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TMI Blog2024 (7) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... mon order. 5. In these petitions, the petitioners have challenged the order raising demand for short payment of interest under Section 50 of the under Central Goods and Services Tax Act, 2017 (for short 'the CGST') for the period after deposit of tax by the petitioners in the electronic cash ledger. 6. For sake of convenience, Special Civil Application No.17657 of 2022 is treated as a lead matter. 6.1. The petitioner-Company converted limited liability partnership into the limited Company in the year 2017-18 and claimed transfer of unutilised input tax credit balance in the accounts of the petitioner No.1-Company, however, due to technical issues, the petitioner-Company was not able to get such credit transfer. 6.2. The petitioners therefore made correspondence with the authorities with regard to the transfer on multiple occasion. Section 39(7) of the CGST Act requires full payment of tax due as per returns as a precondition for filing of returns. Since the petitioners were not permitted to transfer input tax credit, they were not in position to pay the tax and could not filed the GST returns in time. 6.3. It is the case of the petitioner that in order to curtail the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the petitioner of Special Civil Application No.8871 of 2022 also similar issue has arisen by the Superintendent of CGST demanding the interest under Section 50 of the CGST Act from date of deposit of the amount towards tax in electronic cash ledger of the petitioner till the date of filing of return. 7. Learned advocate Mr.Uchit Sheth for the petitioners submitted as under : 7.1. Section 50 of the GST Acts provides for imposition of interest if the taxable person fails to pay the tax. Where the taxable person has sufficient balance in the electronic cash ledger, there is no failure to pay tax and therefore charge of interest under Section 50 of the GST Acts is not attracted. 7.2. There is internal indication in the scheme of the GST Acts that credit amount in the electronic cash ledger is nothing but payment of tax. The following provisions are relevant in this regard: (a) Section 49(1) according to which every deposit made towards tax, interest, penalty, fee or any other amount shall be credited to the electronic cash ledger. (b) Section 49(3) provides that the amount available in electronic cash ledger may be used for making payment towards tax, interest, penalty, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passing of assessment order as the State had already received the amount of tax. 7.6. It is well settled that imposition of interest is compensatory in nature. Reliance is placed in this regard on the judgment of Hon. Supreme Court in the case of Indodan Industries Ltd. /s State of U.P. & Others Civil Appeal No. 2352 of 2007 decided on 20.10.2009 (Compilation Vol.II - Page 99 - Relevant paras 7,8) and Mahalaxmi Sugar Milla Co. V/S C.I.T. Delhi (1930) 3 SCC 475 (Compilation Vol.II - Page 102 - Relevant Para 11). In the present case, since the amount gets credited 10 the electronic cash ledger only after actual deposit of amount into Government treasury, there is no loss of revenue to the Government merely because it gets adjusted against actual liability at a later date at the time of filing returns. Therefore also imposition of interest is not justifiable. 7.7. Judgment of Hon. Madras High Court in the case of Eicher Motors Ltd. V/S Superintendent of GST & Central Excise W.P. No. 16866 of 2023 decided on 23.1.2024 squarely supports the Petitioners. Hon'ble Madras High Court has taken into consideration the entire scheme of the GST Acts and thereafter arrived at a conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouncil meeting which was followed by insertion of Rule 88B by Notification No. 14/2022 dated 5.7.2022. In any case rule cannot go beyond the provisions of the GST Acts and if it does so, then the same needs to be struck down/read down to bring it in conformity with the statutory provision. 7.12. If at all the submission of the Respondents is accepted that there cannot be any tax payment before the same is adjusted against liability at the time of filing of returns, then as such the liability can be said to have arisen only at the time of filing of returns and therefore the question of delayed payment of tax cannot arise. Reliance is placed in this regard to the judgment of Hon. Supreme Court in the case of Maruti Wires Industries Pvt. Ltd. v/s S.I.O. (2001) 3 SCC 735 wherein it was held that there can be no interest liability if no return is filed at all by the assessee as the tax liability would get crystalized only upon filing of returns. 7.13. Thus, looked at from any angle, the impugned demand of interest for the period after deposit of tax in the electronic cash ledger is wholly without jurisdiction and contrary to the provisions of the GSI Acts. 7.14. In support of his sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on net cash liability with effect from 01.07.2017 wherein, it is clarified that for the period 01.07.2017 to 31.08.2020, field formations in your jurisdiction may be instructed to recover interest only on the net cash liability i.e. that portion of the tax that has been paid by debit in the electronic cash ledger or is payable through cash ledger. 8.4. Relying upon the above clarification, it was submitted that amount lying in the electronic cash ledger cannot be assigned to any liability unless a tax payer makes a debit entry from a cash ledger for a specific liability. 8.5. Learned advocate for the respondent, referred to and relied upon the provisions of Section 49(1) of the CGST Act which provides that if an amount is deposited towards tax than the amount which is credited in the electronic credit ledger is nothing but actual tax payment for discharging duty, interest, penalty and other amounts and therefore, learned advocates for the respondents referring to Section 49(3) of the CGST Act read with Rule 87 of the Rules submitted that the amount payable in electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any amount paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2020 CAN 5406 of 2020) decided on 07.09.2021; (2) Pratibha Processors Versus Union of India reported in AIR 1997 SC 138; (3) Maithan Steel and Powers Ltd. versus Commissioner of Central Excise-2016 (344) ELT 792 (Sett.Com). 8.9. Referring to the above provisions, it was further submitted that mere credit in electronic cash ledger and considering the date of credit of cash ledger as a date of payment of tax in respect of net cash liability cannot be considered in view of the provisions of Section 50 of the Act which clearly stipulates that the interest is payable till the date of debit of electronic cash ledger for payment of tax, interest, penalty, etc. Reliance was also placed in the newly inserted rule 88B of the Rules which provides for manner of calculating interest on belayed payment of tax. It was submitted that as per Rule 88B, interest on tax payable by the assessee is required to be calculated on the portion of tax which is paid by debiting the electronic cash ledger for the period of delay in filing the return beyond the due date and such rate as may be notified under Subsection (1) of Section 50. Reliance was also placed on the provisions of Section 39(7) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of the return. We have to immediately notice that the facts indicate a circumstance clearly covered under the proviso to Section 50(1). The learned Division Bench found that the Electronic Cash Ledger is an account of tax ledger (sic) maintained with the department reflecting online deposits; made from accounts maintained by the assessee Patna High Court CWJC No.11621 of 2023 dt. 19-04-2024 with banks, from which payments can be made as tax. The mere deposit of an amount in an Electronic Cash Ledger does not make it a tax deposit or payment to a government account. After extracting the various provisions especially Section 49 it was found that Explanation to subsection (11) deems the date of deposit in the Electronic Cash Ledger to be a mere deposit which does not amount to payment of the tax liability. Only when the Electronic Cash Ledger is debited towards payment of tax, interest or penalty or any other dues under the Act, the money gets transferred to the State for utilization. It was also found that the scheme of the Act is that no person can make payment of tax prior to filing of the returns though the deposit may be made or lying, in the Electronic Cash Ledger. The tax lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turns, which payment is by way of a debit made from the cash ledger. 21. On the interpretation placed by us on the various provisions under the Act, which also is the proper understanding of the very scheme of the enactment, we are persuaded to reject the claim of the petitioner that the proviso of Section 50(1) mandates a levy of interest only when there is a delayed furnishing of return and debit made and payment effected from the Electronic Cash Ledger. As we found Section 50(1) specifically mulcts liability of Patna High Court CWJC No.11621 of 2023 dt. 19- 04-2024 interest on any delayed furnishing of return, since it is the furnishing of the return which results in payment of tax, interest, penalty or other amounts due under the Act as selfassessed in the return. Neither the deposit made in the cash ledger nor the remittances made on the tax paid on purchases, results in payment of the amounts due under the Act to the Government. Insofar as the payment of tax by the supplier on the purchases made by an assessee, even the credit of the input tax occurs in the Electronic Credit Ledger only when the return is furnished on self-assessment raising a claim for input tax. 22. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) shall pay to the Government, in such form and manner, and within such time, as may be prescribed,- (a) an amount equal to the tax due taking into account inward and outward supplies of goods or services or both, input tax credit availed, tax payable and such other particulars during a month; or (b) in lieu of the amount referred to in clause (a), an amount determined in such manner and subject to such conditions and restrictions as may be prescribed.] Provided further that every registered person furnishing return under subsection (2) shall pay to the Government, the tax due taking into account turnover in the State or Union territory, inward supplies of goods or services or both, tax payable, and such other particulars during a quarter, in such form and manner, and within such time, as may be prescribed. Section 49. Payment of tax, interest, penalty and other amounts. (1) Every deposit made towards tax, interest, penalty, fee or any other amount by a person by internet banking or by using credit or debit cards or National Electronic Fund Transfer or Real Time Gross Settlement or by such other mode and subject to such conditions and restrictions as may be prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... every liability by a registered person as per his return shall be made by debiting the electronic credit ledger maintained as per rule 86 or the electronic cash ledger maintained as per rule 87 and the electronic liability register shall be credited accordingly. (4) The amount deducted under section 51, or the amount collected under section 52, or the amount payable on reverse charge basis, or the amount payable under section 10, any amount payable towards interest, penalty, feeor any other amount under the Act shall be paid by debiting the electronic cash ledger maintained as per rule 87 and the electronic liability register shall be credited accordingly. (5) Any amount of demand debited in the electronic liability register shall stand reduced to the extent of relief given by the appellate authority or Appellate Tribunal or court and the electronic tax liability register shall be credited accordingly. (6) The amount of penalty imposed or liable to be imposed shall stand reduced partly or fully, as the case may be, if the taxable person makes the payment of tax, interest and penalty specified in the show cause notice or demand order and the electronic liability register sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n fraudulently availed or is ineligible in as much asa) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36- i. issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or ii. without receipt of goods or services or both; or b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or c) the registered person availing the credit of input tax has been found nonexistent or not to be conducting any business from any place for which registration has been obtained; or d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36, may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h safeguards as he may deem fit. Rule 88B: Manner of calculating interest on delayed payment of tax (1) In case, where the supplies made during a tax period are declared by the registered person in the return for the said period and the said return is furnished after the due date in accordance with 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, the interest on tax payable in respect of such supplies shall be calculated on the portion of tax which is paid by debiting the electronic cash ledger, for the period of delay in filing the said return beyond the due date, at such rate as may be notified under subsection (1) of section 50. (2) In all other cases, where interest is payable in accordance with subsection (1) of section 50, the interest shall be calculated on the amount oftax which remains unpaid, for the period starting from the date on which such tax was due to be paid till the date such tax is paid, at such rate as may be notified under sub-section (1) of section 50. (3) In case, where interest is payable on the amount of input tax credit wrongly availed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection (1) of Section 49 stipulates that every deposit made toward tax, interest, penalty, fee or any other amount by a person by internet banking or by using credit or debit cards etc. shall be credited to the electronic cash ledger of such person to be maintained in such manner as may be prescribed whereas, Sub-section (3) provides that amount available in electronic cash ledger may be used for making any payment towards tax, interest, penalty, etc. under the provisions of the CGST Act or the rules made there under in such manner and subject to such condition and within such time as may be prescribed. Sub-section (6) of Section 49 provides the balance in electronic cash ledger or electronic credit ledger after payment of tax, interest, etc., may be refunded in accordance with the provisions of Section 54. Sub-section (8) of Section 49 provides for discharging the tax liability by self assessed tax. Explanation to Section 49 reads as under : "Explanation.--For the purposes of this section,- (a) the date of credit to the account of the Government in the authorised bank shall be deemed to be the date of deposit in the electronic cash ledger; (b) the expression,- (i) "tax due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble on the amount which is already deposited and utilised for the payment and thereafter adjusted for payment of tax is contrary to the fundamental principle for charging interest which is compensatory in nature. If the mechanical and literal interpretation is done by the respondent is accepted, the same would convert the interest into the nature of penalty. It appears that for the purpose of introduction of the proviso to Section 50(1), is with regard to remove the controversy which earlier existed as to whether interest is leviable on gross tax liability without considering admissible input tax credit or whether it was only applicable on net tax liability paid by the taxable person. The GST Counsel in his 31st meeting decided to incorporate proviso to Section 50 of the Act so as to clarify that interest was leviable only on net tax liability and accordingly, the proviso was introduced prospectively by Finance Act, 2019 and notified vide notification No.63/2020 dated 25.08.2020 and thereafter, in the 39th meeting of the GST Counsel, it was decided to apply the proviso with effect from 01.07.2017 by Finance Act, 2021. The retrospective of the provisio was notified by notification N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng factory or business with a goodwill as business, with a prosperous reputation and a name among the business community and customers. Its value is qua business, although it has a habitation or building to accommodate it. The personality of the thing let out is a going concern or enterprise, not a lifeless edifice. The legislature, quite conceivably, thought that a marginal, yet substantial, class of buildings with minimal equipments may still be good businesses and did not require protection as in the case of ordinary building tenancies. So, to dispel confusion from this region and to exclude what seemingly might be leases only of buildings but in truth might be leases of business, the legislature introduced the exclusionary proviso. 17. While rulings and text books bearing on statutory construction have assigned many functions for provisos, we have to be selective, having regard to the text and context of a statute. Nothing is gained by extensive references to luminous classics or supportive case law. Having explained the approach we make to the specific 'proviso' situation in s. 2(a) of the Act, what strikes us as meaningful here is that the legislature by the amendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) can only be claimed when the loss arises under one head and the profits against which it is sought to be set off arises under a different head. When the two arise under the same head, of course the loss can be deducted but that is done under section 10 and not under section 24(1) (Per Bose, J.)" Indeed it is not disputed that when profit and loss arose under the same head in any place which was not an Indian State recourse had to be had to the provisions of ss. 7 to 12B and not to any other section. But it was contended on behalf of the Revenue that the first proviso to s. 24(1) of the Indian Act not only affected the generality of the main enactment but also introduced an addendum that where the profits of the business arose in what was British India in the case of the Indian Act or what was Travancore State in the case of the Travancore Act and the losses under the head business were sustained in an Indian State or in the latter case in any other Indian State or British India, these losses could not by virtue of the proviso be deducted from profits made in British India or Travancore State as the case may be. They could only be adjusted against profits arising in an Indian Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the main enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that that is its necessary effect. (Vide also Corporation of The City of Toronto v. Attorney-General for Canada) (1)." 18. The Hon'ble Supreme Court in case of Commissioner of Income Tax versus Modipon Limited has held that the amount deposited in personal ledger account "PLA" under the excise provisions of the Central Excise Act is nothing but payment of tax and therefore, it was held to be an admissible deduction under Section 43B of the Income Tax Act, 1961 as under : "9. Deposit of Central Excise Duty in the PLA is a statutory requirement. The Central Excise Rules, 1944, specify a distinct procedure for payment of excise duty leviable on manufactured goods. It is a procedure designed to bring in orderly conduct in the matter of levy and collection of excise duty when both manufacture and clearances are a continuous process. Debits against the advance deposit in the PLA have to be made of amounts of excise duty payable on excisable goods cleared during the previous fortnight. The deposit once made is adjusted against the duty payable on removal and the bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod. It cannot be disputed that levy of interest would be on delayed payment of tax due and payable. It is not the case that on finalization of the assessment, any amount more than the amount paid on ad-hoc basis, was assessed and/or required to be paid by the assessee." 20. The Hon'ble Apex Court in case of Indodan Industries Limited versus State of U.P. & Others has held as under : "7. One more aspect needs to be highlighted. In the present case, we are concerned with the levy of interest for delayed payment. Under sub-Section (2B) to Section 9, such interest for delayed payment is given the status of "tax due". The said interest is compensatory in nature in the sense that when the assessee pays tax after it becomes due, the presumption is that the Department has lost the revenue during the interregnum period (the date when the tax became due and the date on which the tax is paid). The assessee enjoys that amount during the said period. It is in this sense that the interest is compensatory in nature and in order to recover the lost revenue, the levy of interest is contemplated by Section 120 of the Finance Act, 2000 retrospectively." 21. The Hon'ble Supreme Court in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature specifying the amount of arrears including interest due from any person, and on receipt of such certificate the Collector is required to proceed to recover the amount specified from such person as if it were an arrear of land revenue. The words used in s.3(6) are "specifying the amount of arrears including interest", that is to say that the interest is part of the arrear of cess. In the case of a penalty imposed under s.3(5), a separate provision for recovery has been made under s.3(7). Although the manner of recovery of a penalty provided by s.3(7) is the same as the manner for recovery provided by s.3(6) of the arrears of cess, the Legislature dealt with it as something distinct from the recovery of the arrears of cess including interest. In truth, the interest provided for under s.3(3) is in the nature of compensation paid to the Government for delay in the payment of cess. It is not by way of penalty. The provision for penalty as a civil liability has been made under s.3(5) and for penalty as a criminal offence under s.4. The Delhi High Court proceeded entirely on the basis that the interest bore the character of a penalty. It was, according to the learned Judges "penal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest would not arise. Under these circumstances, this Court passes the following orders: 1) The credit to the account of Government would always occur not later than the last date for filing the monthly returns in terms of the provisions of Section 39(7) of the Act. 2) Once the amount is paid by generating GST PMT-06, the said amount will be initially credited to the account of the Government immediately upon deposit, at which point, the tax liability of a registered person will be discharged to the extent of the deposit made to the Government. Thereafter, for the purpose of accounting only, it will be deemed to be credited to the ECL as stated in the Explanation (a) to Section 49(11) of the Act. 3) As long as the GST, which was collected by a registered person, is credited to the account of the Government not later than the last date for filing the monthly returns, to that extent, the tax liability of such registered person will be discharged from the date when the amount was credited to the account of the Government. If there is any default in payment of GST, even subsequent to the due date for filing the monthly returns i.e., on or before 20th of every succeeding m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting that the debit in electronic cash ledger will be made at the time of filing of the return otherwise the amounts get credited to the account of the Government immediately upon the deposit. Therefore, once the amount deposited by the petitioner is credited to the account of the Government, the tax liability of such registered person stands discharged on the said date subject to setting off by debit in electronic cash ledger for accounting purpose at the time of filing of return to set off liability against such deposit of the amount which was credited to the account of the Government and therefore, the petitioner cannot be made liable to pay the interest from the date of deposit in the account of the electronic cash ledger till the date of filing of the return.
25. In view of the above foregoing reasons, the impugned communication through email dated 26.04.2022 and the letter dated 27.12.2021 in Special Civil Application No.8871 of 2022 as well as impugned notice dated 10.08.2022 in Special Civil Application No.17657 of 2022 are hereby quashed and set aside. In the result, these petitions are allowed. Rule is made absolute. No order as to cost. X X X X Extracts X X X X X X X X Extracts X X X X
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