No interest for GST tax paid under wrong head – Jharkhand HC
The GST law was implemented from July 1, 2017. The GST replaced multiple taxes which were levied earlier. GST law has a varied of provisions which could be considered complex in certain situations.
Lack of knowledge about the procedures of GST could lead to certain mistakes. IGST tax is payable on inter-state supplies, while CGST and SGST/UTGST in payable on intra state supplies. Will there be an interest liability if IGST is wrongly deposited under CGST? Let us refer to the case of Shree Nanak Ferro Alloys Pvt. Ltd. Vs Union of India (Jharkhand High Court) to find out the same.
Facts of the Case:-
- The petitioner was a company registered under the provisions of the CGST Act and the IGST Act.
- The dispute related to the month of September, 2017, i.e., soon after the implementation of the aforesaid Acts, wherein the petitioner filed its GSTR-1. Subsequently, the petitioner submitted its GSTR- 3B.
- However, in the liability shown under the IGST there was a deficient liability amounting to Rs.41,98,642.42, whereas in CGST the excess was shown to the tune of Rs.41,98,643.71 and the tax were also paid accordingly.
- This remained unnoticed for a period of about one year, and subsequently by a letter, the petitioner Company was informed that in course of audit, it was observed after the scrutiny of GSTR-I and GSTR-3B filed by the petitioner, that the petitioner had short paid IGST to the tune of Rs.41,98,842 and accordingly, the petitioner was asked to make the payment along with the interest.
- The said letter was replied by the petitioner Company by a letter whereby it was informed that the Company had actually paid the amount of the IGST of Rs.41,98,643, but inadvertently it was paid under the head of CGST, instead of IGST, and as such it was not a case of short payment, rather, it was the case of payment of IGST under a different head.
- It was also stated in the letter that this mistake had occurred in the early phase of implementation of the GST, and accordingly, the adjustment of the said amount may be made in the appropriate head.
- The petitioner aggrieved by the letter issued by the Superintendent (CGST), whereby the petitioner was saddled with the liability to pay the short paid IGST, amounting to Rs.41,98,642, along with due interest, failing which, appropriate action under the Provisions of the Central Goods & Services Tax Act, 2017, and the Rules framed there under, was to be initiated against the petitioner for recovery of the IGST amount along with due interest filed a petition before the HC.
Observations of HC on the provisions of law
Having heard learned counsels for both the sides, we think it appropriate to quote some of the necessary provisions which have been referred to, by learned counsels for the parties
Section 49 of CGST Act pertains to payment of tax, interest, penalty and other amounts
According to Section 49:-
- Every deposit made towards tax, interest, penalty, fee or any other amount by a person by internet banking or by using credit, debit cards, NEFT, RTGS 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.
- 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 43 to be maintained in such manner as may be prescribed.
Section 77 of CGST Act explains Tax wrongfully collected and paid to Central Government or State Government:-
According to Section 77:-
- A registered person who has paid the CGST and SGST or, as the case may be, the CGST and the UTGST on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.
- A registered person who has paid IGST on a transaction considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall not be required to pay any interest on the amount of CGST and SGST or, as the case may be, the CGST and the UTGST payable.
Section 19 of the IGST Act pertains to tax wrongfully collected and paid to Central Government or State Government
According to Section 19:-
- A registered person who has paid IGST on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of IGST so paid in such manner and subject to the conditions as may be prescribed.
- A registered person who has paid CGST and SGST or UTGST, as the case may be, on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall not be required to pay any interest on the amount of IGST payable.
According to Rule 92(1) of the CGST Rules, where upon an examination of the application, the proper officer is satisfied that a refund under section 54(5) is due and payable to the applicant, he shall make an order in FORM GST RFD-06 sanctioning the amount of refund to which the applicant is entitled, mentioning therein the amount, if any, refunded to him on a provisional basis under section 54(6), amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable.
Observations of HC of the present case
- HC found that the petitioner Company had discharged their tax liability under the IGST head, but inadvertently had deposited the amount under the CGST head.
- The petitioner had not concealed the transaction or had not committed any fraud in discharging its tax liability.
- It was a plain case in which the tax was paid by the petitioner to the Central Government, but not under the IGST head, rather under the CGST head.
- The contention of counsel for the CGST was that there was some ulterior motive behind the deposit of tax under the CGST head, which was evident from the fact that the petitioner had filed its GSTR-1 in which the tax liability was correctly shown, showing the supply to be the inter-State supply, but the stand was changed in the form GSTR-3B.
- From the letter, issued by the Superintendent (CGST), it was apparent that for discharging his liability of tax, the petitioner had deposited cash in its electronic cash ledger.
- It was the claim of the petitioner that this happened due to the fact that it was the initial stages of the GST regime that the cash was deposited in the electronic cash ledger of CGST head.
- There appeared to be substance in the submission of the petitioner, as by deliberately depositing the cash in the electronic cash ledger for the CGST head instead of IGST head, possibly no benefit was going to be derived by the petitioner.
- According to HC, they were not in a position to doubt the authenticityof the petitioner, as due to the initial stage of the CGST regime, there might be some confusion, and the cash was wrongly deposited in the wrong electronic cash ledger
- However, HC found from the plain reading of Section 49(3) and (4) of the CGST Act, that counsel for the CGST may be right in his contention that under Section 49 (3) of the CGST Act, the ‘electronic cash ledger’ may be used for making the payment of the tax and the other liabilities under this Act only, i.e., CGST Act.
- There was no provision of cross utilization of the fund as in case of ‘electronic credit ledger’ under Section 49 (4) of the CGST Act.
- However, Section 77(1) of the CGST Act, read with Section 19(2) of the IGST Act, clearly laid down that a registered person who had paid the CGST, treating the transaction to be intra-State supply, as in the case of the petitioner, but which turned out to be inter-State supply, was entitled to the refund of the amount of tax so paid, under Section 77 (1) of the CGST Act, and at the same time such person cannot be saddled with the liability of interest in view of the provision of Section 19(2) of the IGST Act.
- The contention of the counsel for the CGST was that these provisions were for the persons acting bona fide, may also be accepted, but there was nothing on the record of this case to show that the petitioner had not acted bona fidely, particularly in view of the fact that the transaction related to the early stages in which the GST regime had been implemented, and there might be some confusion prevailing at that initial stage.
HC did not find any plausible reason whatsoever, to deny the petitioner Company the benefit of the provisions of Section 77 (1) of the CGST Act, read with Section 19(2) of the IGST Act
HC directed the petitioner to deposit the amount of Rs. 41,98,642 under the IGST head within 10 days, towards the liability of September, 2017. The petitioner shall not be liable to pay any interest on the said amount. The petitioner shall also be entitled to get the refund of the amount of Rs.41,98,644 deposited by them under the CGST head, or they may get the amount adjusted against their future liabilities, in accordance with law, as they may choose.