The Gujarat High Court has ruled that the tax amount credited to the government through the deposit of an electronic cash credit ledger by the petitioner should be considered a payment of tax.
This amount gets adjusted at the time of filing the return by debiting the electronic cash ledger, in accordance with the scheme Goods and Services Tax Act. As a result, the question of payment of interest does not arise for the period from the date of deposit in the electronic cash ledger to the date of filing the return.
The petitioner, Arya Cotton Industries, challenged the order, raising demand for short payment of interest under Section 50 of the Central Goods and Services Tax Act, 2017 ( CGST ) for the period after deposit of tax by the petitioners in the electronic cash ledger.
The petitioners deposited tax along with interest from the due date of filing their return in Form GSTR-3B until date of payment of tax in the electronic cash ledger periodically after debiting the amount from their bank account.
It was found that the respondent had calculated interest up to the date of filing the return and not up to the date of depositing tax in the electronic cash ledger.
Uchit Sheth, representing the petitioners, submitted that Section 50 of the GST Act provides for the imposition of interest if the taxable person fails to pay the tax.
He argued that when the taxable person has a sufficient balance in the electronic cash ledger, there is no failure to pay tax, and therefore, the charge of interest is not applicable.
The respondents, referring to Section 49(3) of the CGST Act read with Rule 87 of the Rules, submitted that the amount payable in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees, or any amount payable under the provisions of the Act by debiting the electronic cash ledger.
The respondents, represented by Utkarsh R. Sharma, further argued that the deposited amount would be credited to the electronic cash ledger. Thereafter, the payment shall be made from this ledger account by debiting it towards tax, interest, and penalty on the date the GST return is filed.
Therefore, the petitioner is liable to pay interest up to the date of filing the return, irrespective of the deposit made in the electronic cash ledger by the petitioner.
The High Court bench of Justices Bhargav D. Karia and Niral R. Mehta observed that the amount in the electronic cash ledger is nothing but the nature of advance tax lying in the account of the assessee, which cannot be withdrawn or utilised in any manner by the assessee except for payment of tax liability as per the return filed.
The bench held that the tax amount that has already been credited to the Government by depositing an electronic cash credit ledger by the assessee is required to be considered as a payment of tax, which gets adjusted at the time of filing of the return by debit in the electronic cash ledger as per the scheme of the CGST Act.
“Therefore, the question of payment of interest would not arise for the period from the date of deposit of the amount in the electronic cash ledger by assessee till the date of filing of the return,” the court stated.
The court quashed and set aside the impugned communications and allowed the petition.
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