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File GST returns in time or face penalty on entire tax liability: Telangana High Court

The Telangana high court has rejected a writ challenging imposition of interest on total goods and services tax liability including input tax credit, a ruling that has significant implication for industry. This means that tax authorities will be able to levy interest on the gross tax liability of an assesse if there is any delay in tax payment. This is even as the GST Council had at its 31st meeting recommended change in the law 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.

The court declined to take into account the Council’s decision on the amendment as it has not been implemented so far. “.......the claim made by the respondents for interest on the ITC portion of the tax cannot be found fault with. Hence, the Writ Petition is dismissed,” the court said.

Tax experts say this decision goes against established practices as also government intent. “The decision of Telangana High Court seems contrary to the Government's intention and the practice which industry would have been following in general, as was followed during erstwhile regime,” said Pratik Jain, national leader, indirect tax, PwC.

The recommendations of the council will be effective only after the necessary amendments in the GST Acts are carried out.

“With an adverse decision of the High Court, the government may consider issuing immediate instruction/ clarification to provide that no recovery proceedings should be initiated by any State government where the taxpayer had sufficient credit balance to discharge output GST liability, which shall be in line with the amendment proposed to Section 50 of the CGST Act,” Jain said.

Petitioner Megha Engineering and Infrastructure had filed a writ after tax authorities raised demand for payment of interest on the input tax credit portion of the tax due.

Petitioner submitted that the GST Portal is designed in such a manner that unless the entire tax liability is charged by the assessee, the system will not accept the return in GSTR - 3B Form.

As a result, even if an assessee was entitled to set off, to the extent of 95%, by utilizing the ITC, the return cannot be filed unless the remaining 5% is also paid.

There was some delay on the part of the petitioner in filing the returns in GSTR - 3B Forms due to the shortage of ITC, available to off-set the entire tax liability. Petitioner submitted that the delay in filing the returns was also not huge.

The Court has said that until a return is filed as self-assessed, no entitlement to credit and no actual entry of credit in the electronic credit ledger takes place. It is only after a claim is made in the return that the same gets credited in the electronic credit ledger, it said.

Once payment is made from such electronic credit ledger, the Government gets a right over the money available in the ledger.

Since as ownership of such money is with the taxpayer till the time of actual payment, the Government is entitled to interest upto the date of their entitlement to appropriate it, it said.

Courtesy - Economic Times

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