High Court of Telangana, Megha Engineering & Infrastructures Ltd. v.Commissioner of Central Tax- [2019] 104 taxmann.com 393 (TELANGANA)

     The petitioner had delayed filing GSTR-3B from October, 2017 to May, 2018. According to the petitioner, it could not make payment and file the return within time due to certain constraints. However, the entire liability was discharged in May, 2018 but the Superintendent of Central Tax demanded interest at 18% on total tax liability. The petitioner submitted that interest was to be calculated only on the net tax liability, i.e., after deducting ITC from the total tax liability.

The High Court of Telangana observed that until a return was filed as self-assessed, no entitlement to credit and no actual entry of credit in the electronic credit ledger would take place. As a consequence, no payment could be made out of such a credit entry. The tax paid on the inputs charged on any supply of goods and/services, is always available. But such tax becomes an input tax credit only when a claim is made in the returns filed as self-assessed. It is only after a claim is made in the return that the same gets credited in the electronic credit ledger and payment could be made.

Further, the Government would get right over the money available in the ledger only when the payment was made. Since ownership of such money was with the dealer till the time of actual payment, the Government became entitled to interest up to the date of their entitlement to appropriate it.

The High Court of Telangana held that interest would be levied on gross tax liability, i.e., on both cash & ITC component and not on net tax liability if there was a delay in filing of GST return.