August 12, 2021

No interest is payable on tax liability paid through balance lying in Electronic Credit Ledger

Held by Hon’ble Madras High Court in the matter of

M/s M/s F1 Components Pvt. Ltd. v. The State Tax Officer, Chennai

[W.P. No.6631 of 2021 And WMP No.7188 of 2021, dated July 09, 2021]

In the given case, M/s F1 Auto Components P ltd (“The Petitioner”) received an order wherein tax liability was paid through balance lying in electronic Credit Ledger and remaining amount was paid through cash remittance. However, the respondent levied interest on both payments under Section 50.

The petitioner challenged the leviability of interest on tax liability paid through Electronic Credit Ledger. On the matter, the Hon’ble High Court relied on its own judgement in the matter of M/s. Maansarovar Motors Private Limited [WP.No.4468 of 2020, dated September 29, 2020] wherein it was held that Proviso to Section 50 of CGST Act, i.e., interest is payable only on tax liability paid through Cash remittance, was inserted with effect from 1st September, 2020.

However, as per GST Council recommendations and clarification, such amendment came into effect from 1st July, 2017 itself. Therefore, leviability of interest on taxes paid through Electronic Credit Ledger is liable to be set aside.

Leviability of interest on cash remittance is mandatory and compensatory in nature. Therefore, same is upheld. Further, The petitioner also relied on provisions of Section 42 of CGST Act. However, it was held that Section 42 can be invoked only when there is an error in the database of the revenue. In the given case, there is an error in ITC Claimed by the petitioner. Therefore, the question of invoking Section 42 does not arise.

1. Brief Facts of the Case:

M/s F1 Auto Components P ltd (“The Petitioner”) is in receipt of an order issued by respondent dated 27.01.2021.
Tax liability determined in impugned order was paid through Electronic Credit Ledger and remaining amount was paid through cash remittance.
Interest was levied under Section 50 (paid through levied under Section 50 of CGST Act, 2017 (Interest on delayed payment of tax) on both payments.
The petitioner challenged the leviability of interest on tax liability paid through balance lying in Electronic Credit Ledger.

2. Questions before Hon’ble Madras High Court

Whether the petitioner is liable to pay interest on tax liability paid through Electronic Credit Ledger?
Whether the Petitioner is liable to pay interest on the belated cash remittance?

3. Question-1: Interest on tax liability paid through Electronic Credit ledger?

In this matter, both the petitioner and the respondent relied on the judgement of Hon’ble Madras High Court in the matter of M/s. Maansarovar Motors Private Limited [WP.No.4468 of 2020, dated September 29, 2020] wherein following was decided:
- Every tax liability shall be paid either through balance lying in Electronic Credit Ledger or through cash remittance.
- Interest on delay payment of taxes is levied under section 50 of CGST Act for a period of delay.
- Interest on payment of taxes made through cash remittance is never in question.
- However, levy of interest on tax paid through balance lying in Electronic Credit Ledger is subject matter of challenge.
- In Section 50, a proviso has been inserted vide Notification No. 63 of 2020 dated 25.08.2020 wherein it has been clarified that interest shall be payable on tax payment made through Electronic Cash ledger and such proviso was effective from 01.09.2020.
- However, GST Council’s recommendations has clarified that Notification No. 60 of 2020 has inserted the proviso to Section 50, interest is payable only on net cash liability, with effect from September 1, 2020. However, such provision shall come into effect retrospectively from July 1, 2017.
- Accordingly, directions were issued to the appropriate authority to compute the interest liability for belated remittances of cash only.

Accordingly, in the given case, Hon’ble Madras high Court held that leviability of interest on taxes paid through Electronic Credit Ledger is liable to be set aside.

4. Question-2: Interest on tax liability paid through Cash Remittance?

Interest on belated cash remittance is mandatory and compensatory and levy is unheld to such extent.

5. Other discussions

In the given matter, the petitioner relied on provision of Section 42 of CGST Act, 2017 (Matching, reversal and reclaim of input tax credit) in the case of mismatch of particulars at the end of the Petitioner, vis-à-vis particulars furnished in the returns of the selling/purchasing dealer.
In the matter, Hon’ble Madras High Court held that Section 42 can be invoked only when there is an error in the database of the revenue or error has occurred at the end of revenue. However, in the given case, there is an error in ITC Claimed by the petitioner. Therefore, the question of invoking Section 42 does not arise.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

Instructions regarding rectification of assessment orders under GST| Department of Trade and Taxes, Delhi

GST Authorities can’t transgress the boundaries of the Show Cause Notice

Interest is not payable on late filing of GSTR-3B when the tax amount is deposited in Electronic Credit Ledger by the due date

GST Portal may facilitate revision of GST returns

Proceedings can’t be initiated under Section 74 when tax liability is already discharged along with interest

Judgements

Proceedings can’t be initiated under Section 74 when tax liability is already discharged along with interest

The petitioner is engaged in the business of generation of electricity through solar plants. The GST returns filed by the petitioner for the period of July, 2017 to March, 2019 were subject to audit. The petitioner was informed about tax liability during audit proceedings on account of wrong availment of ITC and ITC availed with respect to exempted supply. Upon receipt of initial audit observation, the petitioner discharged the entire tax liability alongwith interest. The final audit report was issued much after payment of GST liability. Post audit, the respondent issued show cause notice to the petitioner under Section 74 of CGST Act and confirmed the demand through DRC-07. The petitioner contended that it falls under purview of Section 73(1) and 73(5) of CGST Act and therefore, SCN under section 74 is not sustainable. Whereas, the respondent contended that this is the case of fraud and willful misstatement.

23/04/2024 No Comments

Instructions regarding rectification of assessment orders under GST| Department of Trade and Taxes, Delhi

Notification

Instructions regarding rectification of assessment orders under GST| Department of Trade and Taxes, Delhi

GST Assessments, u/s 73, are already closed for FY 2017-18 and the due date of issuance of order for FY 2018-19 is 30th April, 2024. In many of the Assessment orders, the taxpayers have faced genuine hardship such as as the Assessment orders passed are not the speaking one or assessment orders contain clerical mistakes causing unnecessary increase in demand amount.

16/04/2024 No Comments

GST Authorities can’t transgress the boundaries of the Show Cause Notice

Judgements

GST Authorities can’t transgress the boundaries of the Show Cause Notice

The Petitioner received an order for imposition of penalty. Show Cause notice was issued on the ground that the vehicle was traveling to a destination not mentioned in the invoice. However, while issuing the order, the appellate authority has imposed a penalty on a different ground.Hon’ble High Court held that “Show Cause Notice” serves as a vital checkpoint which defines the boundaries within which any authority can operate. Show cause notice is an initial document which impose allegations or discrepancies on the taxpayer and provide an opportunity to the taxpayer to present their side of the story. Any action beyond the scope defined in SCN not only undermines the legitimacy of the authority but also compromises the rights of the individuals or entities involved.

12/03/2024 No Comments