The Tale of Electronic Ledgers in GST – Union Budget 2022-23

Electronic ledgers - GST - Union Budget 2022-23 - Budget 2022 - Budgetscan 1- Taxscan

The Union Budget for the Financial Year 2022-23 (‘the Budget’) was presented in the Lok Sabha by Hon’ble Finance Minister Nirmala Sitharaman on February 01, 2022. Considering the significance of Information technology in India after the outbreak of the Coronavirus pandemic, this was the second Union Budget that was presented on a tablet and not the traditional bahi khata. The primary focus of the Budget was on strengthening IT infrastructure facilities in India.

Further, as per Finance Bill, 2022 various significant amendments have been made in Customs, Central Excise, and GST Law. The changes pertaining to GST are introduced in the Budget vide clause 99 to 113 which will come into effect from a notified date.

One of the key amendments made in the Budget is in Section 49 of the CGST Act, 2017 which is towards payment of tax, interest, penalty, and other amounts. The summary of alterations made in the aforesaid section are as follows:

Section 49 – Payment of tax, interest, penalty, and other amounts

  • Section 49(2)
Existing Provision The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41 or section 43A, to be maintained in such manner as may be prescribed.
Proposed Provision The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41, to be maintained in such manner as may be prescribed.
Analysis of Section 49(2):
Section 43A was added to the Central Goods and Services Tax Act, 2017 prescribing the procedure for furnishing returns and availing input tax credit. The intent of inserting this section was to operationalise the changes in the return reporting framework as and when the same is introduced by the CGST Rules.

Insertion of section 43A could have resulted in availment of ITC on a provisional basis even if other conditions are not fulfilled. The intention of the lawmaker is to allow taxpayers to claim ITC in their GSTR-3B only to the extent of the amount appearing in their GSTR-2B/GSTR-2A.

Considering that the said section has now become redundant it is being removed and also, the reference of it is being removed from section 49(2).
  • Section 49(4)
Existing ProvisionThe amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time as may be prescribed
Proposed ProvisionThe amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and restrictions and within such time as may be prescribed
Analysis of Section 49(4):
We are aware that there are number of conditions and restrictions for availment of ITC under the GST law. Moreover, the Government is making changes from time to time in relation to provisions related to ITC. Further, once the assessee has identified the quantum of availment of ITC, the assessee should be allowed under law to utilize the ITC without any restrictions.

The Orissa High Court in the case of Jyoti Construction vs. Deputy Commissioner of CT & GST and Anr had held that electronic credit ledger cannot be debited for making payment of pre-deposit by rejecting the appeal filed by the Petitioner under Section 107 (1) of the Odisha Goods and Services Tax Act, 2017.

Similarly, whether payment of additional tax liability made through DRC-03 can be done through debiting credit ledger or not has been under debate.
  • Section 49(10)
Existing ProvisionA registered person may, on the common portal, transfer any amount of tax, interest, penalty, fee or any other amount available in the electronic cash ledger under this Act, to the electronic cash ledger for integrated tax, central tax, State tax, Union territory tax or cess, in such form and manner and subject to such conditions and restrictions as may be prescribed and such transfer shall be deemed to be a refund from the electronic cash ledger under this Act.
Proposed ProvisionA registered person may, on the common portal, transfer any amount of tax, interest, penalty, fee or any other amount available in the electronic cash ledger under this Act, to the electronic cash ledger for,- (a) integrated tax, central tax, State tax, Union territory tax or cess; or (b) integrated tax or central tax of a distinct person as specified in sub-section (4) or, as the case may be, subsection (5) of section 25, in such form and manner and subject to such conditions and restrictions as may be prescribed and such transfer shall be deemed to be a refund from the electronic cash ledger under this Act: Provided that no such transfer under clause (b) shall be allowed if the said registered person has any unpaid liability in his electronic liability register
Analysis of Section 49(10):
There are various instances where inadvertently the payment of liability is made by the assessee in incorrect GSTIN. To overcome the same, the sub-section 10(b) of Section 49 of the CGST Act, 2017 is being introduced, which allows the transfer of amount available in electronic cash ledger under the CGST Act of a registered person to the electronic cash ledger under the said Act or the IGST Act of a distinct person. In other words, the balance in the cash ledger under one GSTIN can be transferred to another GSTIN under the same PAN.  

The introduction of fungibility of cash balance between States of the same entity shall have a positive impact on working capital. The States where cash balance exists can now be transferred to such states where the Companies have an output tax liability.

There is ambiguity still prevailing regarding the transfer of balance in electronic credit ledger to state tax ledger (i.e., transfer of SGST, CGST, or IGST ledger amount to SGST ledger) from one GSTIN to another GSTIN under the same PAN.
  • Section 49(12)
Existing ProvisionNone
Proposed Provision(12) Notwithstanding anything contained in this Act, the Government may, on the recommendations of the Council, subject to such conditions and restrictions, specify such maximum proportion of output tax liability under this Act or under the Integrated Goods and Services Tax Act, 2017 which may be discharged through the electronic credit ledger by a registered person or a class of registered persons, as may be prescribed
Analysis of Section 49(12):
The provisions such as Rule 86B wherein taxpayers with taxable supplies exceeding fifty lakhs were required to pay at least 1% of the liability by way of cash payment can be made applicable through this machinery. Therefore, Rule 86B now has legal backing.

Conclusion:

Amendments in Section 49 are a mixed bag; while section 49(10) is taxpayer-friendly, 49(12) seems harsh on taxpayers. This is because even after a taxpayer satisfies the numerous conditions laid down under section 16 and avails credit, section 49(12) can restrict its availment for specified purposes.

GST was incepted with a dream of seamless credit with minimum or no restrictions; however, the reality seems entirely contradictory. The taxpayers have to fight for every penny of credit that they have earned through genuine tax payments.  

Disclaimer: This publication contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received, or it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of a particular situation. This document is intended solely for information purposes. This document is under no circumstances is it to be used or considered as financial or taxation advice.

The authors are Jigar Doshi- Founding partner at TMSL and Nirali Gada – Manager at TMSL. They can be reached at jigar.doshi@tmsl.in

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