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.
