If no GST payment was made, interest is levied even if credit is available in cash/credit ledgers
Facts and issues of the case
The petitioner is an assessee under the provisions of the Tamil Nadu Goods and Service Tax Act, 2017, (‘TNGST Act’/‘Act’) and has challenged an order dated 10.04.2019 wherein the respondent calls upon it to remit interest of a sum of Rs.5,00,00,000/- (approx.) for belated remittance of Goods and Service Tax (‘GST’) for the period from July, 2017 to October, 2017.
Consequent upon the direction as aforesaid, the petitioner has appeared before the respondent and advanced submissions, pursuant to which, an order has been passed on 18.01.2021 accepting one portion of the submissions made. The petitioner has sought and has been granted permission to raise additional grounds addressing what remained of the grievance under order dated 10.04.2019, as covered under order dated 18.01.2021 and the respondent has also filed an additional counter.
The levy of interest u/s 50 of the Act, arises from the fact that when the petitioner filed a GSTR 3B return for the month of July, 2017, there was an inadvertent error whereby the data pertaining to its plant at Faridabad was included instead of data pertaining to the Chennai plant.This swap resulted in a short disclosure of liability for the period July to October 2017 leading to the levy of interest. The petitioner had filed a grievance petition seeking modification of the return for the month of July 2017 that had not been immediately disposed/addressed by the authorities.
Thus, the petitioner has admittedly not filed monthly returns for the months August to October 2017, on the premise that the proper ascertainment of tax liability for the aforesaid months would be dependent upon the adjudication of its grievance petition as above. According to the petitioner, it was for this reason that the petitioner did not file returns for the later periods, as a measure of containing the cascading effect of the error that had transpired in the return for July 2017.
Observation by the court
The remittance of taxes for the subsequent periods are admittedly belated, and the period of delay and consequent levy of interest, are as tabulated The specific argument of the petitioner is that it had sufficient ITC credit in both the electronic cash ledger (‘ECR’) as well as the electronic credit register (‘ECrC’). Thus, there had been no loss caused to the revenue and hence no justification to levy interest since the interest is only compensatory in nature.Taking note of the amendments to Section 50 of the Act, the respondent has recomputed the interest payable reducing the same from Rs.5,00,00,000/- (approx.) to an amount of Rs.1,19,00,000/-. Thus, credit to the extent of cash payments effected by the petitioner has been granted to the petitioner. The submission of the assessee is that the same logic that has merited acceptance by GST authorities in relation to the cash balance, should apply in the context of credit balance as well.
The conclusion was that the proviso should operate retrospectively and thus, in a case where an assessee had sufficient cash credit, there is no question of the Department requiring to be compensated, since funds were available with it, to the credit of that assessee. While it is the above reasoning that is found favour with the respondents qua cash credits, a distinction is sought to be made qua cash credits and credits available in the ECR and ECrR. While payments in cash denotes the actual availability of cash to the credit of the assessee concerned/petitioner, deposits standing to the credit of an assessee/petitioner, do not necessarily, and in all circumstances, imply that the resources to back such credit up, are within reach of the Department. This is all the more in a case such as the present where the petitioner has not actually filed the returns and effected a debit to the ECR and EcrR to the extent of the tax payable. Thus, credit cannot be equated with cash remittances.
In deciding this issue, what must weigh with the Court is the pointed and specific language of Section 50 of the Act and assessee had extracted Section 50 of the Act below. I find that the language used is categories to the effect that it is only when a remittance is effected by way of debit, that an assessee would be protected from the levy of interest. Acceding to the stand of the petitioner would result in rewriting the proviso, to the effect that, even mere availability of credit would insulate the petitioner from interest, which, in my view, is impermissible.
That apart, there is some force to the submissions of the respondents that credit cannot, prior to availment be taken to construe the payment . There are any number of situations where credit may be found to have been availed erroneously or on a mistaken interpretation of law. Thus, it would be risky, from the view-point of the revenue, to state as a general proposition that the mere availability of electronic credit should be assumed to be utilization that would insulate the petitioner from the levy of interest. Thus, unless an assessee actually files a return and debits the respective registers, the authorities cannot be expected to assume that available credits will be set-off against tax liability.
In appeal, the decision was reversed by the Supreme Court and the appeal filed by the Union, allowed. Though this judgment does not specifically bear upon this issue, the attempt of the petitioner is to refer to paragraph Nos.33 to 36 where the Court refers to the scheme of the TNGST Act. The Court observes that a registered person is obliged to self-assess its turnover after reckoning its eligibility to ITC and Outward Tax Liability (OTL) taking note of the balances lying in its cash or credit ledgers.
These observations, though rendered in the context of rectification of GSTR-3B, are relied upon by the petitioner to suggest that availability of credit would suffice to exonerate it from both non-filing of return as well as tax liability. The Nagpur Bench of the Bombay High Court, in the case of Mahavir Manakchand Bhansali Vs Commissioner of Income Tax, has held that while the normal rule of interpreting the physical statute is the literal rule of interpretation, when Parliament enacts a law, it proceeds, the Bench states, on the basis that the State will act fairly and not place an unjustified burden upon the subject. This decision has been rendered in the context of the Income Tax Act, 1961, and application of the ratio of this decision will depend on whether or not the impugned action is found to be proper and legally sound.
The specific issue raised relates to the levy of interest u/s 50 of the Act in a situation where the petitioner has not filed its returns of turnover for a particular period and the remittance of taxes for the aforesaid periods is admittedly belated. The petitioner argues that no interest need be levied on the strength of the balances lying to its credit in the ECR and ECrR. This peculiar issue has not been decided in any of the decisions cited, and on the basis of the detailed discussion as above, I hold this issue, adverse to the petitioner.
This Writ Petition is partly allowed, to the extent of the relief granted under and the demand, as per aforesaid order, stands confirmed. No costs. Consequently, connected Miscellaneous Petition is closed.India-Yamaha-Motor-Private-Limited-Vs-Commissioner-of-CGST-Madras-High-Court..-1