Facts of the Case

The petitioner, M/s RSB Transmissions (India) Limited, a company registered under the Companies Act, challenged the levy and recovery of interest under Section 50 of the CGST Act, 2017 on account of delayed filing of GSTR-3B returns.

The principal controversy before the Court was whether an amount deposited by a registered taxpayer through valid challans into the Government banking system and reflected in the Electronic Cash Ledger before filing GSTR-3B could be regarded as discharge of tax liability for the relevant tax period, and consequently whether interest could still be levied for delayed filing of GSTR-3B.

The Revenue initially levied interest of approximately Rs. 13,23,783/- for delayed filing of GSTR-3B returns relating to the period July 2017 to December 2019. The impugned communication dated 22 July 2021 required payment of such interest under Section 50 of the CGST Act.

The petitioner contended that, after adjustment of available Input Tax Credit, its total net tax liability was approximately Rs. 32,16,64,014/-, out of which approximately Rs. 29,83,86,479/- had already been deposited before the relevant due dates. According to the petitioner, only approximately Rs. 2,32,77,535/- was deposited belatedly in cash and, therefore, interest of only approximately Rs. 1,53,260/- was legally leviable. The petitioner stated that this amount had already been deposited through Form GST DRC-03 dated 6 August 2022.

The Department thereafter demanded the remaining interest amount of approximately Rs. 11,70,523/- and took the position that money deposited into the Electronic Cash Ledger remains merely a balance available to the taxpayer until the relevant GSTR-3B return is filed and the ledger is actually debited towards discharge of tax liability.

The petitioner also sought quashing of the rejection of its refund claim and consequential refund of approximately Rs. 11,70,523/-, contending that interest had been wrongly collected on amounts already deposited before the due date.

 Issues Involved

The principal issues before the Jharkhand High Court were:

  1. Whether deposit of money through valid challans and its credit into the Electronic Cash Ledger before the due date amounts to payment or discharge of GST liability.
  2. Whether interest under Section 50(1) of the CGST Act can be levied where GSTR-3B is filed belatedly, although sufficient money had already been deposited in the Electronic Cash Ledger before the due date.
  3. Whether tax liability is discharged only when the Electronic Cash Ledger is actually debited upon filing GSTR-3B.
  4. Whether interest under Section 50 is compensatory or effectively penal in circumstances where the Government already holds the money deposited by the taxpayer.
  5. Whether the petitioner was entitled to refund of the interest amount of approximately Rs. 11,70,523/- paid through DRC-03.
  6. Whether the writ petition involving interpretation of the CGST Act was maintainable on pure questions of law.

 Petitioner’s Arguments

The petitioner argued that interest cannot be levied merely for delayed filing of a return; interest can arise only on delayed payment of tax. According to the petitioner, delayed filing of return is separately dealt with through late fee under Section 47 of the CGST Act, whereas Section 50 operates only when tax remains unpaid beyond the prescribed period.

The petitioner submitted that a substantial amount of approximately Rs. 29.83 crore had already been deposited before the due date and, therefore, interest could legally be levied only on the balance amount of approximately Rs. 2.32 crore deposited belatedly.

Reliance was placed on Section 39(7), which provides that tax due as per the return must be paid not later than the last date on which the return is required to be furnished. According to the petitioner, this necessarily permits payment of tax before the due date of filing the return.

The petitioner further relied upon the Explanation to Section 49 and Rules 87(6) and 87(7) to argue that once money is successfully credited to the concerned Government account maintained with the authorised bank and is reflected in the Electronic Cash Ledger, the money is already with the Government. The subsequent debit entry at the time of filing GSTR-3B was described as merely an accounting or fictional entry without any fresh movement of funds.

It was further argued that interest is fundamentally compensatory and not penal. Therefore, where the Government was not deprived of funds, interest should not be charged merely because the return was filed late.

The petitioner also argued that if Section 50(1) were interpreted to levy interest even on tax amounts already deposited before the due date, such interpretation would be confiscatory, arbitrary and unreasonable, offending Articles 14 and 19(1)(g) of the Constitution of India.

 Case Laws Relied Upon by the Petitioner

The petitioner relied upon the following judicial precedents:

Prannoy Roy & Another vs Commissioner of Income Tax & Another – relied upon for the proposition that interest should not be levied on tax already deposited merely because the return was filed belatedly.

Magadh Sugar & Energy Ltd vs State of Bihar & Others – relied upon to contend that a writ petition is maintainable where pure questions of law arise.

Dwarka Prasad vs Dwarka Das Saraf – relied upon in relation to principles of statutory interpretation.

Pratibha Processors & Others vs Union of India & Others – relied upon for the proposition that interest is compensatory in character and not penal.

J.K. Synthetics Limited vs Commercial Taxes Officer – relied upon concerning interpretation of taxing statutes.

Grasim Industries Ltd. vs Collector of Customs, Bombay – relied upon for the principle that statutory language should not be interpreted in a manner rendering words or expressions redundant or superfluous.

The petitioner also referred to M/s Vishnu Aroma Pouching Private Limited, a Gujarat High Court decision, although the Revenue sought to distinguish that case on the factual ground that the present petitioner had not established comparable GST portal technical glitches or timely reporting of such glitches.

 Respondents’ Arguments

The Revenue contended that a deposit made through internet banking, credit or debit card, NEFT, RTGS or other prescribed modes is merely credited to the taxpayer’s Electronic Cash Ledger under Section 49 and Rule 87.

According to the respondents, the Electronic Cash Ledger is maintained for recording deposits and payments, but mere availability of money in the ledger does not amount to discharge of tax liability.

The Revenue argued that under Section 39(7), tax due as per the return is required to be paid not later than the last date for furnishing the return. Actual discharge of liability occurs when the taxpayer files GSTR-3B and the appropriate amount is debited from the Electronic Cash Ledger.

The respondents specifically contended that the petitioner filed GSTR-3B returns late for the months of:

  • July 2017 – delay of 5 days
  • October 2017 – delay of 25 days
  • November 2017 – delay of 1 day
  • March 2018 – delay of 1 day

Accordingly, the Revenue argued that interest under Section 50 arose automatically on the relevant net cash tax liability because the Electronic Cash Ledger was debited only upon delayed filing of the returns.

The Revenue further relied upon the proviso to Section 50(1) and the administrative position that interest is recoverable on the net cash tax liability, including retrospectively from 1 July 2017.

 Court Order / Findings

The Jharkhand High Court dismissed the writ petition and upheld the Revenue’s position.

1. Deposit in Electronic Cash Ledger Is Not Payment of Tax

The Court held that a combined reading of Section 49(1) of the CGST Act and Rules 87(6) and 87(7) of the CGST Rules demonstrates that money deposited and credited into the Electronic Cash Ledger is only a deposit. Such deposit does not by itself amount to appropriation of money towards a specific tax liability.

The Court emphasized the distinction between:

  • depositing money into the Electronic Cash Ledger, and
  • using or debiting that money for payment of tax liability.

2. Tax Liability Is Discharged Only Upon Debit of Electronic Cash Ledger

The Court held that tax liability gets discharged only when the GSTR-3B return is filed and the corresponding amount is debited from the Electronic Cash Ledger towards tax liability.

The Court observed that under the statutory scheme, a person may deposit money into the Electronic Cash Ledger before filing GSTR-3B, but such deposit does not itself constitute payment of tax due.

3. Electronic Cash Ledger Is Comparable to an E-Wallet

A significant clarification made by the Court was that the Electronic Cash Ledger is, in substance, “just an e-wallet” in which money can be deposited at any time through the prescribed challan mechanism.

Since money lying in the Electronic Cash Ledger may also be claimed as refund subject to the statutory procedure and outstanding liabilities, mere deposit cannot automatically be treated as final payment of tax.

4. Delayed Filing of GSTR-3B Attracts Interest Where Tax Is Debited Late

The Court held that discharge of tax liability is linked with filing of GSTR-3B and debit of the relevant ledger. Therefore, where GSTR-3B is filed after the prescribed due date and the tax liability is consequently discharged late by debiting the Electronic Cash Ledger, interest under Section 50 becomes payable.

5. Interest Computation Upheld

The Court held that the Revenue had rightly computed interest on the delayed payment arising from delayed filing of the relevant GSTR-3B returns.

The Court concluded that:

Any deposit in the Electronic Cash Ledger prior to the due date of filing GSTR-3B does not amount to discharge of tax liability by the registered person.

Accordingly, because the petitioner had filed the relevant GSTR-3B returns after the statutory due dates, the Revenue was justified in computing interest on delayed payment.

6. No Refund of Interest

Since the petitioner had already discharged the interest liability and filed Form GST DRC-03, the Court held that no case for refund arose.

7. Writ Petition Held Maintainable but Dismissed on Merits

The Court accepted that the writ petition was maintainable because the controversy involved pure questions of law and statutory interpretation on undisputed facts. However, after interpreting the CGST provisions, the Court rejected the petitioner’s substantive claim and dismissed the writ petition.

 Important Clarification

The most important legal clarification arising from this judgment is:

Mere deposit of money into the Electronic Cash Ledger before the due date of filing GSTR-3B does not constitute payment or discharge of GST liability. Tax liability is discharged only when the amount is actually debited from the Electronic Cash Ledger towards the relevant liability, which occurs in connection with filing of GSTR-3B. Therefore, delayed filing of GSTR-3B may attract interest under Section 50 even where sufficient money had been deposited earlier in the Electronic Cash Ledger.

The Court also clarified the conceptual distinction between the Electronic Cash Ledger and the Electronic Credit Ledger. Cash lying in the Electronic Cash Ledger is merely a deposit available for utilisation and may, subject to law, be refundable; ITC in the Electronic Credit Ledger represents credit arising on account of tax already paid within the GST chain.

 Sections and Rules Involved

Section 39(7), CGST Act, 2017 – Payment of tax due as per return not later than the last date for furnishing such return.

Section 47, CGST Act, 2017 – Levy of late fee for delayed furnishing of prescribed details or returns.

Section 49(1), CGST Act, 2017 – Credit of deposits to the Electronic Cash Ledger.

Section 49(3), CGST Act, 2017 – Utilisation of amounts available in the Electronic Cash Ledger for payment of tax, interest, penalty, fee or other amounts.

Section 50(1), CGST Act, 2017 – Interest on delayed payment of tax.

Proviso to Section 50(1), CGST Act, 2017 – Interest in specified delayed-return situations on the portion of tax paid by debiting the Electronic Cash Ledger.

Section 54, CGST Act, 2017 – Refund provisions.

Sections 73 and 74, CGST Act, 2017 – Proceedings concerning determination and recovery of tax in prescribed circumstances.

Rule 61, CGST Rules, 2017 – Return-related mechanism and discharge of liability through ledger debit, as discussed by the Court.

Rule 87(6), CGST Rules, 2017 – Successful credit to Government account and generation of Challan Identification Number.

Rule 87(7), CGST Rules, 2017 – Credit of amount to Electronic Cash Ledger upon receipt of Challan Identification Number.

Link to download the order-https://mytaxexpert.co.in/uploads/1783499837_1449compressed.pdf

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