During the inception of GST era and with the nascent GST portal, one of the most popular confusion that conned everyone was, whether payment of GST is completed with deposition of tax amount in Cash Ledger (CL) or payment is concluded only after the click on ‘Offset of liabilities’. Also due to technical glitches in the earlier period, various assesses faced an undue delay in filing return with prompt payment in cash ledger, which resulted in GST notice for recovery of interest. Interestingly, determining the actual date of payment of taxes is also crucial in various other practical scenarios like the existence of excess balance in CL (similar to credit ledger) to avoid interest/penalty on any liability crystalized in future, eligibility of claiming a credit on RCM transactions in the same month that of payment of RCM taxes, a belated reflection of the amount in CL, etc.
Department has initiated proceedings for recovery of interest when GST returns were filed belatedly. However, in many cases cash ledger was credited within the time, however, filing of return happened belatedly. There are strong reasons why interest should not be levied in such scenarios. Let us understand the legal matrix around this issue.
The most important aspect to be understood here is the statutory flow as to how a particular liability gets registered and at what instance the same gets nullified as per the GST law. As per Chapter IX of CGST Rules 2017 read with Chapter X of CGST Act 2017:
- Any amount payable as per the return filed by the assessee shall be debited in his Electronic Liability Register.
- On the deposition of amount (payment made from a bank account) in CL, the amount shall be credited in CL.
- Upon offsetting the liability by filing the return, the amount shall be debited to Electronic Cash/Credit ledger and credited to Electronic Liability Register.
It can be observed from above that, when actual funds are released from assessee’s bank account and deposited in CL, the amount is flagged as a ‘CREDIT’ entry. This is similar to any bank transaction, like when cash is deposited in a bank account, the bank parks the said entry as ‘CREDIT’ to the depositor’s account. Such ‘CREDIT’ entries generally signify that the said amount is a liability of the one who credits the depositor’s ledger i.e., the liability of Bank/Government. Thus, payment from assessee’s bank account to CL creates a liability on the part of Government. This liability gets DEBITED (reduced) at the time of filing the return (Offsetting liability), etc. However, at the time of such DEBIT, there is no actual movement of funds at all. The said DEBIT entry at the max, in Author’s opinion, is “ALLOCATION” entry wherein no bank account either of the assessee or of the Government is altered.
At this juncture, it is important to understand the significance of CIN (Challan Identification Number). Rule 87(6) and rule 87(7) states that CIN shall be generated only on successful credit of the amount to the concerned government account maintained in the authorised bank and on receipt of the CIN from the collecting bank, the said amount shall be credited to the electronic CL of the person. Thus, the actual movement of funds happen at the first stage only i.e., CREDIT to CL and at the time of DEBIT to CL (with CREDIT to liability register), bank accounts are not altered at all. Thus, the entries at the time of ‘Offsetting Liability’ signify merely the allocation of funds to respective heads as per the return, etc. This creates a very strong ground to consider the deposition of funds in CL as a tangible entry for payment of taxes by the assessee. The funds are available for use to the treasury of Government immediately on the generation of CIN i.e., deposit in CL. It has been stated in the explanation to section 49 that the date of credit to the account of the Government in the authorised bank shall be deemed to be the date of deposit in the electronic CL. Thus, when funds are available with the government for further exploitation, the assessee, in turn, should not be flagged as non-compliant or still liable for payment. Non-allocation of funds in the respective head, should not be treated at par with Non-payment of taxes.
The law has explicitly provided that assessee’s liability shall be discharged after DEBIT to cash/credit ledger. However, the school of thought that deposition in CL should be considered as the payment gets strength from various other instances in the Act itself wherein the deposit in CL is directly or indirectly coloured as sufficient discharge of tax liability.
To begin with, as per section 27(2), a casual taxable person is required to make an advance deposit of tax in an amount equivalent to the estimated tax liability. The said compliance or liability is considered as discharged by merely depositing the amount in CL. Therefore, as per provisions of section 27 read with Rule 13, ‘Advance deposit of Tax’ is to be made by virtue of ‘Depositing funds in CL’. Hence, the amount in CL is treated at par with ‘Advance Tax payment’.
Further, as per section 53A of the Act, where any amount is transferred by the assessee from CGST CL to SGST/UTGST CL, the Government is required to transfer to the State/UT tax account, an amount equal to the amount so transferred. Irrespective of filing of the return, with the switch of balances in CL the Government is mandated to undertake the actual fund transfer of the equivalent amount to the respective State/UT. Thus, exploitation of funds is triggered on the deposition of the amount in CL and not after the filing of return.
As per section 77 of CGST Act and section 19 of IGST, interest is not required to be paid in case assessee pays wrong taxes considering a transaction as inter/intrastate earlier and later correcting the same to be the other one. The genesis behind not charging the interest on an incorrect transaction, is nothing else than the fact that actual payment had already been done, although in the wrong head. This saving provision highlights the actual form of payment which is bank payment and not the allocation under any specific head.
The recent update on the GST portal, which provides for auto populated figures in GSTR 3B return has practically clarified the Government’s stand on the eligibility of RCM credit in the same month that of payment. When the auto-populated figures provide an amount in RCM liability tab, the same amount is reflected in the Input tax credit tab available on RCM transaction. Therefore, the auto-populated figures have followed the concept of payment and credit in the same month for RCM. The credit on RCM transaction can be claimed only after ‘Payment’ of taxes in cash. In case it is assumed that payment of taxes is made only after ‘Offsetting the liability’ i.e., filing return then the credit of RCM transactions should not be made available in the same month that of payment. However, the rationale behind auto-populated figures has axed the concept of the fulfilment of ‘payment of taxes’ only after ‘Offset liability’. Although the mechanism of GST portal is not the law, however practically the GST portal itself is a pseudo-GST Law, restricting and allowing the assessee’s activity in its own fashion.
It is interesting to observe the phraseology used in the Act in the case when the amount is deposited in CL and in the case of ‘Offsetting liability’. Section 49, has termed the payment from a bank account to CL as ‘Deposit’ towards tax, interest, etc. and the balance of CL is termed as ‘Amount’ available in CL which in turn can be used for ‘payment’ of taxes, interest, etc. The cautious use of the term ‘Deposit’ should relieve the assessee from any liability, as the tax payment in form of Deposit, is already made by the assessee with an increase in the balance of CL. The GST law has artificially broken the actual payment into ‘deposit’ first and ‘payment’ later but for assessee the actual fund transfer takes place at the stage of the deposit itself.
Further, recently Hon’ble Gujarat High Court in case of Vishnu Aroma Pouching Pvt Ltd held that the petitioner had duly discharged the tax liability at the time when a deposit was made in CL itself irrespective of the fact that for some technical hurdles return was filed belatedly. To serve the justice in the true spirit, the petitioner was not fastened with any interest liability on account of delay in filing the return but in time deposition of funds in CL.
Hon’ble Supreme Court in the case of Pratibha Processors 1996 (S.C.), held that interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. Levy of interest is geared to the actual amount of tax withheld and the extent of the delay in paying the tax on the due date. Once the funds abandon the assessee’s bank account, assessee loses the opportunity to earn any accretion from the said sum. Should such a case be considered as withholding of payment, when in fact assessee has deprived itself of all the associated benefits immediately upon transferring the amount in CL?
A different school of thought is inevitable around the said issue. However, discarding payment in the CL as payment of tax, might punish the innocent assessee without any of his faults and also in absence of any undue advantage accruing to the assessee. In Author’s opinion, the gap between deposition of CL and the actual filing of return or any other event does not put the assessee in an advantageous position against which assessee should be fastened with any interest liability or even penalty for that sake which are compensatory and penal in nature.
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