No interest on timely GST Deposit in Electronic Cash Ledger

Summary: Section 50 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) mandates interest on delayed tax payments. While a proviso to Section 50(1) clarifies that interest is payable only on the net tax liability (retrospectively from July 1, 2017), a separate issue arose concerning interest liability when tax is deposited in the Electronic Cash Ledger (ECL) by the due date but the GSTR-3B return is filed late. Tax authorities contended that tax is paid only upon debiting the ECL through filing GSTR-3B, attracting interest for delayed filing. However, taxpayers argued that depositing funds into the ECL via Form GST PMT-06 constitutes payment to the government, discharging the tax liability to that extent. Analysis of the CGST Act, including Section 39 (requiring tax payment before filing GSTR-3B) and Section 49 (crediting deposits to ECL and deeming the government account credit date as the deposit date), along with relevant rules, supports the taxpayer’s view. Recent judgments by the Madras and Gujarat High Courts affirm that once the amount is deposited and credited to the government account, the tax liability is discharged. The debit in the ECL upon filing GSTR-3B is considered an accounting adjustment. Therefore, interest is not leviable for the period between the date of deposit in the ECL and the date of filing the GSTR-3B return, provided the tax amount was timely deposited in the ECL using Form GST PMT-06.

Section 50(1) read as under-

“Section 50. Interest on delayed payment of tax.

(1) Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council.

Provided that the interest on tax payable in respect of supplies made during a tax period and declared in the return for the said period furnished after the due date in accordance with the provisions of section 39, expect where such return is furnished after commencement of any proceedings under section 73 or section 74 or section 74A in respect of the said period, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger.”

Section 50 of CGST Act provides for interest on delayed payment of tax. Proviso to Section 50(1) refers to interest on tax payable in respect of supplies made during a tax period and declaring the return for the said period furnished after the due date in accordance with the provisions of Section 39 shall be payable on the portion of the tax which is paid by debit in electric cash ledger.

There was earlier a controversy 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. This issue was favourably considered in the 31st GST Council meeting and it was decided to incorporate a proviso to Section 50 of the GST Acts so as to clarify that interest was leviable only on net tax liability. Such proviso was introduced prospectively by Finance Act, 2019 and notified vide Notification No. 63/2020 dated 25.8.2020. Thereafter it was decided in the 39th GST Council that such provision was required to be introduced retrospectively. Hence the provision was retrospectively introduced w.e.f. 1.7.2017 by Finance Act, 2021. The retrospective insertion was notified by Notification No. 16/2021 dated 1.6.2021.

Thus, the entire purpose of introduction of Proviso to Section 50 of the CGST Act 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. Therefore, the purpose of introduction of the proviso to Section 50 is only to clarify with regard to levibility of the interest on net tax liability and not on gross tax liability of the assessee.

It is pertinent to note that the said proviso has nothing to do with the period for which interest is to be levied. But main provision provides ‘for the period for which the tax or any part thereof remains unpaid’.

In many cases, taxpayer deposited the tax amount in Electronic Cash Ledger (‘ECL’) within due date but the return u/s 39 i.e. GSTR-3B was not filed within due date. In this situation, the case of Department is that the deposit of tax in ECL would not amount to payment of tax and would tantamount to failure to remit the GST in time, for which interest liability would be attracted. Whereas the taxable person submission is that where person has sufficient balance in the ECL, then there is no tax or any part thereof remains unpaid and there is no failure to pay tax and therefore charge of interest under Section 50 of the CGST Act is not attracted.

In view of the same, a question remains that whether the person is liable to pay interest on the amount of tax from the date of deposit made in ECL till the date of filing of the return. To find the solution, the scheme of the CGST Act is required to be considered. The provisions of the CGST Act provide for self-assessment by the assessee.

Section 39 provides for furnishing of returns. Section 39(1) provides for furnishing of return electronically of inward and outward supplies of goods or services of both input tax credit availed, tax payable, tax paid and such other particulars in such form on manner and within such time as may be prescribed.

“39. Furnishing of returns.— (1) Every registered person, other than an Input Service Distributor or a non-resident taxable person or a person paying tax under the provisions of section 10 or section 51 or section 52 shall, for every calendar month or part thereof, furnish, a return, electronically, of inward and outward supplies of goods or services or both, input tax credit availed, tax payable, tax paid and such other particulars, in such form and manner, with in such time , and subject to such conditions and restrictions, as may be prescribed.”

It is clear that in the monthly returns i.e., GSTR-3B, it is mandatory to provide the details about the tax paid, which means that prior to filing GSTR-3B, the tax should have been paid by the registered person as provided in Section 39(1) of the CGST Act.

Sub-section (7) of Section 39 stipulates that every person who is required to furnish return under Sub- section (1) shall pay to the Government the tax due as per such return not later than the last date on which he is required to furnish such return.

“(7) Every registered person who is required to furnish a return under sub-section (1), other than the person referred to in the proviso thereto, or sub-section (3) or sub-section (5), shall pay to the Government the tax due as per such return not later than the last date on which he is required to furnish such return.”

If an assessee had failed to file GSTR-3B return for a month on the due date, he cannot be permitted to file GSTR-3B returns for the subsequent months in terms of the provisions of Section 39(10) of the CGST Act, which reads as follows:

“(10) A registered person shall not be allowed to furnish a returns for a tax period if the return for any of the previous tax periods or details of outward supplies under sub-section (1) of Section 37 for the said tax period has not been furnished by him.”

A perusal of the above makes it clear that no registered person can furnish a monthly return for tax, if the return for tax of any previous tax periods has not been furnished by them.

Section 49 of the CGST Act provides for payment of tax, interest, penalty and other amounts. Sub-section (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 ECL of such person to be maintained in such manner 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 prescribed, 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) of Section 49 provides that amount available in ECL 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.

“(3) The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made thereunder in such manner and subject to such conditions and within such time as may be prescribed.”

Sub-section (6) of Section 49 provides the balance in ECL or electronic credit ledger after payment of tax, interest, etc., may be refunded in accordance with the provisions of Section 54. Any balance in ECL after the payment of tax would be refunded to the asseseee in terms of section 54 read with Rules 89 of CGST Rules.

“(6) The balance in the electronic cash ledger or electronic credit ledger after payment of tax, interest, penalty, fee or any other amount payable under this Act or the rules made thereunder may be refunded in accordance with the provisions of section 54.”

Any amount paid into ECL cannot be withdrawn by the taxpayer at their sweet will i.e., once the money is deposited into the account of Government, the same will not be refund unless a suitable order is passed by the Department. Section 49(3) of the CGST Act clearly states that the amount available in ECL may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the Rules made thereunder. Therefore, the tax liability is self-assessed by the tax payer by filing GSTR-1 returns and the tax amount paid under the heads IGST, CGST, SGST, cess, interest, fees, etc., are to be paid under the respective heads by filing GSTR-3B returns and after the debiting such amount from the ECL only, the tax liability is said to be discharged, otherwise, the said amount reflects as credit balance in ECL, which the tax payer can get back at any time by filing a refund application under Section 54 of CGST Act within a stipulated time limit.

Sub-section (8) of Section 49 provides for discharging the tax liability by self-assessed tax.

(8) Every taxable person shall discharge his tax and other dues under this Act or the rules made thereunder in the following order, namely:-

(a) self-assessed tax, and other dues related to returns of previous tax periods;

(b) self-assessed tax, and other dues related to the return of the current tax period;

(c) any other amount payable under this Act or the rules made thereunder including the demand determined under section 73 or section 74 or section 74A.

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 dues” means the tax payable under this Act and does not include interest, fee and penalty; and

(ii) “other dues” means interest, penalty, fee or any other amount payable under this Act or the rules made thereunder.”

As per the above explanation, the date of credit to the account of the Government in the authorised bank shall be deemed to be the date of deposit in electronic cash ledger. Therefore, once the Form GST PMT-06 is generated and if any amount is paid through the said form in the authorised bank, the same will be credited to the account of the Government and thereafter only, it will be deemed to be credited to the ECL.

A reference was also made to Rules 87(6) and 87(7), which is extracted hereunder:

“Rule 87. Electronic Cash Ledger.-

(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.”

The aforesaid Rule 87(7) and (8) deals with the credit to ECL. Immediately on receipt of challan identification number from the collecting bank, the said amount shall be credited to the ECL of the person, on whose behalf the deposit has been made, which means, as stated in Explanation (a) to Section 49(11) of the CGST Act, initially the amount is credited to the Government and thereafter, it will deemed to be credited to the ECL which is an automatic process, i.e., once GSTR-3B is filed, automatically, it will appear in the electronic cash ledger, which is only for the accounting purpose and nothing more than that.

GST PMT-06 challan has to be generated for the purpose of payment of tax. The date of deposit through GST PMT-06 is the date of credit of GST to the Government account. Thus, the tax can be remitted to the Government well before the filing of GSTR-3B monthly returns by using GST PMT-06.  It is clear that prior to the filing of the GSTR-3B, the tax should have been paid by using GST PMT-06 and that is the reason why the details of the payment of tax is required to be furnished in the said form irrespective of time of filing the GSTR-3B, whether it is before or after the due date for filing the returns.

The GST, which has been collected by a registered person by virtue of sale or otherwise, is the amount of the Government and thus, the same cannot be retained by any registered person/assessee forever atleast up to the date of filing of GSTR-3B returns but immediately. As soon as the collection is made, the said amount shall be deposited in the account of Government by generating Form GST PMT-06, since the said amount is belonging to the Government. Thus, once it is deposited, it should be made available to the Government for their use and the Government cannot wait or postpone the utilisation of the said amount until the date of filing of the GSTR-3 or GSTR-3B by the registered person. At any cost, the exchequers cannot be deprived of its right to utilise the amount deposited into the Government account under the pretext of non-filing of GSTR-3B monthly returns.

Whenever, the GST has been paid by using Form GST PMT-06, the tax liability will be discharged to that extent. Thus, the filing of GSTR-3B would ensure the complete discharge of GST liability by the registered person through the accounting entries in the respective ledgers. Hence, it does not mean that only when the GSTR-3B is filed, the Government can utilise the GST collection made by the registered person i.e., it is not that until the filing of monthly returns, the registered person can retain the said amount in the ECL or Electronic Credit Ledger forever. From the moment it is deposited by generating GST PMT-06, it is the money of the exchequers, since the money was collected only under the name of the exchequer in the form of GST.

When the return is filed by the assessee in Form GSTR-3B and if there is sufficient balance available in the ECL, than liability as per the return is simply offset against such balance by debit in ECL. The tax paid at the time of deposit into ECL which is adjusted against liability at the time of filing of return is merely setting off of the amount from ECL to be utilised for payment of tax liability as per the return filed. Therefore, the amount in ECL is nothing but in 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.

Debiting of ECL is only adjustment of the amount of deposit made in ECL. On plain reading of the provisions of Section 50(1) which applies for calculating levy of interest on delayed payment of tax cannot be literally interpreted to the effect that interest is payable on the amount which is already deposited and utilized for the payment and thereafter adjusted for payment of tax is contrary to the fundamental principle for charging interest which is compensatory in nature.

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. [Eicher Moters Limited vs. The Superintendent of GST, dated 23.01.2024 (Mad.)]

As per the provisions of the CGST Act, the amount deposited by the registered person by generating Challan will get credited to the account of the Government immediately upon deposit and later on the same shall be adjusted against the tax payable as per the return filed by debiting the ECL and therefore, the tax liability of the registered person will be discharged to the extent of the deposit made to the Government. As per the Scheme of the Government, it is only for the purpose of accounting that the debit in ECL 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 ECL 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. [Arya Cotton Industries & Anr. vs. Union of India & Anr. Dated 14.06.2024 (Guj)]

In view of the above, the answer of the following questions may be given as under-

1. Whether the tax liability shall be deemed to be discharged when tax amount is transferred to Electronic Cash Ledger? (Answer –Yes, whenever, the GST has been paid by using Form GST PMT-06, the tax liability will be discharged to that extent)

2. Whether the instance of payment of tax to Government would occur only upon the filing of GSTR-3B return and thereafter by debiting the electronic credit ledger or electronic cash ledger? (Answer –No, discharge when tax credited to Electronic Cash Ledger)

3. Whether the liability to pay GST will be discharged only after filing the GSTR-3B? (Answer –No, discharge when tax credited to Electronic Cash Ledger)

Conclusion: Whenever, the GST has been paid by using Form GST PMT-06, the tax liability will be discharged to that extent. The person shall not be to pay interest on the amount of tax from the date of deposit made in electronic cash ledger till the date of filing of the return.

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