its objectives, Chartered Accountant’s Association, Surat, a non-profit organization, works for the betterment of Chartered Accountancy profession, more specifically with respect to softer issues like better working conditions and standards for members of Chartered Accountancy profession, through representation like this. The present representation concerns around the prejudicial and vicious interest liability u/s 50 on Input Tax Credit (ITC) standing to the credit of Electronic Credit Ledger, which is causing hardship for stakeholders.

 

As per our previous representations, we had re-iterated about the utter mechanical approach of GST Law, which does not take into account that it is being applied on human beings. Firstly, the late fees were so unbearable, that a suitable modification had to be suggested by the GST Council to relax the same. However, recently, it is proved that GST Law is in fact still law of machines and not meant for human beings who may err in delaying the filing of returns (whether due to illness, marriages, death, inability, paucity of funds or other reasons).

 

Our Honorable Finance Minister, Shri Arun Jaitleyji while addressing the 67th batch of Indian Revenue Service (IRS) Officer in October 2017, advised as follows:

“You officers don’t have to extort taxes from those not liable to pay… as tax people, you are not entitled to invite fear. You have to invite respect that you are somebody who wants people to comply with national duty.” 

 

A recent “Standing Order” No.01/2019 [C.No: IV/16/32/2019–CT (Tech.)] (Copy Enclosed) issued by the Principal Commissioner of Central Tax, Hyderabad on 04-02-2019, instructs GST Tax Officials and field formation Officers to dig out cases of late filing of returns, where asseseees has paid interest only on the net tax liability of GST and further instructing to issue recovery notices u/s 79 of CGST/SGST Act in all such cases where interest on the ITC Component of overall tax liability is not paid, arising or accruing due to late filing of GSTR-3B returns.

 

This “Standing Order” was issued without any regards to the already made announcement of the outcome of the 31st GST Council duly declared through press release dt.22-12-2018, that suitable amendment in section 50 of the CGST Act is to be made to provide that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e.  interest  would  be  leviable  only  on  the  amount  payable  through  the electronic cash ledger.

It is pertinent to note that Sec.50 states as follows:

50. Interest on Delayed Payment of Interest

(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.”

Our Representation

1.       It is clear that the intention of the policy makers is to clarify the ambiguity which emerged out of unclear term of word "Unpaid" u/s Sec.50 of CGST Act, 2017. Now, when the policy makers are accepting a literal mistake which resulted into an illogical confusion which has no place in a sane world, recommendations of the 31st GST Council meeting w.r.t. suitable amendment of Sec.50 are most welcome. These recommendations are mere minutes until they are converted to actionable law. Until such time, when the existing machinery makes a mockery of the overall sane and justifiable idea by issuing "Standing Orders", the very purpose of the GST Council recommendations is defeated. Hence, we demand that appropriate notification be issued to give effect to the recommendations of the 31st GST Council meeting, which all stakeholders carefully listen in anticipation and with high regards.

 

2.       Since, it is evident that an inadvertent mistake had been left out in the loose wordings of Sec.50, and the fact of such mistake is duly acknowledged by the 31st GST Council meeting favouring the tax payers, we demand that a suitable notification be issued to safeguard the interest of the stakeholders, with a retrospective effect duly amending of Sec.50 of CGST Act, so that taxpayers rightfully pay for their delayed behaviour, non magis quam culpa.

 

3.       Further, there seems to be a logical problem into the thinking of the department, when such "Standing Orders" treat interest as a right, even before it has accrued or become due. Such thinking may well remind us all of the infamous "Sahukaars", in whose vicious circle, the fate of ordinary men usually ended during the pre-independence era. The dire desire of the department to earn interest out of the balance of ITC which is already in credit of the its own Government Treasury, is in no way justifiable, and even may not be acceptable to the most unscrupulous businessmen.

 

4.       It is a well-accepted fact that the balance of ITC remaining in the Electronic Credit Ledger is lying in the Government Treasury in the safe hands of the Government and which is already paid by the tax payers in advance. If due to late filing of GSTR-3B return, an incidence of levy of interest takes place, a grave question arises as where does the monies of ITC lying in the Government Treasury paid by tax payers in advance, in the form of ITC, really go.? Thus, such portion of demand of any person represented by its ITC lying in the electronic credit ledger should never attract interest as the same is not logical and against the spirit of law. Hence, we demand cancellation of "Standing Orders" like the ones enclosed with this letter.

 

5.       Delay in filling of monthly return is a mere procedural lapse/ technical breach and as a consequence, tax payers should not be punished. Further the taxpayers are already subjected to various penalties for the delay in filing return in Form 3B. Provisions of Sec.50 can be interpreted in both ways. But, any interpretation creating additional interest liability for any sum of monies already available to the credit of Government can be termed as "Vicious" - Deliberately cruel and hurtful.

 

6.       Honorable Supreme Court in case of MCFL V/S DCCT 1 SCC 21(1992) while laying down the principal for interpreting the provision of law stated: “Distinction should be made between the provisions of the Statute, which are substantive in character and those which are merely procedural & technical, consistent with the specific objective of the policy."

 

7.       Interest is levied whenever there is delay in recovery of tax due to the government. However, when any sum of monies represented as ITC are already available to the credit of the Government, then there is no loss of revenue or delay in collection of tax wherever GST liability is settled with balance in credit ledger since to the extent of credit balance, tax is not payable in cash.

 

8.       We demand that your GST Officials and Field Formation Officers may be appropriately guided, and instructed, to carry out productive tasks of increasing revenue, beneficial to the nation, instead of reading between the lines of law and creating an environment of tax terrorism.

 

We hope the above representation would have enlightened your good self in appraising the adverse situation faced by the stakeholders, and inspired your good self to take some remedial action in the aforesaid matter at the earliest on priority.

 

Thanks & Regards,

For Chartered Accountants Association, Surat.

 

 

Chairman – Indirect Tax Committee   |  Secretary

Copy to: -

(1)    Finance Minister,

Ministry of Finance,

134, North Block, New Delhi – 110011.

 

(2)    Secretary (Revenue),

128/A, North Block, New Delhi – 110001

 

(3)    GST Council Secretariat,

Tower II, 5th Floor, Jeevan Bharti Building, New Delhi – 110001


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