In a magic show, every spectator is well aware that magic does not exist but still at the end he is amazed and left in awe by the magician. The so called magic happens right infront of their eyes but unable to decode the logic, the result ends in nothing less than a surprise. On contrary, for the Magician what he does is just a trick but full of skill and expertise.
The job in litigation is almost the same. The stuff is right there infront of everyone’s eye but the skill lies in revealing that magic what was unnoticed by others.
On the same track, lie certain judicial pronouncements which directly resolve various complex issues and leave the reader with sweet surprise of logical interpretations and on other hand there are certain other judgements which directly don’t resolve the issue but break a path towards resolving various complex issues. One such judgement is the case of Vishnu Aroma Pouching Pvt. Ltd. which is engage in manufacturing pan masala under the well-known brand name of ‘Vimal’.
The said case deals with the technical glitch faced by the assessee while uploading the return. In recent times, whenever the word ‘technical glitch’ arises subconsciously one is driven towards transitional credit issues. However, the mentioned case deals with technical glitch faced at the time of filing GSTR 3B return. This is one of the reasons, why the judgement falls under the latter category of ‘breaking a path towards resolving complex untouched issue’. Not many cases have been pronounced dealing with technical glitch occurred while filing GSTR 3B and its associated legal consequences.
In brief the matter to resolve before the Hon’ble High court of Gujarat was, whether assessee was liable to pay interest on the amount of tax liability pertaining to the month of August 2017 (filed in September) but declared in the return filed for the month of September 2019 (filed in October). Against the said tax liability, requisite cash payment was done well within the due date of payment i.e. 21st September 2017 but the liability was declared in the GSTR 3B return filed for September 2019. Now, this is where the role of technical glitch pops up. The gap between declaration of tax liability from August 2017 to September 2019 arose due the technical glitch involved in the said case, which was of crashing GST portal while filing the GSTR 3B return for the month of August 2017.
Owing to the said technical glitch, entire GSTR-3B was uploaded with zero amounts. To say otherwise, it was due to a technical glitch, the outward tax liability declared in the said return was uploaded as zero instead of correct amount of around Rs. 128 Crores. Although the tax liability was uploaded as zero, the actual cash liability (after ITC) of around Rs. 114 Crore was duly deposited in cash ledger of the assessee well within the due date.
To sum up, assessee attempted to declare correct tax liability but could not upload the same due to technical glitch and assessee duly deposited entire cash liability in cash ledger as well. However, the sacrosanct step of “Offsetting the tax liability” with the cash/credit balance could not be done as the liability was uploaded as zero. Thus, the liability payable in cash was left orphan in the cash ledger only and it never got set off. As the liability was not knocked off against the cash ledger balance within the due date, Department insisted upon interest liability.
Hon’ble High court held in the favour of assessee that assessee had duly discharged his tax liability by depositing the requisite funds in Cash ledger and without any of the fault of assessee but because of the technical glitch the same could not be offset, therefore it will be in interest of justice not to fasten interest liability upon the assessee.
While deciding in favour of assessee, Hon’ble High court gave heavy importance on generation of CIN for the transaction of depositing fund in Cash ledger by the assessee. In fact, Hon’ble High court decided that the tax liability was duly discharged by the assessee is evidenced by generation of CIN despite skipping of the process of ‘offsetting the liability’. At this juncture, it is pertinent to understand that there is difference between a CPIN and CIN. CPIN evidences outflow of funds from assessee’s end but CPIN in itself does not evidence receipt of the said funds in Government’s bank account. A CIN is generated when the said funds are received in the government’s bank account. Thus, Hon’ble court held that as CIN was generated, funds moved from assessee’s end to the government and this should be treated as sufficient discharge of tax liability from assessee’s end.
Although the facts in the said judgement are very unique but the reasoning provided in the said judgement will surely hold the ground in various different circumstances. A well set narrative that merely deposition of funds in cash ledger in itself does not relinquishes an assessee from his liability has surely received a serious hit with this judgement. The widespread cliche that ‘when money is parked in cash ledger, it is not property of government unless the same is set off by clicking offset liability button’ has also been spun in a way that the same qualifies as discharge of liability from assessee’s side. Whether or not the said funds are property of government is the question that least matters when it is established that assessee has discharged its onus by depositing the funds in cash ledger.
The said judgement may also help in various different practical scenarios faced by the assessee. Few of the instances are mentioned below:
A) It is often seen that the cash payment made on the due date of return filing is not immediately reflected in cash ledger. The status of said payment is reflected as ‘INITIATED’. In certain cases the said amount is reflected after one working day and in some exceptional cases it takes even more. If the due date is expired in such case prior to reflection of money in cash ledger, then assessee is not left with any option but to pay the late filing fees and face the hanging sword of interest liability, without any of his own fault. In the above case of Vimal, if we assume the interest liability for even one day, it will arrive to somewhere around Rs. 6 lacs. Such interest cost without any fault of assessee could be avoided with the help of above judgement.
B) In yet another scenario, instead of any technical glitch if due to any human error (clerical error), the figures mentioned in GSTR-3B are erred but the cash deposited in Cash ledger is correct, then undue tax harassment to the assessee could be avoided in light of judgement. For example, if instead of mentioning outward IGST liability of say Rs 77,00,000 (77 lacs), an assessee by oversight records Rs 7,70,000 (7.7 lacs) but deposits the correct amount say 77 lacs in cash ledger, then the orphan amount of 69.3 lacs in cash ledger should be treated as sufficient discharge of tax liability and other legal consequences should not be fasten upon assessee.
C) As said earlier, the judgement breaks a path towards resolving various untouched issues. One such issue, which the judgement has indirectly addressed is the point when credit of taxes paid in RCM could be claim.
Different school of thoughts run around the question that, whether credit of taxes paid under RCM could be claimed in the same month or the same have to be paid first and then in next month its corresponding credit could be claimed. One of the reasons, the claim of credit is opined to be deferred in next month is the condition that credit can be claimed only after ‘payment of taxes in cash’. Few of those who favour the view of claiming credit in the next month, believe that ‘payment of taxes’ can be assumed to be concluded only after they are ‘offset against liability’ and not by merely depositing the funds in cash ledger. With the above judgement, one can advocate that depositing funds in cash ledger fulfils the condition of ‘payment of taxes’ annexed to claim the RCM credit. Thus, immediately after depositing the funds in cash ledger one can claim the credit of same, i.e. RCM credit could be claimed in the same month, subject to satisfaction of other conditions.
D) In certain rare cases where assessee understands about any tax liability being missed but where the due date to declare the said outward tax liability has expired or for some other reasons (restriction on portal) the same could not be declared then, deposition of funds in cash ledger with sufficient communication to jurisdiction officer could be said as sufficient discharge of one’s liability.
Thus, the case of ‘Vimal’ is not simply an assessee based issue, but a curious case which could spread its presence in various other scenarios and day to day issues faced by different assessees. Fate of the said judgement will depend upon whether it stands the test of time, but till then it is the law of the land which could be useful in delivering justice in other cases of technical glitches and allied circumstances.
Citation of the discussed judgement : 2020-VIL-164-GUJ
Views expressed in the article are strictly personal.
In case of any query, author can be reached at [email protected]
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. By this application the applicants [original petitioners] seek the following reliefs:
“(A) That this Hon’ble Court may be pleased to permit the petitioners to file manually GSTR3B for August 2017 with correct and true details and the respondents may be directed to accept and acknowledge such GSTR3B manually filed by the petitioners for August 2017;
(B) That this Hon’ble Court may be pleased to direct the respondents to give effect to the details contained in GSTR3B for August 2017 filed manually and be further pleased to direct the respondents to indicate discharge of the petitioner’s GST liability for August 2017 in the electronic liability register as contemplated under Rule 88(2) of the CGST Rules, 2017;
(C) Any other further relief as may be deemed fit in the facts and circumstances of the case may also please be granted.”
2. It is the case of the petitioners in the petition that for August 2017, the total tax liability of the petitioner was Rs.128,63,47,508/ and that the petitioners have discharged this liability partly by paying tax in cash and partly by paying tax through the legally availed Input Tax Credit (ITC). It is asserted in the petition that the petitioners have paid tax liability of Rs.87,62,55,084/ and Rs.26,88,56,662/ from its account in HDFC Bank; whereas, the tax liability of Rs.14,12,35,762/ has been paid by utilizing ITC in the petitioners’ credit ledger. The petitioner has paid Rs.87,62,55,084/ vide challan dated 19.09.2017 and a further sum of Rs.26,88,56,662/ on the same day, but by a separate challan. A challan identification number is generated by the collecting bank, which is indicated in the challans, as laid down under subrule (6) of Rule 87 of the Central Goods and Service Tax Rules, 2017 (hereinafter referred to as the “CGST Rules”).
3. It is further the case of the petitioners that the entire tax liability of August 2017, having been discharged by 19.09.2017, the petitioners proposed to furnish GSTR3B on 20.09.2017; but the common portal was not running properly due to heavy load because millions of registered persons were trying to upload their returns and the common portal, which was introduced only in July 2017, was not capable of taking such a huge load. Consequently, the petitioners’ efforts to upload GSTR3B on 20.09.2017 failed. On the next day, that is, on 21.09.2017, the system crashed. Due to this unfortunate turn of events, the system accepted the petitioners’ GSTR3B on 21.09.2017, but the information and details in all the columns of this return were shown as “zero” despite the fact that the tax liability for the month in question had been duly paid by the petitioner.
4. Since the GSTR3B was uploaded on the common portal in the above manner, the requirement of subrule (2) of Rule 88 of the CGST Rules, viz., indicating the Unique Identification Number relating to discharge of liability in the corresponding entry in the electronic liability register, has not been made in the system which operates on its own, that is, the petitioners have no access to make any entry in the system and consequently, not in the electronic liability register maintained under Rule 85 of the CGST Rules.
5. The petitioners, therefore, immediately informed the concerned Assistant Commissioner incharge of its unit about the payment and discharge of its liability for August 2017 and also about the inability to correct the GSTR3B return submitted on the GSTN portal. The petitioners were advised to approach the Help Desk forum to sort out the issue. Thereafter, the petitioners, time and again, made representations to the concerned officers, however, despite eighteen months having been passed and since there was no progress, the petitioners were constrained to file the captioned petition.
6. In this case, notice was issued in the petition on 18.03.2019, making it returnable on 27.03.2019. Thereafter, the petition came to be adjourned from time to time on five occasions and lastly, it has been listed today before this
7. Despite the fact that notice was issued way back on 18.03.2019 and thereafter, the matter was adjourned from time to time to enable the learned senior standing counsel to obtain instructions in the matter, till date, no affidavit in reply has been filed on behalf of the respondents.
8. However, upon oral instructions from the officers who were present in the court room, Mr. Nirzar Desai, learned senior standing counsel for the respondents, denied that the petitioner has paid the amount of Rs.114.51 crores (rounded off) in cash, as averred in the petition.
9. A perusal of the record of the case reveals that despite the petitioners, having made various representations to the respondents, only three replies were received so far. By a letter dated 10.9.2018, the petitioners were informed that steps were being taken to refer the matter to the GSTN; by a letter dated 28.08.2018, the petitioners were informed to follow the instruction/guideline mentioned in para 3 of the Circular No.26/26/2017-GST dated 29.12.2017; and lastly, by a letter dated 07.03.2019, the petitioners were informed that they have already been requested to follow the instruction/guideline mentioned in para 3 of the Circular No.26/26/2017-GST dated 29.12.2017 by the Deputy Commissioner by a letter dated 28.08.2018. However, in none of the replies, the respondents have taken a stand that the petitioners have not paid the amount, as stated by them. Besides, despite such a long time having elapsed, no affidavit-in-reply has been filed on behalf of the respondents and immense prejudice is being caused to the petitioners due to such delay. Under the circumstances, in the absence of proper response on the part of the respondents, the Court is of the view that the petitioners, who have been diligently prosecuting the matter all throughout, should not be made to suffer, and hence, are entitled to the grant of interim relief as prayed for in paragraph 5(A) of the application.
10. For the foregoing reasons, the application, succeeds and is, accordingly, allowed. The petitioners are permitted to file manually GSTR 3B for August 2017 with correct and true details and the respondents are directed to accept and acknowledge such GSTR 3B manually filed by the petitioners for August 2017. The application stands disposed of accordingly.