Whether GST interest can be recovered by issuing letter?
The department has now started issuing letters asking the registered persons to pay the interest liability for the delay in filing of GST-3B. In this regard, we wish to pen down few checkpoints which the registered person has to consider before paying the interest and to answer one more question as to whether the department is correct in demanding interest by issuing letters ?
With respect to the 1st part i.e. few points which has to be considered before discharging the interest liability is as under:
1. Check the due date of filing GSTR-3B has been extended or not ? – Many times the due date for filing GSTR-3B for various months have been extended by the CBIC due to various reasons like GST being a new law, COVID Pandemic, etc.
2. Check the rate of interest which was charged in the letter – The rate of interest which has to be charged ideally is 18% as per Section 50(1) of the CGST Act 2017 but during the pandemic the CBIC has provided wavier by decreasing the rate of interest for the specific period.
3. Check the date on which the returns are being filed – The department may take incorrect date for filing the returns
4. Check as to whether the interest is demanded on the Gross Liability or on the Net Liability – As the per proviso in section 50(1), the interest has to be paid only on the Net basis i.e. only on the cash component which is arrived after reducing the ITC from the total output tax liability.
5. Check as to whether you have made amount in SGST or CGST while having the balance in the electronic credit ledger of CGST or SGST – Many a times due to improper offset done by the taxpayer they end up paying tax in SGST in cash even if they having balance in the CGST in the electronic credit ledger. If this is the case then its better to write and explain the reason and the statutory provision due to which this have happened, the department may condone the delay.
6. Check whether the interest is charged for the complete period or on the number of days the delay happened – Ideally as per the judgement of CESTAT, Chennai Bench the interest has to be calculated only on day bases and not on monthly basis
7. Check whether the interest is demanding on claiming irregular Trans Credit – No interest is chargeable for the claiming the Trans Credit until the same is utilized.
8. Check whether the delay is due to filing technical glitches on the portal – In various judgements the Hon’ble High Court have held that no interest is chargeable where the taxpayer has paid taxes on time but could not file the return due to the technical glitches on the portal.
9. Check whether the interest is calculated by applying Rule 88B of the CGST Rules 2017.
With respect to the 2nd part i.e. Whether the department is correct in demanding interest by issuing letters or collecting by attaching bank account ?
In this regard, my view is that the department cannot collect interest by issuing letters or by attaching the bank account directly as the same is arrived before adjudication under Section 73 or 74 of the CGST Act 2017. Thereby to conclude the department as per me to collect interest the department has to 1st issue DRC-01 by following the process laid down in the law.