Facts of the Case

A batch of seventeen connected petitions led by M/S Sumilon Polyster Limited challenged the Revenue's practice of demanding interest under Section 50 of the CGST Act, 2017 and GGST Act, 2017 on the gross tax liability of the petitioners, rather than the net liability after accounting for available input tax credit. The petitioners relied on the 31st GST Council Meeting decision (22.12.2018) that interest should be charged only on net liability, and on the retrospective amendment introduced by Section 112 of the Finance Act, 2021, substituting the proviso to Section 50(1) with effect from 01.07.2017 to provide that interest is payable only on that portion of tax paid by debiting the electronic cash ledger (i.e., net of ITC), except where the return is filed after commencement of proceedings under Section 73 or 74. This amendment was brought into force from 01.06.2021 by Notification No.16/2021.

Issues Involved

  1. Whether the petitioners' grievance — interest being computed on gross rather than net GST liability — survived for adjudication once Section 50(1) of the CGST Act was retrospectively amended, with effect from 01.07.2017, to charge interest only on the cash-ledger (net) portion of tax.

Petitioner's Arguments

  • Interest ought to be charged only on the net GST liability after adjusting available input tax credit, consistent with the scheme of Sections 41 and 49 of the CGST Act governing self-assessed credit and payment.
  • The retrospective substitution of the proviso to Section 50(1) by Section 112 of the Finance Act, 2021, notified with effect from 01.06.2021 via Notification No.16/2021, already grants the relief being sought — interest is payable only on tax paid by debiting the electronic cash ledger, except where returns are filed after Section 73/74 proceedings commence.

Respondent's Arguments

  • Learned advocate for the Revenue also acknowledged that the amendment of Section 50(1), effective retrospectively from 01.07.2017 by the Finance Act, 2021, would redress the petitioners' grievance regarding interest on the gross amount of GST liability.

Court Order / Findings

  • Since both sides agreed that the statutory amendment already addressed the substance of the petitioners' grievance retrospectively from 01.07.2017, the Court did not need to independently adjudicate the interest-computation dispute.
  • The petitions were disposed of as having become infructuous in view of the amendment to Section 50(1) of the CGST Act by the substituted proviso under Section 112 of the Finance Act, 2021, made effective via Notification No.16/2021 dated 01.06.2021.
  • Respondents were directed to give effect to the amendment within twelve weeks, and the interim relief granted earlier stood vacated; notice was discharged.

Important Clarification

Since the Finance Act, 2021's substitution of the proviso to Section 50(1) of the CGST Act (notified with effect from 01.06.2021 but operative retrospectively from 01.07.2017), interest on delayed GST payment is chargeable only on the portion of tax discharged by debiting the electronic cash ledger — i.e., net of available input tax credit — except where the return is filed after proceedings under Section 73 or 74 have already commenced for that period. Pending litigation on gross-versus-net interest computation predating this amendment is generally disposed of as infructuous once the amendment's applicability is not disputed.

Sections Involved

  • Section 50(1), CGST Act, 2017 (as amended by Section 112, Finance Act, 2021, retrospective from 01.07.2017) – interest on tax paid after the due date is chargeable only on the portion paid via the electronic cash ledger, subject to the carve-out for returns filed after Section 73/74 proceedings begin.
  • Section 49, CGST Act, 2017 – governs the electronic cash and credit ledgers and their use for payment of tax, interest, penalty and other dues.

Decision – In Favour of

In favour of the Assessees — the batch petitions were rendered infructuous because the retrospective statutory amendment already granted the substantive relief sought (interest on net rather than gross liability).

Case Details

High Court of Gujarat at Ahmedabad; R/Special Civil Application No.18198 of 2019 and connected matters (Nos.4025, 4487, 5146, 5247, 5263, 5266, 5276, 5788, 5785, 5879, 5902 and 5903 of 2020, with related stay applications); Coram: Hon'ble Mr. Justice N.V. Anjaria and Hon'ble Mr. Justice Bhargav D. Karia; Common Oral Order dated 27.07.2022; CNR not indicated on the order copy.

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