Interest on Electronic Cash Ledger Balance Under GST- Burning Issue?

WHETHER INTEREST IS PAYABLE ON ELECTRONIC CASH LEDGER BALANCE UNDER GST- BURNING ISSUE ?

Delayed Filing of GSTR 3B Whether Liability of Payment of Interest Arises If Adjusted From E- Cash Ledger Balance Under GST ?

The Government of India subsumed the various indirect taxes on goods and services prevailing in the nation/states almost five years back with a vision to implement a simplified and tax payer friendly system of taxation as “one nation one tax” and in this direction “The Goods and Service Tax Act” was introduced w.e.f. July 2017. The main object behind it, as promoted, was to introduce such mechanism of taxation which prevents the tax evasion to boost up revenue collection without increasing the cost of goods to consumer by way of avoiding double taxation on same product under garb of various indirect taxes.

But it is well realized by everyone concerned that since its conception, the provisions of the GST laws suffered various structural and procedural anomalies/ intricacies, being continuously simplified and clarified by the Government.  Even after all such exercises both tax payers as well as the departmental officers are not still comfortable in implementation and execution of  the provisions of the law, which ultimately achieve the object of the government of a simplified and user friendly system of taxation, due to frequent  clarifications, amendments and press releases. In nutshell, tax payers are not satisfied the proceedings being initiated besides the fact that the different officer is interpreting the same provision of law not in uniformity but in their own way. In other words the bonafide taxpayers as well as officers of the department are not sure about the judicious correctness of the proceedings being initiated.

In this article, I will confine myself to the burning issue of imposition of interest on the portion of tax adjusted through “Electronic Cash Ledger” on account of delayed filing of return in GSTR-3B, because almost every tax payer is facing such proceedings.

After considering the provisions in its entirety and the various judicial precedents briefed herein below, one will agree and confidently plead that no interest can be charged by the department on the amount of tax utilized from electronic cash ledger, when there is delay in filing of return in GSTR-3B, if under utmost precaution the taxable person deposit the tax liability before due date of filing of return in GSTR-3B.

The provisions of “Interest on delayed payment of Tax” are embedded in “Chapter-X”- “Payment of Tax”, by way of section 49 to 50 and the relevant provision runs 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, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger. (Inserted by  FINANCE (No.2) Act, 2019 dated 01.08.2019 w.e.f. 01.09.2020 by Notification No.63/2020-CT date 25.08.2020 and further subs. by The Finance Act 2021 (Act No.13 of 2021) dated 28.03.2021 w.e.f. 01.07.2017 )

(2) The interest under sub-section (1) shall be calculated, in such manner as may be prescribed, from the day succeeding the day on which such tax was due to be paid.

The liability of interest as per the provision of section 50(1) arises on 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.

Accordingly, the liability of interest arises only if all the above prescribed limbs of the provision, which is mandatory and automatic in nature, are met with otherwise no interest is chargeable.

 Now the question arises from above analysis are:

– When liability to pay tax arises on a taxable person under the provisions of the Act?

– How and when a person liable to pay the tax discharge his liability of payment of tax or part thereof to the government?

– What is the prescribed time for deposit of tax liability?

– For how much period delay the interest liability arises?

– How the liability of interest is to be discharged?

 Primafacie, the Section head itself speaks that the interest is chargeable on delayed payment of tax but not delayed filing of return GSTR-3-B.

The answer to last two questions   are self-embedded in provisions itself that interest is payable for the period for which the amount of tax liability or part thereof remained unpaid to the Government on his own but the answer to first 3 questions are embedded in various sections compiled hereunder:

Section 12- Time of supply of goods

(1) The liability to pay tax on goods shall arise at the time of supply, as determined in accordance with the provisions of this section.

(2) The time of supply of goods shall be the earlier of the following dates, namely:—

(a) the date of issue of invoice by the supplier or the last date on which he is required, under  section 31, to issue the invoice with respect to the supply; or

(b) the date on which the supplier receives the payment with respect to the supply:

Provided that where the supplier of taxable goods receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice in respect of such excess amount.

Section-13 Time of supply of services:

(1) The liability to pay tax on services shall arise at the time of supply, as determined in accordance with the provisions of this section.

(2) The time of supply of services shall be the earliest of the following dates, namely:—

(a) the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or

(b) the date of provision of service, if the invoice is not issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or

(c) the date on which the recipient shows the receipt of services in his books of account, in a case where the provisions of clause (a) or clause (b) do not apply:

Provided that where the supplier of taxable service receives an amount up to one thousand rupees in excess of the amount indicated in the tax invoice, the time of supply to the extent of such excess amount shall, at the option of the said supplier, be the date of issue of invoice relating to such excess amount.

Explanation.––For the purposes of clauses (a) and (b)––

(i) the supply shall be deemed to have been made to the extent it is covered by the invoice or, as the case may be, the payment;

(ii) “the date of receipt of payment” shall be the date on which the payment is entered in the books of account of the supplier or the date on which the payment is credited to his bank account, whichever is earlier.

“Section 49(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.

Section 49(3) states that, 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.

Further, explanations below Sec. 49(9) read as under:

(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;

The word “prescribed” has been defined u/s 2(87) of the CGST Act, 2017 to mean prescribed by rules made under the Act on the recommendation of the Council.

Further, Section 2 (43) of CGST ACT defines “electronic cash ledger” means the electronic cash ledger referred to in subsection (1) of section 49;

As per section (117) “valid return” means a return furnished under sub-section (1) of section 39 on which self-assessed tax has been paid in full;

According to Rule 87 (1) The electronic cash ledger under sub-section (1) of section 49 shall be maintained in FORM GST PMT-05 for each person, liable to pay tax, interest, penalty, late fee or any other amount, on the common portal for crediting the amount deposited and debiting the payment therefrom towards tax, interest, penalty, fee or any other amount.

Rule 87 (2) Any person, or a person on his behalf, shall generate a challan in FORM GST PMT-06 on the common portal and enter the details of the amount to be deposited by him towards tax, interest, penalty, fees or any other amount.

Now, the answer to first question lies in provision of section 12(1) as well as in section 13(1) for goods and services respectively for liability of payment of tax.

The answer to second question lies in section 49 stated hereinabove. Explanation (a) below sec.49 (9) clearly speaks that the date of deposit of tax u/s 49(1) shall be deemed as date of credit to the account of government.

The answer to third question is that till date no such rules have been formulated to prescribe the time period allowed for payment of tax to quantify delay period u/s 50(1) as well as no rule prescribing the manner for calculation of interest u/s 50(1) as per Section 50(2) has been formulated besides manner of debit of tax in electronic cash ledger u/s 49(3) too.

In this connection, the decision of the Gauhati High Court in Santosh Kumar Harlalka Vs State of Assam & Ors, (1995) 2 GLR 95 may be referred to. In the aforesaid case, Section 27 of the Assam General Sales Tax Act, 1993 provided for deduction of tax at such rates and in such manner as may be prescribed. The rate and manner of deduction of tax was not prescribed by framing the Rules. In that connection the Court held as under:

“Therefore, I am of the opinion that as per the “Rules”, no rate and manner have been prescribed to deduct tax at source. In the absence of any prescribed rate and manner, the 3rd respondent has no jurisdiction to issue notice dated 5.8.93 directing the 4th respondent to deduct taxes at source and the respondent no.5 has also no authority and jurisdiction to deduct the tax at source in the manner as it is proposed. Therefore, the letter dated 5.8.93 issued by the 3rd respondent is liable to be set aside as ultra vires.”

Subsequently, the Government of Assam amended the law prescribing the rate but no manner was prescribed. The matter again came up before the Gauhati High Court in Gauhati Municipal Corporation Contractor’s Association Vs Gauhati Municipal Corporation, (1996) 2 GLR 172 and the High Court held as under :

“It is a well settled law that where a power is given to do certain thing in a certain way the thing must be done in that way or not at all. In section 27(b) of the Assam General Sales Tax Act the legislature has fairly indicated that tax can be deducted at source not only on the basis of the prescribed rate but also in the manner. While making the said provision, definitely, the legislature had in its mind certain manners. It is also an established principle of law that legislature do not use any expression which is unnecessary and redundant. Taking the plain meaning from Section 27(b) of the Act, it is abundantly clear that some manner, regarding deduction of tax has to be prescribed. As this has not been done, in my opinion, no tax can be deducted at source in the present facts and circumstances of the case. Accordingly, I set aside and quash the action of respondents deducting the sales tax at source from the bills payable to the members of the petitioner-association.

It is a well settled law that when a power is given to do a certain thing in a certain way the thing must be done in that way or not at all. Other methods of performance are necessarily forbidden. The aforesaid law was laid down in Nazir Ahmad vs King Emperor, AIR 1936 PC 253(2) In State of Uttar Pradesh Vs Singhara Singh & Ors, AIR 1964 SC 358, a Constitution Bench of the Apex Court approved the aforesaid proposition of law.

A Constitution Bench of the Apex Court again in Commissioner of Income Tax Vs Anjum M.H. Ghaswala, (2002) 1 SCC 633 held as under:

“Then it is to be seen that the Act requires the Board to exercise the power under Section 119 in a particular manner i.e. by way of issuance of orders, instructions and directions. These orders, instructions and directions are meant to be issued to other income tax authorities for proper administration of the Act. The Commission while exercising its quasi-judicial power of arriving at a settlement under Section 245-D cannot have the administrative power of issuing directions to other income tax authorities. It is a normal rule of construction that when a statute vests certain power in an authority to be exercised in a particular manner then the said authority has to exercise it only in the manner provided in the stated itself. ….”

In Captain Sube Singh & Ors Vs. Lt. Governor of Delhi, (2004) 6 SCC 440, referring to the decision of the Apex Court CIT vs Anjum (supra) , the Apex Court held as under:

“29. In Anjum M.H. Ghaswala [CIT v. Anjum M.H. Ghaswala, (2002) 1 SCC 633] a Constitution Bench of this Court reaffirmed the general rule that when a statute vests certain power in an authority to be exercised in a particular manner then the said authority has to exercise it only in the manner provided in the statute itself. The statute in question requires the authority to act in accordance with the rules for variation of the conditions attached to the permit.”

The same law was reiterated by the Apex Court in Kunwar Pal Singh vs State of U.P & Ors, (2007) 5 SCC 85 by holding as under:

“16. Section 6(2), on a plain reading, deals with the various modes of publication and they are: (a) publication in the Official Gazette, (b) publication in two daily newspapers circulating in the locality in which the land is situate of which at least one shall be in the regional language, and (c) causing public notice of the substance of such declaration to be given at convenient places in the said locality. There is no option left with anyone to give up or waive any mode and all such modes have to be strictly resorted to. The principle is well settled that where any statutory provision provides a particular manner for doing a particular act, then, that thing or act must be done in accordance with the manner prescribed therefore in the Act.”

It is also a settled law that the statute should clearly and unambiguously convey the three components of the tax law i.e., the subject of the tax, the person who is liable to pay tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxing statute, then there is no tax in law. In the case of Mathuram Agrawal vs. State of M.P reported in (1999) 8 SCC 667, it was held as under:

“The statute should clearly and unambiguously convey the three components of the tax law i.e. the subject of the tax, the person who is liable to pay the tax and the rate at which the tax is to be paid. If there is any ambiguity regarding any of these ingredients in a taxation statute then there is no tax in law. Then it is for the legislature to do the needful in the matter.”

The Apex Court again in the case of Govind Saran Ganga Saran vs. CST reported in (1985) Supp SCC 205 held as under-

“The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity.”

Similar observations have been made by the Apex Court in the case of CIT vs. B.C Srinivasa reported in (1981) 2 SCC 460 and Commissioner, Central Excise & Customs & Ors. Vs. Larsen and Tourbro Limited reported in (2016) 1 SCC 170.

Now, a proviso to section 50, vide N/No 63/2020-CT dated 25.08.2020 2020 and further subs. by The Finance Act 2021 (Act No.13 of 2021) dated 28.03.2021 w.e.f. 01.07.2017 ,has been inserted,   which states that,” 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, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, shall be payable on that portion of the tax which is paid by debiting the electronic cash ledger.”

According to the statutory interpretation of law, Proviso real nature is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. As stated by LUSH, J.: “when one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject-matter of the proviso” same is cited by the Apex court of law in Shah Bhojraj Kuverji Oil Mills and Ginning Factory v. Subhash Chandra Yograj Sinha, AIR 1961 SC 1596, p.1600;. Further the legal interpretation also construe a proviso in relation to the section or sections to which it is appended,  that a proviso does not travel beyond the provisions to which it is a proviso cited by the apex court in “Mackinnon Mackenzie & Co. v. Audrey D Costa, (1987) 2 SCC 469, p.482: AIR 1987 SC 1281.

Considering the above interpretation of law the proviso to particular provisions of a statue only embraces the field which is covered by the main provision. It has no power to extend the scope of the section.

The proviso added to section 50(1) retrospectively is a clarification of main provision in its nature and cannot extend the field of main provision. As per main provision above the said proviso the delay in filing of return is not the cause for liability of interest.

Our views find support from the judgment of hon’ble Madras High Court too, in the case of REFEX INDUSTRIES LIMITED Versus ASSTT. COMMR. OF CGST & C. EX., CHENNAI reported in  2020 (34) G.S.T.L. 588 (Mad.) , wherein it is observed in para 15 that – ”The above proviso, as per which interest shall be levied only on that part of the tax which is paid in cash, has been inserted with effect from 1-8-2019, but clearly seeks to correct an anomaly in the provision as it existed prior to such insertion. It should thus, in my view, be read as clarificatory and operative retrospectively.”

Generally, the tax payers are required to file GSTR-3B on monthly basis within 20 days subject to notifications for  state wise due dates but in certain situation the return is to be filed quarterly but even then the tax is to be deposited in prescribed time in PMT-06 to avoid interest liability.

According to section 2(117) valid return is the return filed u/s 39(1) with payment of tax on self-assessment basis. Further, as per section 39 read with rule 61, every registered tax payer other than person referred to in section 14 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017) or an Input Service Distributor or a non-resident taxable person or a person paying tax under section 10 or section 51 or, as the case may be, under section 52 is required to file their return GSTR 3B electronically through the common portal on or before the twentieth day of the month succeeding such month. According , in absence of any prescribed period for deposit of tax to quantify the delay when tax or part thereof remained unpaid u/s 50(1) of the GST Act,2017, an harmonious construction leads to the conclusion that the tax for a tax [period should have been paid in accordance of the provisions of law within 20 days from the end of the respective tax period for the purpose of filing of a valid return u/s 39 of the GST Act,2017.

According to section 49, when a taxpayer liable to pay tax, makes a payment through FORM GST PMT-06, through the specified mode of payment of tax, the taxpayer is actually discharging his part of liability to government there and then. The explanation to section 49(9) clearly states that, the date of deposit in E-CASH ledger is equivalent to date of credit to the account of the Government.

Also according to Rule 87(6) and rule 87(7), (Challan Identification Number) CIN shall be generated only on successful credit of the amount to the concerned government account maintained in the authorized bank and on receipt of the CIN from the collecting bank, the said amount shall be credited to the E- Cash Ledger of the person. Thus, the actual movement of funds happen at the first stage only i.e., CREDIT to E- Cash Ledger and at the time of DEBIT to E- Cash Ledger (with CREDIT to liability register), bank accounts are not altered at all. Thus, the entries at the time of ‘Offsetting Liability’ signify merely allocation of funds to respective heads as per the return, etc.

In the light of all read herein above, for discharging his liability to pay the tax in prescribed time the taxpayer has to take recourse to Chaper-X “Payment of Tax”. A harmonious construction to all above implies that the amount deposited u/s 49(1) must be treated as due discharge of tax liability by the taxpayer for want of rule to section 49(3) and discussions made hereinabove. Accordingly, if the amount stands deposited within prescribed time of deposit/payment of tax, then no liability u/s 50(1) is attracted. The amount so deposited in E-Cash ledger is as good as tax deposited and a portal requirement of debiting E-cash ledger at the time of filing of Return is a mere representation of incorrect understanding of the spirit of law.

Under such circumstance,  the doctrine of impossibility attracts in this case. The doctrine of impossibilty is a contract law concept and refers to situations in which it is impossible for a party to a contract to perform its obligations under it. Section 56 of the Indian Contract Act 1872 states that “an agreement to do an act impossible in itself is void”.

It is settled principle that the taxpayer cannot be made to suffer for no fault (re: Vision Distribution Pvt. Ltd. v. Commissioner W.P.(C) 8317/2019 (Del.) wherein it has been held that the tax payer cannot be made to suffer on account of failure of the Government in devising smooth GST systems). Hence they submit that even on this ground interest cannot be demanded on the amount of output tax which has been already paid before due date of payment

Under the facts and circumstances narrated hereinabove as well as the legal provisions and judicious precedents, it can be rightly pleaded that one cannot be penalized by way of demanding the interest on the amount of tax paid in cash for the want of substantive/ adjective provisions in this regard.

It is now a settled law, in the case of “ India Carbon Ltd Vs State of Assam”, reported in (1997) 6 SCC 479)] ; [ (1997) 106 STC 460 (SC)], wherein it has been held that interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax makes a substantive provision and/or Adjective provision in this behalf.

As such, as per Section 50(1), the interest is leviable on failure to pay the tax or any part thereof to the Government within the period prescribed not otherwise. Since in the present status of the GST Act, 2017, the period for deposit of tax u/s 50(1),  manner of debiting tax from electronic cash ledger u/s 49(3) and the calculation procedure for levy of interest u/s 50(2)  has not been prescribed by framing of the Rules, therefore it can rightly  be construed that there is uncertainty and vagueness in the Act and the same will therefore be fatal to its validity. Under such legal and judicious position, the question of charging and levy of interest under the CGST Act, 2017 does not arise.

In conclusion, the above legal provisions and  judicial precedents undoubtedly supports our view point that interest u/s 50(1) cannot at all be imposed on the amount of tax deposited before due date of filing of return, in the case of belated retunes in GSTR-3B. Thus, the proceedings being initiated/notices being issued by the department may be challenged.