Case Law Details
Arya Cotton Industries & Anr. Vs Union of India & Anr. (Gujarat High Court)
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. It appears that the respondents have literally interpreted the words “interest shall be payable on that portion of the tax which is paid by debit in the electronic cash ledger”. The debit in electronic cash ledger is on the date of filing of the return and therefore, interest is calculated till date of filing of return ignoring the fact that the assessee might have deposited the amount in electronic cash ledger prior to the date of filing of return and return may be filed belatedly for various reasons. Debiting of electronic cash ledger is only adjustment of the amount of deposit made in the electronic cash ledger. Therefore, 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 utilised for the payment and thereafter adjusted for payment of tax is contrary to the fundamental principle for charging interest which is compensatory in nature. If the mechanical and literal interpretation is done by the respondent is accepted, the same would convert the interest into the nature of penalty. It appears that for the purpose of introduction of the proviso to Section 50(1), 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. The GST Counsel in his 31st meeting decided to incorporate proviso to Section 50 of the Act so as to clarify that interest was leviable only on net tax liability and accordingly, the proviso was introduced prospectively by Finance Act, 2019 and notified vide notification No.63/2020 dated 25.08.2020 and thereafter, in the 39th meeting of the GST Counsel, it was decided to apply the proviso with effect from 01.07.2017 by Finance Act, 2021. The retrospective of the provisio was notified by notification No.16 of 2021 dated 01.06.2021.
Therefore the purpose of introduction of the proviso to Section 50 was only to clarify with regard to levibility of the interest on net tax liability and not on gross tax liability of the assessee. The proviso has therefore nothing to do with the period for which the interest is to be levied.
Therefore, the interest can be levied only from the due date of payment of tax till the deposit of such tax in the electronic cash ledger on demand of interest even for subsequent period from the date of deposit in electronic cash ledger till date of filing of return is therefore not tenable.
It was held that tax amount which has already been credited to the Government by depositing an electronic cash credit ledger by the petitioner 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 and 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 the petitioner till the date of filing of the return. As per the provisions of the Act, the amount deposited by the petitioner 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 electronic cash ledger 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 electronic cash ledger 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 electronic cash ledger 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 and therefore, the petitioner cannot be made liable to pay the interest from the date of deposit in the account of the electronic cash ledger till the date of filing of the return.
25. In view of the above foregoing reasons, the impugned communication through email dated 26.04.2022 and the letter dated 27.12.2021 in Special Civil Application No.8871 of 2022 as well as impugned notice dated 10.08.2022 in Special Civil Application No.17657 of 2022 are hereby quashed and set aside. In the result, these petitions are allowed. Rule is made absolute. No order as to cost.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Heard learned advocate Mr. Uchit N. Sheth for the petitioners and learned advocate Mr. Utkarsh Sharma and learned advocate Ms. Hetvi Sancheti for the respondents.
2. Rule, returnable forthwith. Learned advocate Mr. Utkarsh Sharma and learned advocate Ms. Hetvi Sancheti waives service of notice of rule for and on behalf of the respondents.
3. Having regard to the controversy in narrow compass and with the consent of the learned advocates for the respective parties, these matters are taken up for hearing.
4. As the facts arising in both the petitions are similar, the same were heard analogously and are being disposed of by this common order.
5. In these petitions, the petitioners have challenged the order raising demand for short payment of interest under Section 50 of the under Central Goods and Services Tax Act, 2017 (for short ‘the CGST’) for the period after deposit of tax by the petitioners in the electronic cash ledger.
6. For sake of convenience, Special Civil Application No.17657 of 2022 is treated as a lead matter.
6.1. The petitioner-Company converted limited liability partnership into the limited Company in the year 2017-18 and claimed transfer of unutilised input tax credit balance in the accounts of the petitioner No.1-Company, however, due to technical issues, the petitioner-Company was not able to get such credit transfer.
6.2. The petitioners therefore made correspondence with the authorities with regard to the transfer on multiple occasion. Section 39(7) of the CGST Act requires full payment of tax due as per returns as a precondition for filing of returns. Since the petitioners were not permitted to transfer input tax credit, they were not in position to pay the tax and could not filed the GST returns in time.
6.3. It is the case of the petitioner that in order to curtail the interest liability, the petitioners deposited tax in electronic cash ledger from time to time after debit of such amount from the bank account of the petitioners.
6.4. The petitioner No.1-Company was ultimately granted transfer of input tax credit and therefore, the petitioner-Company was able to file return as per the provisions of the CGST Act along with requisite late fees for belated filing of returns. The petitioner-Company also paid interest from due date of filing of return in Form GSTR-3B till date of payment of tax in electronic cash ledger.
6.5. The petitioner thereafter received a letter dated 16th February, 2022 from respondent No.4-Superintendent of CGST demanding interest on late payment of tax as per the provisions of Section 50 of the CGST Act. The petitioner upon verification of interest calculation as per the demand raised found that the respondent No.4 had calculated interest up to the date of filing of return and not up to the date of deposit of tax in the electronic cash ledger. The petitioner therefore vide letter dated 17.02.2022, replied to the notice of demand to the respondent No.2 that the petitioner-Company has already paid interest for the period up to the date of payment of tax in electronic cash ledger.
6.6. The respondent No.4 however, issued the show-cause notice on 10.05.2022 contending that interest was payable right up to the date of filing of return even if the tax had been paid earlier.
6.7. The petitioner objected imposition of such interest by letter dated 14th June, 2022 contending that interest could not be demanded for a period from the date of deposit of tax by the petitioner. The respondent NO.4 issued another notice dated 10.08.2022 for demand of interest for period after deposit of tax by the petitioner up to the date of filing of the return relying upon the Rule 88B of the Central Goods and Service Tax Rules, 2017 (for short ‘the Rules’) as per notification No.14/2022-Central Tax dated 05.07.2022 with retrospective effect from 01.07.2017.
6.8. Being aggrieved, the petitioner has challenged the notice dated 10.08.2022 demanding the interest on delayed payments of taxes of Rs.26,86,507/- under IGST, CGST and SGST Act from the date of deposit of the tax in the electronic tax ledger up to the date of filing of the return relying upon the provisions of Section 50 of the CGST Act and Rule 88A and 88B of the Rules. In case of the petitioner of Special Civil Application No.8871 of 2022 also similar issue has arisen by the Superintendent of CGST demanding the interest under Section 50 of the CGST Act from date of deposit of the amount towards tax in electronic cash ledger of the petitioner till the date of filing of return.
7. Learned advocate Mr. Uchit Sheth for the petitioners submitted as under :
7.1. Section 50 of the GST Acts provides for imposition of interest if the taxable person fails to pay the tax. Where the taxable person has sufficient balance in the electronic cash ledger, there is no failure to pay tax and therefore charge of interest under Section 50 of the GST Acts is not attracted.
7.2. There is internal indication in the scheme of the GST Acts that credit amount in the electronic cash ledger is nothing but payment of tax. The following provisions are relevant in this regard:
(a) Section 49(1) according to which every deposit made towards tax, interest, penalty, fee or any other amount shall be credited to the electronic cash ledger.
(b) Section 49(3) provides that the amount available in electronic cash ledger may be used for making payment towards tax, interest, penalty, fees or any other amount payable under the GST Acts.
(c) Section 49(6) which provides that the balance in electronic cash ledger or electronic credit ledger may be refunded in accordance with provisions of Section 54. There is corresponding provision in Proviso to Section 54(1) of the GST Acts requiring filing of refund application in prescribed form and manner. If balance in the cash ledger was not “tax” as sought to be canvassed, then the question having to file refund application for getting refund would nor arise.
(d) Clause (a) of Explanation to Section 49 of the GST Acts provides that the date of credit to the account of Government in the authorized bank shall be deemed to be the date of deposit in the electronic cash ledger.
7.3. Challan for payment of tax gets generated at the time of deposit of tax into the electronic cash led ger itself. When return is filed in Form GSTR-3B and if there is sufficient balance available in the electronic cash ledge then the liability as per return is simply offset against such balance. Thus tax is paid at the time of deposit into electronic cash ledger and the same is then adjusted against liability at the time of filing return. Hence there cannot be any imposition of interest for the period beyond deposit of tax amount in the electronic cash ledger.
7.4. The Petitioners are squarely supported by the judgment of Hon. Supreme Court in the case of Commissioner of Income Tax-II v/s Modipon Ltd. (2018) 13 SCC 426 (Compilation Vol. II – Page 73 – Relevant Paras 10 to 12) wherein it was held by Hon. Supreme Court that deposit in Personal Ledger Account (PLA) under the Excise regime is nothing but payment of tax and therefore it is admissible as deduction under Section 43B of the Income Tax Act, 1961 even if it is adjusted against excise duty liability at a later stage. It is submitted that PLA under the Excise regime is equivalent to electronic cash ledger under the GST regime and therefore the decision of Hon. Supreme Court is squarely applicable.
7.5. The Petitioners rely upon the judgement of this Hon. Court in the case of State of Gujarat v/s T.J. Agro Fertilizer Pvt. Ltd. Tax Appeal No. 225 of 2015 decided on 9.4.2015 (Compilation Vol. II – Page 95 – Relevant Paras 4, 4.1 and 5). It was held by this Hon. Court that interest could not be imposed for the period between the date of adhoc payment of tax and date of passing of assessment order as the State had already received the amount of tax.
7.6. It is well settled that imposition of interest is compensatory in nature. Reliance is placed in this regard on the judgment of Hon. Supreme Court in the case of Indodan Industries Ltd. /s State of U.P. & Others Civil Appeal No. 2352 of 2007 decided on 20.10.2009 (Compilation Vol.II – Page 99 – Relevant paras 7,8) and Mahalaxmi Sugar Milla Co. V/S C.I.T. Delhi (1930) 3 SCC 475 (Compilation Vol.II – Page 102 – Relevant Para 11). In the present case, since the amount gets credited 10 the electronic cash ledger only after actual deposit of amount into Government treasury, there is no loss of revenue to the Government merely because it gets adjusted against actual liability at a later date at the time of filing returns. Therefore also imposition of interest is not justifiable.
7.7. Judgment of Hon. Madras High Court in the case of Eicher Motors Ltd. V/S Superintendent of GST & Central Excise W.P. No. 16866 of 2023 decided on 23.1.2024 squarely supports the Petitioners. Hon’ble Madras High Court has taken into consideration the entire scheme of the GST Acts and thereafter arrived at a conclusion that no interest is leviable under Section 50 of the GST Acts if sufficient balance is available in the electronic cash ledger.
7.8. Proviso to Section 50 of the GST Acts which is relied upon by the Respondents in support of the impugned imposition of interest is mechanical and without considering the purpose for which such proviso was introduced. 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 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.
7.9. Thus the entire purpose of introduction of Proviso to Section 50 of the GST Acts was to clarify with regard to where interest was leviable on gross tax liability or net tax liability. The proviso has nothing to do with the period for which interest is to be levied. Hence interest can be levied only from the due date of payment of tax ill deposit of such tax into the electronic cash ledger and demand of interest for even subsequent period is not supported by Proviso to Section 50 of the GST Acts.
7.10. It is well settled that proviso can ordinarily not be used to expand the scope of the main provision. Reliance is placed on the judgment of Hon. Supreme Court in the case of Dwarka Prasad V/S Dwarka Das Saraf reported in (1976) 1 SCC 128 (Compilation Vol. 1 – Page 38 – Relevant paras 16,17,18) and Commissioner of Income Tax v/s The Indo Mercantile Bank reported in 1959 SCC online SC 5 (Compilation Vol. 1 – Page 52 – Relevant paras 10,11).
7.11. Rule 88B of the Central Goods and Services Tax Rules, 2017, which is again relied upon by the Respondents, was also introduced in the context of amendment to Section 50(3) of the GST Acts. This is apparent from the discussion in the 47th GST Council meeting which was followed by insertion of Rule 88B by Notification No. 14/2022 dated 5.7.2022. In any case rule cannot go beyond the provisions of the GST Acts and if it does so, then the same needs to be struck down/read down to bring it in conformity with the statutory provision.
7.12. If at all the submission of the Respondents is accepted that there cannot be any tax payment before the same is adjusted against liability at the time of filing of returns, then as such the liability can be said to have arisen only at the time of filing of returns and therefore the question of delayed payment of tax cannot arise. Reliance is placed in this regard to the judgment of Hon. Supreme Court in the case of Maruti Wires Industries Pvt. Ltd. v/s S.I.O. (2001) 3 SCC 735 wherein it was held that there can be no interest liability if no return is filed at all by the assessee as the tax liability would get crystalized only upon filing of returns.
7.13. Thus, looked at from any angle, the impugned demand of interest for the period after deposit of tax in the electronic cash ledger is wholly without jurisdiction and contrary to the provisions of the GSI Acts.
7.14. In support of his submissions, reliance was placed on the following decisions:
(1) M/s. Megha Engineering & Infrastructures Ltd. versus the Commissioner of Central Tax;
(2) Vishnu Aroma Pouching Pvt. LTD. Versus Union of India (2020) DB;
(3) India Yamaha Motors Private Limited versus the Assistant Commissioner and Others;
(6) Commissioner of Income Tax-II versus Modipon Ltd;
(7) Maruti Wire Industries Pvt. Ltd. versus S.T.O. IST Circle Mattancherry and Others;
(8) Prathibha Processors & Other versus Union of India and Others;
(9) State of Gujarat versus TJ Agro Fertilizer Pvt. Ltd.;
(10) Indodan Industries Ltd. versus State of U.P. & Others;
(11) Mahalaxmi Sugar Mills Co. Versus C.I.T. Delhi;
(12) Torrent Powers Ltd. & Another versus State of Gujarat & Another.
8.1. Per contra, learned advocate Mr. Utkarsh Sharma and learned advocate Ms. Hetvi Sancheti for the respondents submitted that electronic cash ledger is an account of the tax payer maintained by the GST system reflecting the cash deposits in the recognised banks and payment of taxes and other dues made by the tax payer. The tax deducted at source (TDS) and tax collected at source (TCS) are also accounted in electronic cash ledger as cash deposits of the tax payer and such deposits can be used for making payments like tax liability, interest, penalty, fee and others.
8.2. It was submitted that electronic cash ledger has four measure head-IGST, CGST, SGST/ UTGST and CESS having five minor heads as tax, interest, penalty, fees and others. It was submitted that when the challans created by taxpayer making any payments, the tax payer is required to choose the amount to be added to each of the minor head within major head and the amount so deposited shall remain credited to be utilised for payment of tax liability, interest, penalty, fees and other charges for the respective major heads and minor heads.
8.3. Reliance was placed on the circular issued by the Central Board of Indirect Taxes and Customs vide F.No.CBEC-20/01/08/2019-GST dated 18.09.2020 on recovery of interest on net cash liability with effect from 01.07.2017 wherein, it is clarified that for the period 01.07.2017 to 31.08.2020, field formations in your jurisdiction may be instructed to recover interest only on the net cash liability i.e. that portion of the tax that has been paid by debit in the electronic cash ledger or is payable through cash ledger.
8.4. Relying upon the above clarification, it was submitted that amount lying in the electronic cash ledger cannot be assigned to any liability unless a tax payer makes a debit entry from a cash ledger for a specific liability.
8.5. Learned advocate for the respondent, referred to and relied upon the provisions of Section 49(1) of the CGST Act which provides that if an amount is deposited towards tax than the amount which is credited in the electronic credit ledger is nothing but actual tax payment for discharging duty, interest, penalty and other amounts and therefore, learned advocates for the respondents referring to Section 49(3) of the CGST Act read with Rule 87 of the Rules submitted that the amount payable in 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 debit in the electronic cash ledger. It was therefore submitted that the deposit of amount will be credited in electronic cash ledger and thereafter, the payment shall be made from the said ledger account from debit in the same towards tax, interest and penalty on the date on which the return interest is filed and therefore, the petitioner is liable to pay interest up to the date of filing of return irrespective of deposit made in the electronic cash ledger by the petitioner.
8.6. It was further pointed out that after debit in the electronic cash ledger for payment of tax, interest, penalty etc., the amount is transferred to the Government account and the tax payer can claim refund of the remaining amount of access deposit lying in electronic cash ledger since the amount deposited in electronic cash ledger belong to the tax payer. Therefore, reliance was placed on the provisions of Section 50 for charging interest read with Section 54 for the procedure for filing retrn of any balance in the electronic cash ledger in accordance with the provisions of Sub-section (6) of Section 49 of the CGST Act.
8.7. Referring to the provisions of Section 50, it was submitted that interest is payable on that portion of the tax which is payable by debit in electronic cash ledger and the interest has to be levied from the date on which the tax is paid by debit in electronic cash ledger and not from the date when the amount is deposited by credit in the electronic cash ledger. Learned advocates for the respondents therefore submitted that the respondent-authorities have rightly calculated the interest payable by the petitioners up to the date of filing of the return as the electronic cash ledger was debited with the amount of tax as per the return.
8.8. It was submitted that mere deposit in electronic cash ledger cannot be considered as payment of tax in terms of Section 50 read with Rule 86 and whenever, there is delay in debit in the electronic cash ledger in respect of the tax payment, the tax payer shall be liable for the interest in terms of Section 50 in respect of delayed payment of tax. In support of his submissions, reliance was placed on the following decisions :
(1) Shree Automotive (P) Ltd. & Another versus Joint Commissioner of State Tax, Government of West Bengal & Others (W.P.A. 16781 of 22019 with CAN 1 of 2020 CAN 2 of 2020 CAN 5406 of 2020) decided on 07.09.2021;
(2) Pratibha Processors Versus Union of India reported in AIR 1997 SC 138;
(3) Maithan Steel and Powers Ltd. versus Commissioner of Central Excise-2016 (344) ELT 792 (Com).
8.9. Referring to the above provisions, it was further submitted that mere credit in electronic cash ledger and considering the date of credit of cash ledger as a date of payment of tax in respect of net cash liability cannot be considered in view of the provisions of Section 50 of the Act which clearly stipulates that the interest is payable till the date of debit of electronic cash ledger for payment of tax, interest, penalty, etc. Reliance was also placed in the newly inserted rule 88B of the Rules which provides for manner of calculating interest on belayed payment of tax. It was submitted that as per Rule 88B, interest on tax payable by the assessee is required to be calculated on the portion of tax which is paid by debiting the electronic cash ledger for the period of delay in filing the return beyond the due date and such rate as may be notified under Subsection (1) of Section 50. Reliance was also placed on the provisions of Section 39(7) of the CGST Act which requires full payment of tax due at the time of filing of the return before the due date. It was therefore submitted that when the petitioner filed a return, there was a debit on the electronic cash ledger for payment of the full amount of tax and therefore, the petitioner was liable to pay the interest up to the date of filing of return as provided under provisio to Section 50(1) of the CGST Act. It was therefore submitted that the return filing date is the only date required to be considered for calculating interest liability for any tax payer and accordingly, the demand is raised by the respondents.
8.10. Learned advocates for the respondents referred to and relied upon the decision of the Madras High Court in case of M/s. Srinivasa Stampings versus the The Superintendent of GST and Central Excise and others rendered on 08.04.2022 in WP No.7129 of 2021 and other allied matters wherein, the Hon’ble Madras High Court has held as under :
“16. Since tax was paid by the petitioner belatedly, petitioner is liable to interest during the period default. There was no excuse for not paying the tax in time from its electronic cash register. Nothing precluded the petitioner from discharging the tax liability from its electronic credit.
17. If there is a belated payment of tax declared in the returns filed, interest has to follow. The petitioner has to pay the interest on the belated payment of tax and as has been demanded. Even where there is a failure to file returns or circumstances specified under Sections 73 and 74 of CGSI Act, 2017, in interest has to be paid.”
8.11. Reliance was also placed on the decision of the Patna High Court in case of Sincon Infrastructure Private Limited versus Union of India reported in 2024 SCC Online 896 wherein, it is held as under :
“9. M/s RSB Transmissions (India) Limited (supra) again raised a question as to whether, the amount deposited as tax through valid challans by a registered person into the government exchequer, prior to the filing of GSTR-3B returns, could be treated as discharge of the tax liability and whether there could be interest levied, deeming such delayed filing of returns to be a circumstance which attracts Section 50 of the GST Act. Therein, the period was between July 2017 to 2019 and the amount of tax had already been deposited in the Electronic Cash Ledger, even prior to the filing of the return. We have to immediately notice that the facts indicate a circumstance clearly covered under the proviso to Section 50(1). The learned Division Bench found that the Electronic Cash Ledger is an account of tax ledger (sic) maintained with the department reflecting online deposits; made from accounts maintained by the assessee Patna High Court CWJC No.11621 of 2023 dt. 19-04-2024 with banks, from which payments can be made as tax. The mere deposit of an amount in an Electronic Cash Ledger does not make it a tax deposit or payment to a government account. After extracting the various provisions especially Section 49 it was found that Explanation to subsection (11) deems the date of deposit in the Electronic Cash Ledger to be a mere deposit which does not amount to payment of the tax liability. Only when the Electronic Cash Ledger is debited towards payment of tax, interest or penalty or any other dues under the Act, the money gets transferred to the State for utilization. It was also found that the scheme of the Act is that no person can make payment of tax prior to filing of the returns though the deposit may be made or lying, in the Electronic Cash Ledger. The tax liability, it was categorically held, gets discharged only upon filing of the GSTR-3B return, the last date of which is the 20 th of the succeeding month on which the tax is due. A return could be filed even prior to the last date and such tax liability can be discharged on its filing but a mere deposit in the cash ledger on any date prior to filing of GSTR-3B return does not amount to payment of tax due, into the State exchequer. Patna High Court CWJC No.11621 of 2023 dt. 19-042024.
10. We bow in approval, to the proposition as laid down by the Division Bench of the High Court of Jharkhand at Ranchi, even though this too does not have the sheen of a precedent. We are of the opinion that this applies squarely to the Electronic Credit Ledger also; which we would demonstrate from the various provisions under the Act. As far as the two conflicting decisions of the learned Single Judge we agree with the later decision in M/s. India Yamaha Motor Pvt. Ltd (supra) and would demonstrate as to how, the proposition as laid down in the first decision would be contrary to the scheme and provisions of the GST Act.
13. Now, we look at what an Electronic Cash Ledger and Electronic Credit Ledger are; which are defined under subsections (43) and (46) of Section 2 as the ledger referred to respectively in sub-section (1) and (2) of Section
49. Section 49 has the nominal heading of ‘Payment of tax penalty and other amounts’. Sub-section (1) defines an Electronic Cash Ledger as a ledger available to the assessee, to credit by way of internet banking or by way of credit or debit cards or NEFT or RTGS or by such other mode, subject to conditions and restrictions as may be prescribed. As held by the Division Bench of the High Court of Jharkhand the Electronic Cash Ledger is an account maintained by the assessee with the department and the credits made to itself is not necessarily payment of tax. The Electronic Cash Ledger is akin to a current account maintained by a legal entity with a Bank; where no interest is accrued with only the restriction that the debits made, Patna High Court CWJC No.11621 of 2023 dt. 19-04-2024 have to be as against payment of tax, interest, penalty or any other dues under the GST Act. Section 49(1) read with the provisions of Section 39 as spoken of by us hereinabove, would indicate that the payment of tax occurs only on the furnishing of returns, which payment is by way of a debit made from the cash ledger.
21. On the interpretation placed by us on the various provisions under the Act, which also is the proper understanding of the very scheme of the enactment, we are persuaded to reject the claim of the petitioner that the proviso of Section 50(1) mandates a levy of interest only when there is a delayed furnishing of return and debit made and payment effected from the Electronic Cash Ledger. As we found Section 50(1) specifically mulcts liability of Patna High Court CWJC No.11621 of 2023 dt. 1904-2024 interest on any delayed furnishing of return, since it is the furnishing of the return which results in payment of tax, interest, penalty or other amounts due under the Act as self-assessed in the return. Neither the deposit made in the cash ledger nor the remittances made on the tax paid on purchases, results in payment of the amounts due under the Act to the Government. Insofar as the payment of tax by the supplier on the purchases made by an assessee, even the credit of the input tax occurs in the Electronic Credit Ledger only when the return is furnished on self-assessment raising a claim for input tax.
22. With this interpretation we have to find that, on furnishing of delayed returns, interest liability would be automatic, whether the payment be made from the Electronic Credit Ledger or Electronic Cash Ledger as per the provisions of Section 50(1). It also mandates that on delay occasioned the assessee has to pay the interest, by himself; which is a statutory compulsion independent of any order or demand made under the Act. The proviso only dispels notion of any anomaly and further fortifies the scheme of the Act and enables mulcting of liability on a Patna High Court CWJC No.11621 of 2023 dt. 1904-2024 delayed payment made from the Electronic Cash Ledger; despite the cash ledger having such amounts deposited by way of online transactions even prior to the due date of filing of return.”
9. Having heard the learned advocates for the respective parties and considering the question of law which has arisen in this petition that whether the petitioner is liable 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. It would be therefore germane to refer relevant provisions of the CGST Act and Rules which read as under:
“Section 39. Furnishing of returns.
(1) Every registered person, other than an Input Service Distributor or a nonresident 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, and within such time, as may be prescribed:
Provided that the Government may, on the recommendations of the Council, notify certain class of registered persons who shall furnish a return for every quarter or part thereof, subject to such conditions and restrictions as may be specified therein.
(7) Every registered person who is required to furnish a return under subsection (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:
4[Provided that every registered person furnishing return under the proviso to sub-section (1) shall pay to the Government, in such form and manner, and within such time, as may be prescribed,–
(a) an amount equal to the tax due taking into account inward and outward supplies of goods or services or both, input tax credit availed, tax payable and such other particulars during a month; or
(b) in lieu of the amount referred to in clause (a), an amount determined in such manner and subject to such conditions and restrictions as may be prescribed.]
Provided further that every registered person furnishing return under subsection (2) shall pay to the Government, the tax due taking into account turnover in the State or Union territory, inward supplies of goods or services or both, tax payable, and such other particulars during a quarter, in such form and manner, and within such time, 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.
(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.
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.
Section 54. Refund of tax.
(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:
Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in 1 [such from and] manner as may be prescribed.
Rule 85. Electronic Liability Register.-(1) The electronic liability register specified under subsection (7) of section 49 shall be maintained in FORM GST PMT-01 for each person liable to pay tax, interest, penalty, late fee or any other amount on the common portal and all amounts payable by him shall be debited to the said register.
(2) The electronic liability register of the person shall be debited by-
(a) the amount payable towards tax, interest, late fee or any other amount payable as per the return furnished by the said person;
(b) the amount of tax, interest, penalty or any other amount payable as determined by a proper officer in pursuance of any proceedings under the Act or as ascertained by the said person;
(c) the amount of tax and interest payable as a result of mismatch under section 42 or section 43 or section 50; or
(d) any amount of interest that may accrue from time to time.
(3) Subject to the provisions of section 49, every liability by a registered person as per his return shall be made by debiting the electronic credit ledger maintained as per rule 86 or the electronic cash ledger maintained as per rule 87 and the electronic liability register shall be credited accordingly.
(4) The amount deducted under section 51, or the amount collected under section 52, or the amount payable on reverse charge basis, or the amount payable under section 10, any amount payable towards interest, penalty, feeor any other amount under the Act shall be paid by debiting the electronic cash ledger maintained as per rule 87 and the electronic liability register shall be credited accordingly.
(5) Any amount of demand debited in the electronic liability register shall stand reduced to the extent of relief given by the appellate authority or Appellate Tribunal or court and the electronic tax liability register shall be credited accordingly.
(6) The amount of penalty imposed or liable to be imposed shall stand reduced partly or fully, as the case may be, if the taxable person makes the payment of tax, interest and penalty specified in the show cause notice or demand order and the electronic liability register shall be credited accordingly.
(7) A registered person shall, upon noticing any discrepancy in his electronic liability ledger, communicate the same to the officer exercising jurisdiction in the matter, through the common portal in FORM GST PMT-04.
Rule 86. Electronic Credit Ledger.- (1) The electronic credit ledger shall be maintained in FORM GST PMT-02 for each registered person eligible for input tax credit under the Acton the common portal and every claim of input tax credit under the Act shall be credited to the said ledger.
(2) The electronic credit ledger shall be debited to the extent of discharge of any liability in accordance with the provisions of section 49.
(3) Where a registered person has claimed refund of any unutilized amount from the electronic credit ledger in accordance with the provisions of section 54, the amount to the extent of the claim shall be debited in the said ledger.
(4) If the refund so filed is rejected, either fully or partly, the amount debited under sub rule (3), to the extent of rejection, shall be re-credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT-03.
[(4A) Where a registered person has claimed refund of any amount paid as tax wrongly paid or paid in excess for which debit has been made from the electronic credit ledger, the said amount, if found admissible, shall be re-credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT-03.]
(5) Save as provided in the provisions of this Chapter, no entry shall be made directly in the electronic credit ledger under any circumstance.
(6) A registered person shall, upon noticing any discrepancy in his electronic credit ledger, communicate the same to the officer exercising jurisdiction in the matter, through the common portal in FORM GST PMT-04.
Explanation. – For the purposes of this rule, it is hereby clarified that a refund shall be deemed to be rejected, if the appeal is finally rejected or if the claimant gives an undertaking to the proper officer that he shall not file an appeal.
[86A. Conditions of use of amount available in electronic credit ledger.-
(1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much asa) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36-
i. issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
ii. without receipt of goods or services or both; or
b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or
c) the registered person availing the credit of input tax has been found nonexistent or not to be conducting any business from any place for which registration has been obtained; or
d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36, may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount.
(2)The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit.
(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.
Rule 86B. Restrictions on use of amount available in electronic credit ledger-Notwithstanding anything contained in these rules, the registered person shall not use the amount available in electronic credit ledger to discharge his liability towards output tax in excess of ninety-nine per cent. of such tax liability, in cases where the value of taxable supply other than exempt supply and zero-rated supply, in a month exceeds fifty lakh rupees:
Provided that the said restriction shall not apply where –
(a) the said person or the proprietor or karta or the managing director or any of its two partners, whole-time Directors, Members of Managing Committee of Associations or Board of Trustees, as the case may be, have paid more than one lakh rupees as income tax under the Income-tax Act, 1961(43 of 1961) in each of the last two financial years for which the time limit to file return of income under subsection (1) of section 139 of the said Act has expired; or
(b) the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit under clause (i) of first proviso of sub-section (3) of section 54; or
(c) the registered person has received a refund amount of more than one lakh rupees in the preceding financial year on account of unutilised input tax credit under clause (ii) of first proviso of sub-section (3) of section 54; or
(d) the registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, upto the said month in the current financial year; or
(e) the registered person is –
(i) Government Department; or
(ii) a Public Sector Undertaking; or
(iii)a local authority; or
(iv) a statutory body:
Provided further that the Commissioner or an officer authorised by him in this behalf may remove the said restriction after such verifications and such safeguards as he may deem fit.
Rule 88B: Manner of calculating interest on delayed payment of tax (1) In case, where the supplies made during a tax period are declared by the registered person in the return for the said period and the said return is furnished after the due date in accordance with provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, the interest on tax payable in respect of such supplies shall be calculated on the portion of tax which is paid by debiting the electronic cash ledger, for the period of delay in filing the said return beyond the due date, at such rate as may be notified under subsection (1) of section 50.
(2) In all other cases, where interest is payable in accordance with subsection (1) of section 50, the interest shall be calculated on the amount of tax which remains unpaid, for the period starting from the date on which such tax was due to be paid till the date such tax is paid, at such rate as may be notified under sub-section (1) of section 50.
(3) In case, where interest is payable on the amount of input tax credit wrongly availed and utilised in accordance with sub-section (3) of section 50, the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said subsection (3) of section 50.
Explanation–For the purposes of this sub-rule,-
(1) input tax credit wrongly availed shall be construed to have been utilised, when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilisation of input tax credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed.
(2) the date of utilisation of such input tax credit shall be taken to be,
(a) the date, on which the return is due to be furnished under section 39 or the actual date of filing of the said return, whichever is earlier, if the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, on account of payment of tax through the said return; or
(b) the date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, in all other cases.]”
10. On perusal of the above provisions of the Act and the Rules, of the CGST Act for payment of interest for levy of interest on the outstanding tax payable by the assessee, the scheme of the CGST Act is required to be considered.
11. The provisions of the CGST Act provides 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. 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. 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 electronic cash ledger of such person to be maintained in such manner as may be prescribed whereas, Sub-section (3) provides that amount available in electronic cash ledger 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. Sub-section (6) of Section 49 provides the balance in electronic cash ledger or electronic credit ledger after payment of tax, interest, etc., may be refunded in accordance with the provisions of Section 54. Sub-section (8) of Section 49 provides for discharging the tax liability by self assessed tax. 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.”
12. 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, when the return is filed by the assessee in Form GSTR-3B and if there is sufficient balance available in the electronic cash ledger, than liability as per the return is simply offset against such balance by debit in electronic cash ledger. Hence, the tax paid at the time of deposit into electronic cash ledger which is adjusted against liability at the time of filing of return is merely setting off of the amount from electronic cash ledger to be utilised for payment of tax liability as per the return filed. Therefore, the amount in the electronic cash ledger 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.
13. 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. It appears that the respondents have literally interpreted the words “interest shall be payable on that portion of the tax which is paid by debit in the electronic cash ledger”. The debit in electronic cash ledger is on the date of filing of the return and therefore, interest is calculated till date of filing of return ignoring the fact that the assessee might have deposited the amount in electronic cash ledger prior to the date of filing of return and return may be filed belatedly for various reasons. Debiting of electronic cash ledger is only adjustment of the amount of deposit made in the electronic cash ledger. Therefore, 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 utilised for the payment and thereafter adjusted for payment of tax is contrary to the fundamental principle for charging interest which is compensatory in nature. If the mechanical and literal interpretation is done by the respondent is accepted, the same would convert the interest into the nature of penalty. It appears that for the purpose of introduction of the proviso to Section 50(1), 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. The GST Counsel in his 31st meeting decided to incorporate proviso to Section 50 of the Act so as to clarify that interest was leviable only on net tax liability and accordingly, the proviso was introduced prospectively by Finance Act, 2019 and notified vide notification No.63/2020 dated 25.08.2020 and thereafter, in the 39th meeting of the GST Counsel, it was decided to apply the proviso with effect from 01.07.2017 by Finance Act, 2021. The retrospective of the provisio was notified by notification No.16 of 2021 dated 01.06.2021.
14. Therefore the purpose of introduction of the proviso to Section 50 was only to clarify with regard to levibility of the interest on net tax liability and not on gross tax liability of the assessee. The proviso has therefore nothing to do with the period for which the interest is to be levied.
15. Therefore, the interest can be levied only from the due date of payment of tax till the deposit of such tax in the electronic cash ledger on demand of interest even for subsequent period from the date of deposit in electronic cash ledger till date of filing of return is therefore not tenable.
16. Rule 88B which has come into effect from 1st July, 2017 as per notification No. 14 of 2022 dated 5th July, 2022 is in context of amendment to Section 50(3) of the CGST Act as per decision taken by the GST counsel in his 47th meeting in relation to the transfer of the balance of CGST/IGST in electronic cash ledger of registered person to electronic cash ledger of CGST/IGST of the distinct person. Section 50(3) of the CGST Act was also amended clarifying that where ITC has been wrongly utilised, the registered person shall be paid interest only on such input cash credit which is wrongly availed and utilised and in that context, Rule 88B was introduced with effect from 01.07.2017 for calculation of interest on delayed payment of tax for wrongly availed and utilised input tax credit on the portion of wrongly utilised input tax credit. The Hon’ble Supreme Court in case of Dhwarka Prasad (Supra) regarding the proviso to the section has held as under:
“16. There is some validity in this submission but if, on a fair constriction, the principal provision is clear, a proviso cannot expand or limit it. Sometimes a proviso is engrafted by an apprehensive draftsman to remove possible doubts, to make matters plain, to light up ambiguous edges. Here, such is the case. In a country where factories and industries may still be in the developmental stage, It is not unusual to come across several such units which may not have costly machinery `or plant or fittings and superficially consist of bare buildings plus minor fixtures. For example, a beedi factory or handicraft or carpentry unit a few tools, some small contrivances or connection of materials housed in a building, will superficially look like a mere ‘accommodation’ but actually be a humming factory or business with a goodwill as business, with a prosperous reputation and a name among the business community and customers. Its value is qua business, although it has a habitation or building to accommodate it. The personality of the thing let out is a going concern or enterprise, not a lifeless edifice. The
legislature, quite conceivably, thought that a marginal, yet substantial, class of buildings with minimal equipments may still be good businesses and did not require protection as in the case of ordinary building tenancies. So, to dispel confusion from this region and to exclude what seemingly might be leases only of buildings but in truth might be leases of business, the legislature introduced the exclusionary proviso.
17. While rulings and text books bearing on statutory construction have assigned many functions for provisos, we have to be selective, having regard to the text and context of a statute. Nothing is gained by extensive references to luminous classics or supportive case law. Having explained the approach we make to the specific ‘proviso’ situation in s. 2(a) of the Act, what strikes us as meaningful here is that the legislature by the amending Act classified what was implicit earlier and expressly carved out what otherwise might be mistakenly covered by the main definition. The proviso does not. in this case, expand, by implication, the protected area of building tenancies to embrace ‘business’ leases.
18. We may mention fairness to counsel that the following, among other decisions, were cited at the bar bearing on the uses of provisos in statutes: Commissioner of Income-tax v. Indo-Mercantile Bank Ltd.(1); M/s. Ram Narain Sons Ltd. v. Asst. Commissioner of Sales Tax(2); Thompson v. Dibdin (8); Rex v. Dibdin (4) and Tahsildar Singh v. State of U.P.(5). The law is trite. A proviso must be limited to the subject matter of the enacting clause. It is a settled rule of construction that a proviso must prima facie be read and considered in relation to the principal matter to which it is a proviso. It is not a separate or independent enactment. ‘Words are dependent on the principal enacting words, to which they are tacked as a proviso. They cannot be read as divorced from their context’ (1912 A.C. 544). If the rule of construction is that prima facie a proviso should be limited in its operation to the subject matter of the enacting clause, the stand we have taken is sound. To expand the` enacting clause, inflated by the proviso, sins against the fundamental rule of construction that a proviso must be considered in relation to the principal matter to which it stands as a proviso. A proviso ordinarily is but a proviso, although the golden rule is to read the whole section, inclusive of the proviso, in such manner that they mutually throw light on each other and result in a harmonious construction.”
17. The Hon’ble Supreme Court in case of Commissioner of Income Tax versus Indo Merchantile Bank Limited has held as under with regard to the function of a proviso to a section of the statute as under :
“10. Thus the Privy Council emphasised that the object of s. 24(1) was to allow a set off of profits against losses arising under different heads and Only in such cases could recourse be had to s. 24(1). In cases where profits and losses arose under the same head they had to be adjusted against each other. This Court in Anglo-French Textiles Co. Ltd. v. Commissioner of Incometax, Madras (1) again emphasised that distinction in the following words:-
” Next, a, set off under section 24(1) can only be claimed when the loss arises under one head and the profits against which it is sought to be set off arises under a different head. When the two arise under the same head, of course the loss can be deducted but that is done under section 10 and not under section 24(1) (Per Bose, J.)”
Indeed it is not disputed that when profit and loss arose under the same head in any place which was not an Indian State recourse had to be had to the provisions of ss. 7 to 12B and not to any other section. But it was contended on behalf of the Revenue that the first proviso to s. 24(1) of the Indian Act not only affected the generality of the main enactment but also introduced an addendum that where the profits of the business arose in what was British India in the case of the Indian Act or what was Travancore State in the case of the Travancore Act and the losses under the head business were sustained in an Indian State or in the latter case in any other Indian State or British India, these losses could not by virtue of the proviso be deducted from profits made in British India or Travancore State as the case may be. They could only be adjusted against profits arising in an Indian State or in the case of Travancore State in British India or another Indian State. Thus the proviso, it was contended, was a modification of the method of computation under s. 10(2) of the Indian Act for determining profits and gains of the business of any resident. We should be averse to lend any countenance to such a mode of construing a proviso unless the language used expressly or by necessary intendment leads to that conclusion. The proper function of a proviso is that it qualifies the generality of the main enactment, by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment. Ordinarily it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment. ” It is a fundamental rule of construction that a proviso must be considered with relation to the principal matter to which it stands as proviso “. Therefore it is to be construed harmoniously with the main enactment (Per Das, C. J.) in Abdul Jabar Butt v. State of Jammu & Kashmir (1). Bhagwati, J., in Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax (2) said:
“It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other”.
11. Lord Macmillan in Madras & Southern Mahratta Railway Co. v. Bezwada Municipality (3) laid down the sphere of a proviso as follows :-
” The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case. Where, as in the present case, the language of the main enactment is clear and unambiguous, a proviso can have no repercussion on the interpretation of the main enactment, so as to exclude from it by implication what clearly falls within its express terms “.
The territory of a proviso therefore is to carve out an exception to the main enactment and exclude something which otherwise would have been within the section. It has to operate in the same field and if the language of the main enactment is clear it cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that that is its necessary effect. (Vide also Corporation of The City of Toronto v. Attorney-General for Canada) (1).”
18. The Hon’ble Supreme Court in case of Commissioner of Income Tax versus Modipon Limited has held that the amount deposited in personal ledger account “PLA” under the excise provisions of the Central Excise Act is nothing but payment of tax and therefore, it was held to be an admissible deduction under Section 43B of the Income Tax Act, 1961 as under :
“9. Deposit of Central Excise Duty in the PLA is a statutory requirement. The Central Excise Rules, 1944, specify a distinct procedure for payment of excise duty leviable on manufactured goods. It is a procedure designed to bring in orderly conduct in the matter of levy and collection of excise duty when both manufacture and clearances are a continuous process. Debits against the advance deposit in the PLA have to be made of amounts of excise duty payable on excisable goods cleared during the previous fortnight. The deposit once made is adjusted against the duty payable on removal and the balance is kept in the account for future clearances/removal. No withdrawal from the account is permissible except on an application to be filed before the Commissioner who is required to record reasons for permitting an assessee to withdraw any amount from the PLA. Sub-rules (3), (4), (5) and (6) of Rule 173G indicates a strict and vigorous scrutiny to be exercised by the central excise authorities with regard to manufacture and removal of excisable goods by an assessee. The self removal scheme and payment of duty under the Act and the Rules clearly shows that upon deposit in the PLA the amount of such deposit stands credited to the Revenue with the assessee having no domain over the amount(s) deposited.
10. In C.I.T. vs. Pandavapura Sahakara Sakkare Karkhane Ltd.7 and C.I.T. vs. Nizam Sugar Factory Ltd.8 cited at the Bar, the High Courts of Karnataka and Andhra Pradesh 7198 ITR 690 (Kar.) 8 253 ITR 68 (AP) respectively had occasion to consider as to whether the amounts credited to the Molasses Storage Fund out of the sale proceeds of molasses received by the assessee constitute taxable income of the assessee. Under the scheme, the assessee had no control over the amounts deposited in the fund and the assessee was also not entitled to withdraw any amount therefrom without the approval of the authorities. Further the amount deposited could be utilized only for the purpose specified. In those circumstances, the High Court held and in our view correctly, that the deposits made, though a part of the sale proceeds of the assessee, did not constitute taxable income at the hands of the assessee. We do not see why the same analogy would not be applicable to the case in hand.”
19. This Court in case of State of Gujarat v/s T.J. Agro Fertilizer Pvt. Ltd. held that the interest could not be imposed for the period between the date of ad-hoc payment of tax and date of passing of assessment order as the amount was already received by the State as under :
“4.1. Considering the aforesaid provisions and even otherwise considering the fact that once the dealer has made payment before the actual order of assessment, may be on ad-hoc basis, meaning thereby, the amount of tax due and payable as per the assessment order, already paid prior to the assessment order and the State/Department received the said amount of tax, there cannot be any interest levied during the aforesaid period. It cannot be disputed that levy of interest would be on delayed payment of tax due and payable. It is not the case that on finalization of the assessment, any amount more than the amount paid on ad-hoc basis, was assessed and/or required to be paid by the assessee.”
20. The Hon’ble Apex Court in case of Indodan Industries Limited versus State of U.P. & Others has held as under :
“7. One more aspect needs to be highlighted. In the present case, we are concerned with the levy of interest for delayed payment. Under sub-Section (2B) to Section 9, such interest for delayed payment is given the status of “tax due”. The said interest is compensatory in nature in the sense that when the assessee pays tax after it becomes due, the presumption is that the Department has lost the revenue during the interregnum period (the date when the tax became due and the date on which the tax is paid). The assessee enjoys that amount during the said period. It is in this sense that the interest is compensatory in nature and in order to recover the lost revenue, the levy of interest is contemplated by Section 120 of the Finance Act, 2000 retrospectively.”
21. The Hon’ble Supreme Court in case of Mahalaxmi Sugar Mills Co. versus C.I.T. Delhi has held as under :
“10. It is apparent that section 3(2) requires the payment of cess on the date prescribed under the rules. Rule 4 of the U.P. Sugarcane Cess Rules, 1956 provides that the cess due on the sugarcane entering into the premises during the first fortnight of each calendar year must be deposited in the Government treasury by the twenty second day of that month and the cess due for the remainder of the month must be deposited before the seventh day of the next following month. If the cess is not paid by the specified date, then by virtue of s.3(3) the arrear of cess will carry interest at the rate of six per cent per annum from the specified date to the date of payment. Section 3(5) is a very different provision. It does not deal with the interest paid on the arrears of cess but provides for an additional sum recoverable by way of penalty from a person who defaults in making payment of cess. It is a thing apart from an arrear of cess and the interest due thereon.
11. Now the interest payable on an arrear of cess under s. 3(3) is in reality part and parcel of the liability to pay cess. It is an accretion to the cess. The arrear of cess “carries” interest; if the cess is not paid within the prescribed period a larger sum will become payable as cess. The enlargement of the cess liability is automatic under s. 3(3). No specific order is necessary in order that the obligation to pay interest should accrue. The liability to pay interest is as certain as the liability to pay cess. As soon as the prescribed date is crossed without payment of the cess, interest begins to accrue. It is not a penalty, for which provisions has been separately made by s.3(5). Nor is it a penalty within the meaning of s.4, which provides for a criminal liability and a criminal prosecution. The penalty payable under s.3(5) lies in the discretion of the collecting officer or authority. In the case of the penalty under s.4, no prosecution can be instituted unless, under s.5(1), a complaint is made by or under the authority of the Cane Commissioner or the District Magistrate.
There is another consideration distinguishing the interest payable under s.3(3) from the penalty imposed under s.3(5). Section 3(6) provides that the officer or authority empowered to collect the cess may forward to the Collector a certificate under his signature specifying the amount of arrears including interest due from any person, and on receipt of such certificate the Collector is required to proceed to recover the amount specified from such person as if it were an arrear of land revenue. The words used in s.3(6) are “specifying the amount of arrears including interest”, that is to say that the interest is part of the arrear of cess. In the case of a penalty imposed under s.3(5), a separate provision for recovery has been made under s.3(7). Although the manner of recovery of a penalty provided by s.3(7) is the same as the manner for recovery provided by s.3(6) of the arrears of cess, the Legislature dealt with it as something distinct from the recovery of the arrears of cess including interest. In truth, the interest provided for under s.3(3) is in the nature of compensation paid to the Government for delay in the payment of cess. It is not by way of penalty. The provision for penalty as a civil liability has been made under s.3(5) and for penalty as a criminal offence under s.4. The Delhi High Court proceeded entirely on the basis that the interest bore the character of a penalty. It was, according to the learned Judges “penal interest”. The learned Judges failed to notice s.3(5) and s.4 and the other provisions of the Cess Act.”
22. From the above decision, if applied to the facts of the present case, when the assessee petitioner deposited the amount which is credited into electronic cash ledger after actual deposit in the Government Treasury, there is no loss to the Government Revenue merely because such deposit gets adjusted against the actual liability at the later date at the time of filing of return. The Hon’ble Madras High Court in case of Eicher Motors Limited versus The Superintendent of GST & Central Excise (HC) Madras has taken into consideration the entire scheme of the GST Act and thereafter arrived at a conclusion that no interest is leviable under Section 50 of the Act if sufficient balance is available in the electronic cash ledger as under :
“43. As discussed above, for the payment of tax to the account of Government, the filing of GSTR-3B is immaterial, which means either with or without filing of monthly returns, the tax can be remitted to the Government. Therefore, no interpretation can be made as held in the judgement of the Hon’ble Division Bench of Jharkhand High Court rendered in RSB Transmission case (referred supra) stating that no payment of tax can be made until the filing of GSTR-3B, which is against the provisions of Section 39(1) and 39(7) of the Act and thus, the said finding would render a disastrous consequences in utilisation of GST collections by the exchequers. Merely, for the default on the part of a registered person in filing the GSTR-3B, the utilisation of tax amount, which was already deposited into the account of Government, cannot be postponed. The GST collections made by the registered person, have been made on behalf of Government and once the said collections were deposited to the Government account and the same is made available to the Government for its use at once, otherwise the rights of the exchequers in utilising the GST collections in time for welfare measures of public will be deprived, which is not permissible under the Act.
72. In view of the above finding and following the law laid down by the Gujarat High Court in the aforesaid Vishnu Aroma case, since in the present case, the tax amount has already been credited to the Government within the prescribed time limit, i.e., before due date, the question of payment of interest would not arise. Under these circumstances, this Court passes the following orders:
1) The credit to the account of Government would always occur not later than the last date for filing the monthly returns in terms of the provisions of Section 39(7) of the Act.
2) 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.
3) As long as the GST, which was collected by a registered person, is credited to the account of the Government not later than the last date for filing the monthly returns, to that extent, the tax liability of such registered person will be discharged from the date when the amount was credited to the account of the Government. If there is any default in payment of GST, even subsequent to the due date for filing the monthly returns i.e., on or before 20th of every succeeding month, for the said delayed period alone a registered person is liable to pay interest in terms of Section 50(1) of the Act.”
23. The Hon’ble Supreme Court in case of Maruti Wire Industries Pvt. Ltd. versus S.T.O IST Circle Mattancherry and Others has held that there can be no interest liability if no return is filed at all by the assessee and the tax liability would crystalized only upon filing of return. Therefore, if the contention raised by the respondent is accepted, then there cannot be any liability to pay the tax before the same is adjusted against the liability at the time of filing return and therefore, such liability can be said to have arisen only at the time of filing of return and therefore the question of delayed payment of tax could not arise so as to levy interest under Section 50(1) of the Act.
24. In view of the above analysis of the provisions of the Act, the decided case laws and reliance placed by the respondents on the decisions in cases of M/s.Megha Engineering & Infrastructures Ltd. (Supra), M/s RSB Transmissions (India) Limited (supra) and India Yamaha Motors Private Limited (Supra) taking a contrary view, are not in line of the provisions of the Act and the Rules made thereunder and therefore, the same are not followed but the judgment in case of the ishnu Aroma Pouching Pvt. LTD. (Supra) is followed and it is therefore held that the tax amount which has already been credited to the Government by depositing an electronic cash credit ledger by the petitioner 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 and 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 the petitioner till the date of filing of the return. As per the provisions of the Act, the amount deposited by the petitioner 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 electronic cash ledger 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 electronic cash ledger 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 electronic cash ledger 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 and therefore, the petitioner cannot be made liable to pay the interest from the date of deposit in the account of the electronic cash ledger till the date of filing of the return.
25. In view of the above foregoing reasons, the impugned communication through email dated 26.04.2022 and the letter dated 27.12.2021 in Special Civil Application No.8871 of 2022 as well as impugned notice dated 10.08.2022 in Special Civil Application No.17657 of 2022 are hereby quashed and set aside. In the result, these petitions are allowed. Rule is made absolute. No order as to cost.
Author Bio
sir I had paid gst in cash ledger but set off after 2yrs in 3b . now officer charged interest on late sett off. can I get relief out of this ruling.