Important Clarification on Interest under GST Law

- Sales Tax- Soham Mashruwala

There are many controversies regarding interest under GST law. A noble circular has been issued by the government regarding whether interest is payable in case of false tax credit of IGST claimed. Dt. On 17-7-2023 serial no. 192/04/2023- GST which is discussed in this article today.

Tax usage

To offset the IGST liability, IGST has to be used first followed by CGST and SGST. Even in cases where the IGST tax credit is higher, the supplier has to consume the IGST first. And then comes the turn to use tax credit of CGST and SGST.

When is tax credit considered misused?

Section 50 provides for use of false tax credit under sub-section (3). How to calculate interest is mentioned in rule 88 (b). The period for computing interest under section 50(3) shall be payable for the period from the date on which such misused tax credit has been misused to the date on which such misused tax credit has been reversed or the tax has been paid. According to this rule, it follows that if the tax credit is on deposit, in such a case, the wrongly claimed tax credit will be considered as unused and interest will not be paid. Credits deposited in the electronic credit ledger should be seen to remain unused. Book tax is not to be counted.

Circular Explanations

1. How will interest be charged for availing wrong IGST tax credit? In cases where wrong tax credit of IGST has been claimed and it is noticed that the amount is refunded, it is necessary to know whether the tax credit has been utilised. IGST is set to be usable against all liabilities except Cess. Further, the GST portal mandates IGST to be used first when the IGST tax credit is wrongly claimed and refunded if the sum of IGST, CGST and SGST in the electronic ledger is more than the amount of IGST refund, interest will be payable. no In case the total amount of IGST, CGST and SGST in the electronic ledger is less than the amount to be refunded of IGST, then the interest difference amount has to be paid.

2. Is the amount of compensation cess to be considered as interest? Section 11 GST Compensation As per the law, the compensation cess deposit tax credit is available only when this cess is paid on external supplies. Thus, the tax credit of Compensation Cess is binding on utilization and its credited tax credit cannot be used against IGST, CGST, SGST. Due to this, while returning IGST, Cess deposit credit will not be taken into account and interest will have to be paid.

Recently the government has given an option on the GST portal to comply with Rule 86(B) due to which the tax credit cannot be availed in special circumstances despite the accumulated tax credit. Thus, the government increases the difficulty of doing business under the GST law.