Mere Deposit in Electronic Cash Ledger Does Not Amount to Payment of GST Unless Appropriated to Government Account: Andhra Pradesh HC
The Andhra Pradesh High Court in Sona Enterprises vs. The State of AP & Anr. held that mere deposit of GST into a taxpayer’s electronic cash ledger does not amount to payment of tax under the CGST Act. Payment is completed only when the amount is appropriated to the Government account through the necessary debit entries under Section 49(1) of the CGST Act read with Rule 87(6) and Rule 87(7) of the CGST Rules. The Court noted that the petitioner had deposited the GST amount in the electronic cash ledger within time but had not debited the ledger to appropriate the amount to the Government account before availing ITC. Since the petitioner subsequently made the required debit entries, the GST liability stood discharged, although interest for the period of delay remained payable. The Court also held that recovery of the ITC itself was not justified after such appropriation. Observing that the question whether the omission to debit the electronic cash ledger constituted an inadvertent omission or suppression of facts with intent to evade tax required factual adjudication, the Court set aside the order dated 27 May 2022 and remanded the matter to the second respondent for passing separate assessment and penalty orders, if any, for the two tax periods after considering the petitioner’s objections.
Facts:
Sona Enterprises (‘the Petitioner’), a registered person under the GST Act engaged in the business of trading in ferrous waste and scrap, purchased scrap from Indian Railways. GST on such purchases was payable by the Petitioner under the Reverse Charge Mechanism (RCM). During the relevant period, the Petitioner deposited the GST amount in cash into its electronic cash ledger.
The State of Andhra Pradesh and the Additional Commissioner, Central GST (‘the Respondent’) conducted an audit for FY 2017-18 and FY 2018-19 and found that although the Petitioner had deposited the GST amount into the electronic cash ledger, the Petitioner had not passed the necessary debit entries appropriating the amount to the Government account. The audit also revealed that the Petitioner had availed input tax credit on the strength of such deposits before appropriation to the Government. Consequently, proceedings under Section 74 of the CGST Act were initiated.
The Petitioner contended that GST liability under RCM had been discharged within time by depositing cash into the electronic cash ledger. The Petitioner submitted that under the erstwhile Andhra Pradesh Value Added Tax regime there was no separate requirement of debiting the ledger after deposit, and therefore the omission was due to ignorance of the GST system. The Petitioner argued that the lapse was, at best, a case of misreporting and not fraud, wilful misstatement, or suppression of facts attracting Section 74 of the CGST Act.
The Respondent contended that mere deposit into the electronic cash ledger did not amount to payment of tax under the GST law. The Respondent further contended that the Petitioner had wrongly availed input tax credit without actual payment of tax to the Government and that the debit entries were made only after discrepancies were detected during audit. Therefore, the conduct amounted to suppression of facts and wilful misstatement attracting Section 74 of the CGST Act.
Aggrieved by the assessment and penalty order dated May 27, 2022 passed under Section 74 of the CGST Act demanding tax, interest, penalty and recovery of allegedly wrongful ITC, the Petitioner approached the High Court by filing a writ petition under Article 226 of the Constitution of India seeking quashing of the show cause notice and the consequential order.
Issue:
Whether mere deposit of GST amount into the electronic cash ledger amounts to payment of tax under the CGST Act, and whether failure to appropriate such amount to the Government account through debit entries can attract proceedings under Section 74 of the CGST Act?
Held:
The Hon’ble Andhra Pradesh High Court in Writ Petition No. 31510 of 2024 held as under:
- Observed that, there was no dispute regarding the quantum of tax payable by the Petitioner and the dispute was confined to whether the tax could be treated as paid in time and whether availment of ITC based on such deposit was permissible.
- Noted that, the Petitioner had deposited cash in the electronic cash ledger equivalent to the GST liability and the amounts were deposited within the stipulated time, but the Petitioner omitted to debit the ledger in favour of the Government.
- Observed that, Section 49(1) of the CGST Act read with Rule 87(6) and Rule 87(7) of the CGST Rules makes it clear that deposit of cash or credit of ITC into the electronic ledger does not amount to payment of tax. Payment occurs only when the necessary amount is appropriated to the Government exchequer.
- Held that, mere deposit of cash into the ledger of the taxpayer would not be sufficient to claim discharge of GST liability.
- Observed that, since the Petitioner had subsequently made the necessary debit entries appropriating the amount to the Government, the GST liability arising from purchases from Indian Railways stood discharged. However, as appropriation did not occur within the prescribed time, the Petitioner was liable to pay interest for the period of delay.
- Noted that, although ITC could not have been availed before appropriation of the tax to the Government account, recovery of the ITC itself was not justified once the Petitioner subsequently made the required debit entries.
- Observed that, the central dispute as to whether the omission to debit the electronic cash ledger was an inadvertent omission or suppression of fact with intent to evade tax was a question of fact that required adjudication by the primary authority.
- Accordingly held that, the impugned order dated May 27, 2022 was liable to be set aside and the matter remanded to the second Respondent for passing separate orders of assessment and penalty, if any, for the two tax periods after considering the objections of the Petitioner.
Our Comments:
The Andhra Pradesh High Court primarily relied upon the statutory scheme contained in Section 49 of the CGST Act and Rule 87 of the CGST Rules to distinguish between deposit of money into the electronic cash ledger and actual payment of tax. The judgment in RSB Transmission (India) Limited v. Union of India [W.P.(T) No. 23 of 2022, order dated October 18, 2022] The Jharkhand High Court held that tax payment is completed only when the amount standing in the electronic cash ledger is utilized and appropriated to the Government account. The Andhra Pradesh High Court adopted the same reasoning and held that mere availability of funds in the ledger does not result in discharge of tax liability.
However, a contrary view has been taken by the Hon’ble Madras High Court in M/s. Eicher Motors Limited v. The Superintendent of GST and Central Excise [W.P. Nos. 16866 & 22013 of 2023, order dated January 23, 2024], wherein it was held that once the GST amount is deposited into the electronic cash ledger by generating Form GST PMT-06, the amount stands credited to the Government account on the date of such deposit and the tax liability is discharged to that extent. Relying on Explanation (a) to Section 49(11) of the CGST Act, the Court held that no interest under Section 50(1) of the CGST Act would be payable where the amount was deposited within the prescribed time, even if the return in Form GSTR-3B was filed belatedly. The Madras High Court expressly differed from the view taken by the Jharkhand High Court in RSB Transmission (supra). The divergence between the High Courts on whether deposit in the electronic cash ledger amounts to payment of tax therefore remains a contentious issue awaiting an authoritative pronouncement.
Relevant Provisions:
Section 49(1) of the Central Goods and Services Tax Act, 2017
“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 prescribed, shall be credited to the electronic cash ledger of such person to be maintained in such manner as may be prescribed.”
Rule 87 of the Central Goods and Services Tax Rules, 2017
87. Electronic Cash Ledger.-
“(1) The electronic cash ledger under sub-section (1) of section 49 shall be maintained in FORM GST PMT-05 for each person, liable to pay tax, interest, penalty, late fee or any other amount, on the common portal for crediting the amount deposited and debiting the payment therefrom towards tax, interest, penalty, fee or any other amount.
…
(6) On successful credit of the amount to the concerned government account maintained in the authorised bank, a Challan Identification Number shall be generated by the collecting bank and the same shall be indicated in the challan.
(7) On receipt of the Challan Identification Number from the collecting bank, the said amount shall be credited to the electronic cash ledger of the person on whose behalf the deposit has been made and the common portal shall make available a receipt to this effect.”
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