Indirect Tax & ​Foreign Trade Insights - Issue 14

Indirect Tax_Sharp & Stellar_Issue_14.pdf

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Highlights

• Interest to be paid on delayed filing of returns even if payment made from the credit ledger: Patna HC

• SC issued notices to Union Finance Ministry, CBIC, GST council, etc. to reply on claims regarding constitutional validity of anti-profiteering norms

• Taxpayers contest GST notices citing them as time barred

• Household moving services under the purview of GTA if provided as bundled services with transportation

• Exemption of Ortho Phosphoric Acid from BIS Standard when used in the production of fertilizers for 90 days w.e.f. 22nd Apr 2024

Insights

The HC of Patna has just fuelled the debate on mechanism to charge interest on delayed filing of returns in cases where the payment is made from utilising existing ITC or cash balance in the cash ledger.

The Court emphasised that the event on 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.

Section 50 – Interest on delayed payment of tax

Upon careful reading and analysis of section 50, it can be inferred that a registered person is liable to pay interest only when the person has failed to pay tax or part thereof to the government.

Section 49(1) - Payment of tax, interest, penalty and other amounts

Further, the procedure to pay tax has been stipulated in section 49(1) of CGST Act, 2017 read with rule 87 of CGST Rule, 2017

Rule 87. Electronic Cash Ledger

On conjoint reading of section 50 and 49 (1) of CGST Act, 2017 read with Rule 87 of CGST Rule 2017, it can be inferred that-

• Liability to pay interest only arises when the registered person has failed to pay the tax to the government.

• The mechanism to pay the tax as provided in section 49(1) is by depositing amount towards tax, interest, penalty, fee or any other amount by internet banking or credit or debit cards or other modes as prescribed to the electronic cash ledger.

• Where the payment is made by way of National Electronic Fund Transfer or Real Time Gross Settlement a Challan Identification Number on successful credit of the amount to the concerned government account maintained in the authorised bank.

Based on above provisions, it can be concluded that by depositing the amount to the electronic cash ledger amounts to payment to the government as the amount is credited to the bank account of the government and question of interest does not arise after the crediting of amount to the bank account of the government as the registered person is no longer in failure to pay the tax to the government which is one and only condition if breached interest becomes leviable.

Filing of GSTR 3B is a procedure and failure to file such return shall be classified as a “procedural lapse” in so far as payment of tax to the government is concerned. It is a well settled principle that substantive benefit or relief cannot be denied to a party on account of a procedural lapse. This principle has been ratified by multiple courts on multiple occasions. Hence, we would like to make a reference to Formica India Division Versus Collector of Central Excise 1995 (77) E.L.T. 511 (S.C.) Supreme Court  where it was held that “the substantive benefit cannot be denied on procedural lapses”; at CESTAT Mumbai, in the matter of Indian Institute of Technology Vs Commissioner of Service Tax [2019 (5) TMI 1045] and CESTAT Kolkata ruling in the matter of S.L. Polypack Private Limited Vs Commissioner of CGST & CX (CESTAT Kolkata) where it was ruled that “substantive benefits available to the registered dealer cannot be denied on procedural grounds”.

Furthermore, the contention that depositing amount to the electronic cash ledger amounts to payment of tax to government is justified as such because the amount once deposited in the electronic cash ledger cannot be withdrawn at the free will of the registered person or utilized to pay to any person other than the government.

Given the fact that this judgement contradicts an earlier judgement from the Madras HC, it is imperative that the matter reaches to the Apex Court and be settled once and for all. 

Period Covered: Apr 22, 2024 to Apr 28, 2024