But businesses that had already paid their taxes are likely to claim a refund
Chennai: The Union government has decided to forego Rs 46,000 crore of unpaid interest on delayed GST payments after notifying that interest would be charged on net tax liability and not gross liability with effect from September 1.
Now it will have to be seen whether the government will refund those businesses which have already paid the interest for three years.
The Central Board of Indirect Taxes and Customs (CBIC) has notified September 1, 2020 as the date from which interest would be charged on net tax liability.
Industry had earlier raised concern over CBIC's decision to recover about Rs 46,000 crore of unpaid interest on delayed GST payment. The interest was charged on gross tax liability.
"… no recoveries shall be made for the past period as well by the central and state tax administrations in accordance with the decision taken in the 39th Meeting of the GST Council. This will ensure full relief to taxpayers as decided by the GST Council," the CBIC statement had said.
A decision on charging interest on net tax liability was taken by the 39th GST Council meeting in March. It was decided that the amendment will be effective from July 1, 2017, and the law would be amended retrospectively.
However, CBIC has said that the notification has been issued prospectively due to certain technical limitations.
“If the government is not recovering the unpaid interest of some businesses, from an equity point of view it becomes imperative to refund to those who have. already paid. But we will have to see whether the government will refund the interest already paid or not,’ said Abhishek Jain, EY Tax Partner.
It is possible that businesses might seek a refund of the interest paid by them for the past three years on the gross tax liability.
"Businesses are expected to approach the courts on this unjustified and illegal demand of interest basis the 'principle of estoppel'," said AMRG and Associates senior partner Rajat Mohan.
In 2019, the Telangana High Court had upheld CBIC’s statement that interest was payable on gross tax liability. . Interest at the rate of 18 per cent is levied on delayed tax payment. Net GST liability is arrived at after deducting input tax credit from gross GST liability. Hence, calculating interest on gross GST liability increases the payout burden on businesses.
According to Jain, the government will have to pay the refund if the court awards a judgement in favour of the businesses.
Rahul Bajoria, chief India economist, Barclays, the government should look at simplifying the tax system than forcing businesses to take legal recourse for smaller tax components.