GST Updates

Issues in GST: Interest on refund to genuine supplier or recipient: Part -12

https://3.bp.blogspot.com/-iPKw1WTEzZU/VyFwQbapUNI/AAAAAAAAClk/4gUvfYUH0M8dguFLT6eKkvXgzSZNDNItQCLcB/s1600/16658631500_26dadd1e22_k.jpg

This updates discusses the proviso to section 37(9) and 38(9) about interest payable on refund to supplier or recipient on account of reduction in output tax liability or reclaim of Input Tax Credit respectively. Proviso to Section 37(9) provides that Interest on refund credited to the recipient shall not exceed the amount of Interest paid by the supplier. Proviso to Section 38(9) provides that Interest on refund credited to the supplier shall not exceed the amount of Interest paid by the recipient. Both provisions needs a revisit as Law cannot enforce inefficiency, if any of the administration to recover the due interest from the erring person as an excuse for the genuine claim of interest.

CBEC has released revised Draft GST Law on 26th November 2016. The law is slated to be presented before Loksabha in the coming days. It’s not the final blueprint and is bound to change on the basis of suggestions received from various quarters. In this series of updates, we would be putting forth various issues in the Revised Draft GST Law which needs consideration. The entire objective is to bring before the readers certain issues in the present revised GST Law which may be raised at appropriate platforms.

 

a) Provision regarding Interest on refund to the recipient of goods and/or services on account of Matching, reversal and reclaim of Input Tax credit  

 

12.1       As per section 37 of Revised Draft GST Law it has been provided that

(9) Where any reduction in output tax liability is accepted under sub-section (7), the interest paid under sub-section (8) shall be refunded to the recipient by crediting the amount in the corresponding head of his electronic cash ledger in the manner as may be prescribed:

 Provided that the amount of interest to be credited in any case shall not exceed the amount of interest paid by the supplier.

 

12.2       Section 37 of the Revised Draft GST Law provides that if the input tax credit claimed by the recipient is in excess of the tax declared by the supplier for the same supply or the supplier has not shown outward supply in his valid return then in such a case, such excess claim of Input Tax credit would be added to the output tax liability of the recipient.

 

12.3       However, subsequently if the supplier rectifies the return, declares the details of the invoice or the debit note in his valid return, and deposits the due tax thereon, the recipient would be eligible for refund of the amount paid earlier. The amount shall be refunded to the recipient by crediting the said amount in the corresponding head of the electronic cash ledger. The supplier would be liable to pay interest on the amount so added from the date of availing of credit by the recipient till the corresponding additions are made under the said sub-sections.

 

12.4       However, law further provides that amount of interest credited to the recipient on amount deposited earlier and corresponding reduction of tax liability thereafter, shall not exceed the amount of interest paid by the supplier.

 

12.5       This provision defies all logics. How come the interest to be received by the recipient should be linked with the interest paid by the supplier. They both are two different registered taxable persons and their liability under the law is based upon two different aspects and it’s not the responsibility of the recipient to force the supplier to pay the interest to the exchequer but it’s the responsibility of the administrators to collect the interest from the erring supplier. Inefficiency, if any of the administration to recover the due interest from the erring person cannot be made an excuse for the genuine claim.

 

Comment: The provision relating to the amount of Interest on refund credited to the recipient shall not exceed the amount of Interest paid by the supplier needs revisit. The law is trying to link two different persons in a wrong context. It’s the responsibility of the government to recover the Interest from the erring supplier and how come recipient be made liable for the same and his claim be restricted to the amount of Interest paid by the supplier.

 

b) Provision regarding Interest on refund to the supplier of goods and/or services on account of Matching, reversal and reclaim of reduction in output tax liability

 

12.5      As per section 38 of the Revised Draft GST Law it has been provided that

(9) Where any reduction in output tax liability is accepted under sub-section (7), the interest paid under sub-section (8) shall be refunded to the supplier by crediting the amount in the corresponding head of his electronic cash ledger in the manner as may be prescribed:

Provided that the amount of interest to be credited in any case shall not exceed the amount of interest paid by the recipient.

 

12.6       Section 38 of the Revised draft law provides that when claim of reduction in the output liability by the supplier of goods and/or services does not matches with the corresponding reduction in the claim of Input Tax Credit by the recipient or the corresponding credit note is not declared by the recipient in his valid return, then such discrepancy should be added to the output tax liability of the supplier.

 

12.7       However, subsequently if recipient rectifies the return and deposits the due tax then outward supplier would be eligible for refund of the amount deposited earlier. The amount shall be refunded to the supplier by crediting the said amount in the corresponding head of the electronic cash ledger. The recipient shall be liable to pay interest thereon from the date of such claim for reduction in the output tax liability by the supplier till the corresponding additions made by him in his return.

 

12.8       However, provision that amount of interest credited to supplier on account of reduction of tax liability shall not exceed the amount of interest paid by the recipient defies all logics. How come the interest to be received by the supplier is linked with the interest paid by the recipient? They both are two different registered taxable persons and their liability under the law is based upon two different aspects and it’s not the responsibility of the supplier to force the recipient to pay the interest to the exchequer but it’s the responsibility of the administrators to collect the interest from the erring recipient. Inefficiency, if any of the administration to recover the due interest from the erring person cannot be made an excuse for the genuine claim.

 

Comment: The provision relating to the amount of Interest on refund credited to the supplier shall not exceed the amount of Interest paid by the recipient needs revisit. The law is trying to link two different persons in a wrong context. It’s the responsibility of the government to recover the Interest from the erring recipient and how come supplier be made liable for the same and his claim be restricted to the amount of Interest paid by the recipient of goods and/or services.

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

To Top