Cash Ledger Deposits by Liquidator Amounts to Valid Payment Despite Non-Filing of GST Returns: Madras HC quashes ₹1.02 Crore Demand [Read Order]

The Madurai bench of Madras High Court, in a recent ruling, quashed a GST ( Goods and Services Tax ) demand of ₹1.02 crore raised against a company under liquidation, holding that amounts deposited into the electronic cash ledger by the liquidator must be treated as valid payment of tax liability, even if no returns filed.

Satyadevi Alamuri, Liquidator of G. B. Engineering Enterprises Private Limited represented for the petition. The GST authorities issued notices to the company for the period April 2019 to December 2019, leading in an order confirming a demand of ₹1,02,57,338, along with interest and penalties.

The department refused to recognise payments made in cash on various dates, contending that GST liability is discharged only when amounts in the electronic cash ledger are debited through return filing, and that there was no legal provision to directly appropriate sums from the ledger.

The petitioner asserted that deposits made through challans were duly credited to the government’s account as per Section 49(6) and Explanation (a) to Section 49(11) of the CGST Act.

The inability to file GSTR-3B was because the company’s registration was cancelled in December 2019, and suppliers’ non-compliance prevented auto-population of GSTR-2A.

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The petitioner relied on CBIC Circular No. 134/04/2020-GST, which clarified that deposits made by IRP/RPs or liquidators into the cash ledger of an erstwhile registration are valid and refundable, even if returns are not filed.

The CBIC clarification states that “Any amount deposited in the cash ledger by the IRP/RP, in the existing registration, from the date of appointment of IRP / RP to the date of notification specifying the special procedure for corporate debtors undergoing CIRP, shall be available for refund to the erstwhile registration under the head refund of cash ledger, even though the relevant FORM GSTR-3B/GSTR-1 are not filed for the said period. The instructions contained in Circular No. 125/44/2019-GST dt. 18.11.2019 stands modified to this extent.”

The petitioner also invoked Sections 60 and 238 of the Insolvency and Bankruptcy Code, 2016, arguing that the GST department could not bypass NCLT’s jurisdiction, especially when its prior claims had been rejected and not appealed.

Further, Mr. M.G. Pranava Charan, the counsel of the petitioner, relied on the decision of ‘Vishnu Aroma Pouching Private Limited vs. Union of India,’ which held that “that the petitioner therein had duly discharged the tax liability for August 2017 within the period prescribed therefor. However, it was only on account of technical glitches in the system that the amount of tax paid by the said petitioner for August 2017 had not been credited to the Government Account. Therefore, it was held that the interests of justice would best be served if the declaration submitted by the said petitioner in October 2019 was accepted.”

However, the GST department maintained that system limitations barred appropriation of amounts from the cash ledger without return filing, and that such deposits could not be treated as tax payment for the disputed period.

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Justice C. Saravanan observed that there was no dispute over the fact the amount had been transferred as and when the tax liability arose into the Electronic Cash Ledger as is required to be maintained under Section 49 of the GST Act. It also noted the CBIC clarification circular.

“A reading of the above clarification indicates that under similar circumstances, the liquidator of the interim resolution provisional or resolution provisional or the liquidator, as the case may be, is required to obtain a fresh registration and apply for a refund, implying a fresh payment of amount and thereafter, the refund of the aforesaid amount paid earlier. These are only trade facilitation intended to reduce the rigours of the strict application of the provisions of the Act and Rules. ” said the court.

While quashing the demand, the Court stated, “There cannot be impediment on appropriating the amounts already paid by the petitioner on the dates mentioned in the Electronic Cash Register to square off the tax liability of the petitioner. Therefore, the impugned order is quashed with the consequential relief to the respondent.”

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