JUDGMENT
Bhargav D. Karia, J. – Heard learned Senior Advocate Mr. Kamal Trivedi with learned advocates Mr. Anuj Trivedi and Mr. Vinay Bairagra for the petitioners and learned advocate Mr. Ankit Shah for the respondents.
2. Both these petitions are arising out of the communications issued by the respondents for payment of interest under Section 79 of the Goods and Services Tax Act, 2017 (For Short “GST Act”).
3. In Special Civil Application No. 4464 of 2022, the petitioners have challenged the communication dated 17.11.2021 and 11.02.2022 (Annexure-B and Annexure-C respectively) and in Special Civil Application No. 821 of 2023, the petitioners have challenged the communications dated 24.08.2022, 12.09.2022 and 04.02.2023 (Annexure-C, Annexure-D and Annexure-E respectively).
4. Having regard to the controversy arising in these petitions which is in a narrow compass, with the consent of the learned advocates for the parties, the same is taken up for hearing.
5. Rule returnable forthwith. Learned advocate Mr. Ankit Shah waives service of notice of rule for and on behalf of the respondents.
6. The factual matrix giving rise to these petitions can be summarized as under:-
6.1. The brief facts of Special Civil Application No. 4464 of 2022 are that the petitioner no. 1 firm filed Form GSTR-3B return within the extended period of limitation. It is the case of the petitioner that with a view to avoid complication with regard to payment of taxes on total advances received during the month of July, 2017 the petitioner Company, at various places where it is registered, took a decision to make the payment of applicable taxes along with interest at the rate of 18% per annum as provided under Section 50 of the GST Act where the same were payable.
6.2 It appears that on 31.07.2018 the premises of the petitioner Company came to be searched by the officers of the Directorate General of GST Intelligence, Lucknow Zonal Unit, Lucknow and in spite of making the payment of applicable taxes along with interest at applicable rate, the communication dated 02.08.2018 was received to the effect that there was a mismatch between Forms GSTR-1 and GSTR – 3B returns filed by the petitioner Company with regard to GST liability shown/paid.
6.3. By reply dated 16.08.2018, the petitioner Company provided the details of the payment made and stated that there was no difference as alleged between the two Forms of returns. Thereafter by letter dated 18.12.2018, the petitioner Company was requested to pay the remaining interest amount up to the actual date of debiting the electronic cash ledger.
6.4. Being aggrieved by the letters dated 02.08.2018 and 18.12.2018, the petitioner preferred Symphony Ltd v. Union of India [R/Special Civil Application No. 6322 of 2019, dated 23-7-2021] which was disposed of by this Court on the submission made on behalf of the respondents that the department would issue show cause notice prior to raising any demand on the petitioner Company.
6.5. It is the case of the petitioner that the respondent no. 2 thereafter issued letter dated 17.11.2021 whereby the petitioner Company was directed to deposit the interest amount to the tune of Rs.58,97,120/-, failing which a show cause notice would be issued.
6.6. By reply dated 02.12.2021 the petitioner Company disputed such liability reiterating that the amount of tax payable by the petitioner Company was already paid on 19.09.2017 along with interest and requested to drop the proceedings. However, the respondent no. 2 by letter dated 11.01.2022 intimated the petitioner Company that pre show cause notice consultation would be convened on 20.01.2022. After pre – consultation hearing, the respondent no. 2 issued another letter dated 11.02.2022 calling upon the petitioner Company to deposit the amount of interest of Rs.58,97,120/- as per Section 50 of the GST Act, failing which recovery proceedings would be initiated under Section 79 of the GST Act.
7. So far as Special Civil Application No. 821 of 2023 is concerned, after the letters dated 02.08.2018 and 18.12.2018 were challenged by the petitioner Company by preferring Symphony Ltd (supra) before this Court, which was disposed of by order dated 23.07.2021. The petitioner Company has preferred Special Civil Application 821 of 2023 before this Court challenging the action of the respondents on the identical issue with regard to its Patna Unit.
7.1. By order dated 09.03.2022, this Court has granted ad-interim relief in favour of the petitioner Company. It appears that thereafter by show cause notice dated 24.08.2022, the petitioner Company was called upon to make the payment of interest amount of Rs.54,14,768/- within seven days, failing which necessary recovery process as stipulated under Section 79 of the GST Act was proposed to be initiated.
7.2. The petitioner thereafter received another communication dated 12.09.2022 again requesting the petitioner to pay the amount of interest followed by communication dated 04.01.2023 being notice under Section 79 of the GST Act for recovery of the dues consisting of interest payable, but not paid by the petitioner Company for its Jharkhand Unit.
8. Learned Senior Advocate Mr. Kamal Trivedi with learned advocates Mr. Anuj Trivedi and Mr. Vinay Bairagra for the petitioners submitted that by the impugned communications in both the petitions, the petitioner Company is asked to pay the amount of interest considering the date of filing of Form GSTR -3B without considering the actual date of payment by the petitioner Company from the electronic cash ledger.
8.1 It was submitted that by the impugned letters the respondents have called upon the petitioner Company to make the payment for the period from 20.09.2017 till date of filing of Form GSTR – 3B i.e. 14.08.2018 whereas the debit in electronic cash ledger has taken place on the date of filing of Form DRC-03 on 19.09.2017. It was therefore submitted that the respondents could not have asked for the interest payable under Section 50 of the GST Act after debit of the amount from the electronic cash ledger.
9. In support of his submission, reliance was placed on the decision of this Court in case of Arya Cotton Industries v. Union of India (Guj) and submitted that the case of the petitioner is squarely covered in favour of the petitioner. It was, therefore, submitted that the impugned communications for payment of interest by the respondent authorities are required to be quashed and set aside.
10. Per contra, learned advocate Mr. Ankit Shah for the respondents submitted that as per Section 50 of the GST Act liability to pay interest would continue till the date of filing of the return in Form GSTR- 3B and not from the date of debit in the electronic cash ledger by the assessee as the liability to pay the tax and interest would crystalise on the date of the filing of the return and therefore, the interest would continue to be accruing upon the amount of tax payable. It was submitted that merely debiting the electronic cash ledger would not amount to payment of tax by the assessee.
10.1. In support of his submissions, reference was made to the following averments made in the affidavit-in-reply filed on behalf of the respondents in Special Civil Application No. 4464 of 2022.
“8.7. With reference to the contents of paragraph no. 7 of the petition, it is submitted that the petitioner time and again tries to misguide the Hon’ble High Court, Ahmedabad by submitting that ‘once the amount of duty has been debited from the bank account of the petitioner company and credited to the government treasury, then in that case, there arises no question of charging any interest on such amount.’
8.7.1. In fact, until and unless the amount is made available in the electronic cash ledger or electronic credit ledger and is further debited from the electronic cash ledger or electronic credit ledger, the payment of tax does not happen. In the instant case, the petitioner was required to deposit GST amounting to Rs.3,61,27,024/- from their electronic cash ledger on 25.08.2017 by debiting the same on 25.08.2017 to the government exchequer. However, the petitioner credited Rs.3,61,27,024/- in their electronic cash ledger on 19.09.2017 and after a lapse of about 1 year, Rs.3,61,27,024/- was debited from electronic cash ledger on 14.08.2018. Hence, Ra. 3,61,27,024/- was deposited into the government exchequer on 14.08.2018 by debiting Rs. 3,61,27,024/- from electronic cash ledger.
8.7.2. In short, the petitioner was required to deposit Rs. 3,61,27,024/ on 25.08.2017 but they deposited Rs. 3,61,27,024/- in government exchequer on 14.08.2018 and hence petitioner is liable to remit interest for delayed payment (i.e. from 26.08.2017 to 13.08.2018) under Section 50 of the CGST Act, 2017. The petitioner by crediting Rs.3,61,27,024/- in electronic cash ledger (not in government exchequer) on 19.09.2017 has assumed that they have deposited Rs.3,61,27,024/-in government in exchequer. In this case, the petitioner contradicted himself by depositing Rs.3,61,27,024/-government exchequer by debiting from electronic cash ledger on 14.08.2018.Here, the provisions of Section 49& Section 50 of the CGST Act, 2017 and Rule 87 of CGST Rules, 2017 would be relevant to mention here:
Section 49. Payment of tax, interest, penalty and other amounts.-
(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.
(2) The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger, in accordance with section 41 or section 43A), to be maintained in such manner as may be prescribed.
(3) 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.
(4) The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time as may be prescribed.
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 levied on that portion of the tax that is paid by debiting the electronic cash ledger.]
Rule 87. Electronic Cash Ledger.-
(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.
Further, to remove any confusion among the traders, CBIC in FAQs at question no. 10 has clarified that “Can the amount available in cash ledger be deemed as payment for any liability?
Answer: No, unless the taxpayer makes a debit entry from a cash ledger for a specific liability, the amount lying in the cash ledger cannot be assigned to any liability.”
On minute perusal of the provisions of Section 49, Section 50 of CGST Act, 2017 and Rule 87 of CGST Rules, 2017 & clarification issued by the CBIC, it is apparent that deposit to electronic cash ledger cannot be considered as deposit into government exchequer until and unless the amount deposited into the electronic cash ledger is debited from the ledger.
On going through the electronic cash ledger and electronic credit ledger (Annexure-I), it is very clear that in each and every month, first the amount is credited into the electronic cash ledger or electronic credit ledger and then the petitioner deposited the GST amount into the government exchequer by debiting the amount from electronic cash ledger or by debiting from the electronic credit ledger. But the disputed amount of GST of Rs.3,61,27,024/- was credited into the electronic cash ledger on 19.09.2017 but not debited from the electronic cash ledger on the same date. The petitioner debited the GST amount of Rs.3,61,27,024/- from electronic cash ledger on 14.08.2018.A chart (Annexure-II) has also been prepared on the basis of electronic cash ledger. On going through this chart which has been prepared on the basis of electronic cash ledger maintained by the petitioner, it is apparent that amount debited from the electronic cash ledger for any month matches with payment of tax in cash mentioned in monthly return of GSTR-3B of the respective month. Hence, amount credited into the electronic cash ledger will not be considered as payment of tax, rather, amount debited from the electronic cash ledger or electronic credit ledger is treated as actual payment of tax.
Thus, the petitioner have submitted wrong information before the Hon’ble Court that once the amount of duty has been debited from the bank account of the petitioner company it would be considered as credited into the government exchequer.”
11. Considering submissions made by the parties and facts of the case, it would be germane to refer to decision of this court in case of Arya Cotton Industries (supra) wherein in the similar facts, it is held as under :-
“12. As per the above explanation, the date of credit to the account of the Government in the authorised bank shall be deemed to be the date of deposit in electronic cash ledger. Therefore, when the return is filed by the assessee in Form GSTR-3B and if there is sufficient balance available in the electronic cash ledger, than liability as per the return is simply offset against such balance by debit in electronic cash ledger. Hence, the tax paid at the time of deposit into electronic cash ledger which is adjusted against liability at the time of filing of return is merely setting off of the amount from electronic cash ledger to be utilised for payment of tax liability as per the return filed. Therefore, the amount in the electronic cash ledger is nothing but in nature of advance tax lying in the account of the assessee which cannot be withdrawn or utilised in any manner by the assessee except for payment of tax liability as per the return filed.
13. Section 50 of CGST Act provides for interest on delayed payment of tax. Proviso to Section 50(1) refers to interest on tax payable in respect of supplies made during a tax period and declaring the return for the said period furnished after the due date in accordance with the provisions of Section 39 shall be payable on the portion of the tax which is paid by debit in electric cash ledger. It appears that the respondents have literally interpreted the words “interest shall be payable on that portion of the tax which is paid by debit in the electronic cash ledger”. The debit in electronic cash ledger is on the date of filing of the return and therefore, interest is calculated till date of filing of return ignoring the fact that the assessee might have deposited the amount in electronic cash ledger prior to the date of filing of return and return may be filed belatedly for various reasons. Debiting of electronic cash ledger is only adjustment of the amount of deposit made in the electronic cash ledger. Therefore, on plain reading of the provisions of Section 50 (1) which applies for calculating levy of interest on delayed payment of tax cannot be literally interpreted to the effect that interest is payable on the amount which is already deposited and utilised for the payment and thereafter adjusted for payment of tax is contrary to the fundamental principle for charging interest which is compensatory in nature. If the mechanical and literal interpretation is done by the respondent is accepted, the same would convert the interest into the nature of penalty. It appears that for the purpose of introduction of the proviso to Section 50(1), is with regard to remove the controversy which earlier existed as to whether interest is leviable on gross tax liability without considering admissible input tax credit or whether it was only applicable on net tax liability paid by the taxable person. The GST Counsel in his 31st meeting decided to incorporate proviso to Section 50 of the Act so as to clarify that interest was leviable only on net tax liability and accordingly, the proviso was introduced prospectively by Finance Act, 2019 and notified vide notification No.63/2020 dated 25.08.2020 and thereafter, in the 39th meeting of the GST Counsel, it was decided to apply the proviso with effect from 01.07.2017 by Finance Act, 2021. The retrospective of the proviso was notified by notification No.16 of 2021 dated 01.06.2021.
14. Therefore the purpose of introduction of the proviso to Section 50 was only to clarify with regard to levibility of the interest on net tax liability and not on gross tax liability of the assessee. The proviso has therefore nothing to do with the period for which the interest is to be levied.
15. Therefore, the interest can be levied only from the due date of payment of tax till the deposit of such tax in the electronic cash ledger on demand of interest even for subsequent period from the date of deposit in electronic cash ledger till date of filing of return is therefore not tenable.
16. Rule 88B which has come into effect from 1st July, 2017 as per notification No. 14 of 2022 dated 5th July, 2022 is in context of amendment to Section 50(3) of the CGST Act as per decision taken by the GST counsel in his 47th meeting in relation to the transfer of the balance of CGST/IGST in electronic cash ledger of registered person to electronic cash ledger of CGST/IGST of the distinct person. Section 50(3) of the CGST Act was also amended clarifying that where ITC has been wrongly utilised, the registered person shall be paid interest only on such input cash credit which is wrongly availed and utilised and in that context, Rule 88B was introduced with effect from 01.07.2017 for calculation of interest on delayed payment of tax for wrongly availed and utilised input tax credit on the portion of wrongly utilised input tax credit. The Hon’ble Supreme Court in case of Dhwarka Prasad (supra) regarding the proviso to the section has held as under:
“16. There is some validity in this submission but if, on a fair constriction, the principal provision is clear, a proviso cannot expand or limit it. Sometimes a proviso is engrafted by an apprehensive draftsman to remove possible doubts, to make matters plain, to light up ambiguous edges. Here, such is the case. In a country where factories and industries may still be in the developmental stage, It is not unusual to come across several such units which may not have costly machinery ‘or plant or fittings and superficially consist of bare buildings plus minor fixtures. For example, a beedi factory or handicraft or carpentry unit a few tools, some small contrivances or connection of materials housed in a building, will superficially look like a mere ‘accommodation’ but actually be a humming factory or business with a goodwill as business, with a prosperous reputation and a name among the business community and customers. Its value is qua business, although it has a habitation or building to accommodate it. The personality of the thing let out is a going concern or enterprise, not a lifeless edifice. The legislature, quite conceivably, thought that a marginal, yet substantial, class of buildings with minimal equipments may still be good businesses and did not require protection as in the case of ordinary building tenancies. So, to dispel confusion from this region and to exclude what seemingly might be leases only of buildings but in truth might be leases of business, the legislature introduced the exclusionary proviso.
17. While rulings and text books bearing on statutory construction have assigned many functions for provisos, we have to be selective, having regard to the text and context of a statute. Nothing is gained by extensive references to luminous classics or supportive case law. Having explained the approach we make to the specific ‘proviso’ situation in s. 2(a) of the Act, what strikes us as meaningful here is that the legislature by the amending Act classified what was implicit earlier and expressly carved out what otherwise might be mistakenly covered by the main definition. The proviso does not. in this case, expand, by implication, the protected area of building tenancies to embrace ‘business’ leases.
18. We may mention fairness to counsel that the following, among other decisions, were cited at the bar bearing on the uses of provisos in statutes: Commissioner of Income-tax v. Indo-Mercantile Bank Ltd.(1); M/s. Ram Narain Sons Ltd. v. Asst. Commissioner of Sales Tax (2); Thompson v. Dibdin (8); Rex v. Dibdin (4) and Tahsildar Singh v. State of U.P. (5). The law is trite. A proviso must be limited to the subject matter of the enacting clause. It is a settled rule of construction that a proviso mustprima facie be read and considered in relation to the principal matter to which it is a proviso. It is not a separate or independent enactment. ‘Words are dependent on the principal enacting words, to which they are tacked as a proviso. They cannot be read as divorced from their context’ (1912 A.C. 544). If the rule of construction is that prima facie a proviso should be limited in its operation to the subject matter of the enacting clause, the stand we have taken is sound. To expand the’ enacting clause, inflated by the proviso, sins against the fundamental rule of construction that a proviso must be considered in relation to the principal matter to which it stands as a proviso. A proviso ordinarily is but a proviso, although the golden rule is to read the whole section, inclusive of the proviso, in such manner that they mutually throw light on each other and result in a harmonious construction.”
24. In view of the above analysis of the provisions of the Act, the decided case laws and reliance placed by the respondents on the decisions in cases of M/s. Megha Engineering & Infrastructures Ltd. (supra), M/s RSB Transmissions (India) Limited (supra) and India Yamaha Motors Private Limited (supra) taking a contrary view, are not in line of the provisions of the Act and the Rules made thereunder and therefore, the same are not followed but the judgment in case of the Vishnu Aroma Pouching Pvt. LTD. (supra) is followed and it is therefore held that the tax amount which has already been credited to the Government by depositing an electronic cash credit ledger by the petitioner is required to be considered as a payment of tax which gets adjusted at the time of filing of the return by debit in the electronic cash ledger as per the scheme of the CGST Act and therefore, the question of payment of interest would not arise for the period from the date of deposit of the amount in the electronic cash ledger by the petitioner till the date of filing of the return. As per the provisions of the Act, the amount deposited by the petitioner by generating Challan will get credited to the account of the Government immediately upon deposit and later on the same shall be adjusted against the tax payable as per the return filed by debiting the electronic cash ledger and therefore, the tax liability of the registered person will be discharged to the extent of the deposit made to the Government. As per the Scheme of the Government, it is only for the purpose of accounting that the debit in electronic cash ledger will be made at the time of filing of the return otherwise the amounts get credited to the account of the Government immediately upon the deposit. Therefore, once the amount deposited by the petitioner is credited to the account of the Government, the tax liability of such registered person stands discharged on the said date subject to setting off by debit in electronic cash ledger for accounting purpose at the time of filing of return to set off liability against such deposit of the amount which was credited to the account of the Government and therefore, the petitioner cannot be made liable to pay the interest from the date of deposit in the account of the electronic cash ledger till the date of filing of the return.
25. In view of the above foregoing reasons, the impugned communication through email dated 26.04.2022 and the letter dated 27.12.2021 in Special Civil Application No.8871 of 2022 as well as impugned notice dated 10.08.2022 in Special Civil Application No.17657 of 2022 are hereby quashed and set aside. In the result, these petitions are allowed. Rule is made absolute. No order as to cost.”
12. It is also emerging from the record more particularly from the averments made in the affidavit-in-reply of the respondent authorities reproduced herein above to the effect that there is no dispute with regard to the debit from electronic cash ledger by the petitioner Company as the amount of tax and interest was already deposited in electronic cash ledger by the petitioner on 19.09.2017 and thereafter from the electronic cash ledger the same amount is adjusted towards tax and interest in Form GSTR 3B. Therefore, the contention of the respondent authorities that interest would continue to be accrued from 20.09.2017 till 14.08.2018 would not be sustainable in view of the aforesaid decision of this Court in case of Arya Cotton Industries (supra), wherein the similar issue is determined to the effect that once the amount is credited in the electronic cash ledger towards payment which cannot be withdrawn or utilised in any manner by the assessee except for payment of tax liability as per the returned filed, the assessee cannot be saddled with the interest liability from the date of deposit in the credit of the electronic cash ledger till date of filing of the return in Form GSTR 3B as the tax amount along with interest which has already been credited to the Government by depositing the same in electronic cash ledger is required to be considered as a payment of tax which gets adjusted at the time of filing of the return by debit in electronic cash ledger as per the Scheme of the GST Act and therefore, the question of payment of interest would not arise for the period from the date of deposit of the amount in electronic cash ledger by the petitioner till the date of filing of the return.
13. Moreover as per the provisions of the Act, the amount deposited by the petitioner by generating challan will get credited to the account of the Government immediately upon deposit and later on the same shall be adjusted against the tax payable as per the return filed by debiting the electronic cash ledger and, therefore, the tax liability of the registered person will be discharged to the extent of deposit made with the Government.
14. As per the Scheme of the GST Act, it is only for the purpose of accounting that the debit in electronic cash ledger will be made at the time of filing of the return otherwise an amount which is credited to the account of the Government immediately upon the deposit in electronic cash ledger, the same would be appropriated in the Government treasury and the tax liability of the assessee would stand discharged. Moreover, as per the Scheme of the GST Act, the deposit in electronic cash ledger would be in nature of advance payment by the assessee which would be adjusted at the time of filing of the return in Form GSTR 3B while computing the tax liability. Therefore, no interest can be levied from the date of deposit of the amount by the assessee in the electronic cash ledger till the time the return in Form GSTR-3B is submitted.
15. In view of the above foregoing reasons, the communications dated 17.11.2021 and 11.02.2022 (Annexure-B and Annexure-C respectively) in Special Civil Application No. 4464 of 2024 and communications dated 24.08.2022, 12.09.2022 and 04.02.2023 (Annexure-C, Annexure-D and Annexure-E respectively) in Special Civil Application No. 832 of 2022 are hereby quashed and set aside.
16. In the result, both the petitions are allowed. Rule is made absolute. No order as to costs.