In the given case , the petitioners have admittedly filed belated return for the period 2017-18. The respondent computed the delay in filing of Returns and consequently the interest to be remitted on the tax. Demand notices were issued to the Banks seeking to recover the arrears of interest. The petitioners objected this action by saying that they had sufficient Input Tax Credit (ITC) available with the Department . Thus , interest could be demanded only on the cash component of the tax remitted.
The question arises for the resolution before the court is as to whether the credit is due to an assessee and payment by way of adjustment can still be termed ‘belated’ or ‘delayed’.
It has been observed that the use of the word “delayed” connotes a situation of deprival, where the State has been deprived of the funds representing tax component till such time the Return is filed accompanied by the remittance of tax.
The availability of ITC runs counter to this, as it connotes the enrichment of the State. Section 50 is specifically intended to apply to a state of deprival cannot apply in a situation where the State is possessed of sufficient funds to the credit of the assessee.
The court considered the proper application of Section 50 is one where interest is levied on belated cash payment but not on ITC available all the while with the Department to the credit of the assessee.
As per Section 50(1) of the CGST Act , interest shall be levied only on that part of the tax which is paid in cash, has been inserted with effect from 01.08.2019, but clearly seeks to correct an anomaly in the provision as it existed prior to such insertion. It should be read as clarificatory and operative retrospectively.
So, the Madras High Court ruled that “The GST Department could be levied interest only on the cash component of the tax remitted belatedly but not on ITC available”.