Retrospective Proviso Mandates GST Interest Levy Solely on Net

Retrospective Proviso Mandates GST Interest Levy Solely on Net Cash Liability From July 2017

Issue

Whether interest on delayed payment of GST under Section 50 of the Act can be levied on the gross tax liability, or if it must be restricted strictly to the net cash liability paid through the electronic cash ledger following the retrospective amendment of the law.

Facts

The Petitioner-assessee challenged demand notices and a Show Cause Notice (SCN) issued by the Assistant Commissioner of State GST (AC SGST).
The impugned notices proposed and demanded interest on delayed GST payments calculated on the gross output tax liability, completely ignoring Input Tax Credit (ITC) set-offs.
The dispute pertained to the period beginning from July 1, 2017 onwards.
During the pendency of the matter, the proviso to Section 50(1) of the CGST/Chhattisgarh GST Act was substituted with retrospective effect from July 1, 2017.
This retrospective amendment explicitly clarified that interest on delayed returns is leviable only on the portion of the tax paid by debiting the electronic cash ledger.

Decision

The High Court held that the substituted retrospective proviso to Section 50(1) makes it statutorily mandatory to levy interest only on the net cash liability.
Consequently, interest cannot be legally charged on the component of tax that is offset or paid via Input Tax Credit (ITC).
The Court ruled that interest is chargeable exclusively on the tax paid by debiting the electronic cash ledger from July 1, 2017.
The impugned interest demands were set aside for reconsideration, and the matter was disposed of with directions to the authority to recalculate the liability on a net cash basis after granting the petitioner a fair opportunity of being heard.

Key Takeaways

1. Eradication of Gross Liability Base: The retrospective substitution of Section 50(1) completely eliminates the revenue’s power to demand interest on the gross tax liability for any period dating back to the inception of GST.

2. Net Cash Principle Standardized: Taxpayers are legally liable to pay interest only on the delayed tax amount that is actually discharged through cash outlays via the electronic cash ledger.

3. Retroactive Relief Realized: Since the law applies retrospectively from July 1, 2017, any pending or past notices demanding interest on the ITC-matched portion of tax are legally unsustainable and subject to recalculation.

HIGH COURT OF CHHATTISGARH

Vandana Global Ltd.

Principal Commissioner Central GST Central Excise^*

Rakesh Mohan Pandey, J.

WPT No. 115 of 2019

MAY 8, 2026

Bhishma Ahluwalia and Ms. Shalini Kashyap, Advs. for the Petitioner. Maneesh Sharma, Adv. and Ms. Anuradha Jain, Dy. G.A. for the Respondent.

JUDGMENT

1. By way of this petition, petitioner has sought following reliefs:-

10.1

It is prayed that this Hon’ble Court may kindly be pleased to issue a Writ in nature of Certiorari and/or any other appropriate writ quashing and setting asideimpugned demand notices dated 8.7.2019by declaring the same to be illegal and in-operative in law to the extent it seeks to demand interest on entire output tax liability without allowing reduction of valid input tax credit available to the Petitioner.

10.2

This Hon’ble High Court may kindly be pleased to issue Writ in the nature of mandamus and/or any appropriate writ to hold that the Respondent No. 1 & 2 while executing its administrative function through the GSTN Portal is illegal to the extent it is not allowing the Petitioner to pay its tax dues partly through its credit register unless complete tax payment is made; and

10.3

This Hon’ble Court may kindly be pleased to issue Writ in nature of mandamaus and/or any other appropriate writ directing the Respondent No. 1, 2 &5 to reconfigure the online GSTN Portal in line with the legal provisions.

10.4

This Hon’ble Court may kindly be pleased to issue Writ in the nature of Mandamus and/or any appropriate writ commanding/directing Respondents No.3 to recompute the interest liability for delay in payment of tax after considering admissible and available credit as utilized on the due date for payment of output tax liability;

10.5

Any other relief/reliefs which this Hon’ble Court may think fit and proper in the facts and circumstances of the case, with cost of the petition may also please be granted to the petitioners.

2. Learned counsel for the petitioner submits that Assistant Commissioner SGST, Raipur has issued a show cause notice against the petitioner on 8.7.2019 making demand of interest on late tax payment. He further submits that an amendment has been inserted in the proviso appended to Section 50 of Central Goods and Service Tax Act, 2017 [hereinafter to be referred as ‘Act of 2017’] with retrospective effect which mandates interest payments for delayed GST only on net cash liability w.e.f. 1^st July, 2017. He contends that in light of the afore-stated amendment, the showcause notice deserves to be set aside.

3. On the other hand, learned counsel appearing for the respective respondents would oppose. They submit that petitioner is required to pay the interest on the delayed payment of tax for cash portion.

4. I have heard learned counsel for the parties and perused the material available on record.

5. By gazette notification dated 1.6.2021, following amendment has been inserted in Section 50 of Act of 2017 :-

112. In section 50 of the Central Goods and Services Tax Act, in sub-section (1), for the proviso, the following proviso shall be substituted and shall be deemed to have been substituted with effect from the 1st day of July, 2017, namely:-

“Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger.”.

6. Taking into consideration the amendment inserted in Section 50 of Act of 2017, it is apparent that petitioner is required to make interest payments for delayed GST only on net cash liability w.e.f. 1^st July, 2017. Therefore, the matter is remitted back to the respondent authorities to decide it afresh after affording due opportunity of hearing to the petitioner, strictly in accordance with amendment inserted in Section 50 of Act of 2017.

7. Accordingly, this petition stands disposed.