Arya Cotton Industries vs Union Of India

C/SCA/8871/2022 JUDGMENT DATED: 14/06/2024

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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

R/SPECIAL CIVIL APPLICATION NO. 8871 of 2022 With R/SPECIAL CIVIL APPLICATION NO. 17657 of 2022

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR. JUSTICE BHARGAV D. KARIA and HONOURABLE MR. JUSTICE NIRAL R. MEHTA ================================================================ 1 Whether Reporters of Local Papers may be allowed No to see the judgment ?

2 To be referred to the Reporter or not ? No

3 Whether their Lordships wish to see the fair copy No of the judgment ?

4 Whether this case involves a substantial question No of law as to the interpretation of the Constitution of India or any order made thereunder ?

================================================================ ARYA COTTON INDUSTRIES & ANR. Versus UNION OF INDIA & ANR. ================================================================ Appearance: UCHIT N SHETH(7336) for the Petitioner(s) No. 1,2 MR UTKARSH R SHARMA(6157) for the Respondent(s) No. 1,2 ================================================================ CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA and HONOURABLE MR. JUSTICE NIRAL R. MEHTA

Date : 14/06/2024

COMMON ORAL JUDGMENT

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1. Heard learned advocate Mr.Uchit N. Sheth

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for the petitioners and learned advocate

Mr.Utkarsh Sharma and learned advocate

Ms.Hetvi Sancheti for the respondents.

2. Rule, returnable forthwith. Learned advocate

Mr.Utkarsh Sharma and learned advocate

Ms.Hetvi Sancheti waives service of notice of

rule for and on behalf of the respondents.

3. Having regard to the controversy in narrow

compass and with the consent of the learned

advocates for the respective parties, these

matters are taken up for hearing.

4. As the facts arising in both the petitions

are similar, the same were heard analogously

and are being disposed of by this common

order.

5. In these petitions, the petitioners have

challenged the order raising demand for short

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payment of interest under Section 50 of the

under Central Goods and Services Tax Act, 2017

(for short 'the CGST') for the period after

deposit of tax by the petitioners in the

electronic cash ledger.

6. For sake of convenience, Special Civil

Application No.17657 of 2022 is treated as a

lead matter.

6.1. The petitioner-Company converted

limited liability partnership into the limited

Company in the year 2017-18 and claimed

transfer of unutilised input tax credit

balance in the accounts of the petitioner

No.1-Company, however, due to technical

issues, the petitioner-Company was not able to

get such credit transfer.

6.2. The petitioners therefore made

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correspondence with the authorities with

regard to the transfer on multiple occasion.

Section 39(7) of the CGST Act requires full

payment of tax due as per returns as a pre-

condition for filing of returns. Since the

petitioners were not permitted to transfer

input tax credit, they were not in position to

pay the tax and could not filed the GST

returns in time.

6.3. It is the case of the petitioner that

in order to curtail the interest liability,

the petitioners deposited tax in electronic

cash ledger from time to time after debit of

such amount from the bank account of the

petitioners.

6.4. The petitioner No.1-Company was

ultimately granted transfer of input tax

credit and therefore, the petitioner-Company

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was able to file return as per the provisions

of the CGST Act along with requisite late fees

for belated filing of returns. The petitioner-

Company also paid interest from due date of

filing of return in Form GSTR-3B till date of

payment of tax in electronic cash ledger.

6.5. The petitioner thereafter received a

letter dated 16th February, 2022 from

respondent No.4-Superintendent of CGST

demanding interest on late payment of tax as

per the provisions of Section 50 of the CGST

Act. The petitioner upon verification of

interest calculation as per the demand raised

found that the respondent No.4 had calculated

interest up to the date of filing of return

and not up to the date of deposit of tax in

the electronic cash ledger. The petitioner

therefore vide letter dated 17.02.2022,

replied to the notice of demand to the

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respondent No.2 that the petitioner-Company

has already paid interest for the period up to

the date of payment of tax in electronic cash

ledger.

6.6. The respondent No.4 however, issued

the show-cause notice on 10.05.2022 contending

that interest was payable right up to the date

of filing of return even if the tax had been

paid earlier.

6.7. The petitioner objected imposition of

such interest by letter dated 14th June, 2022

contending that interest could not be demanded

for a period from the date of deposit of tax

by the petitioner. The respondent NO.4 issued

another notice dated 10.08.2022 for demand of

interest for period after deposit of tax by

the petitioner up to the date of filing of the

return relying upon the Rule 88B of the

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Central Goods and Service Tax Rules, 2017 (for

short 'the Rules') as per notification

No.14/2022-Central Tax dated 05.07.2022 with

retrospective effect from 01.07.2017.

6.8. Being aggrieved, the petitioner has

challenged the notice dated 10.08.2022

demanding the interest on delayed payments of

taxes of Rs.26,86,507/- under IGST, CGST and

SGST Act from the date of deposit of the tax

in the electronic tax ledger up to the date of

filing of the return relying upon the

provisions of Section 50 of the CGST Act and

Rule 88A and 88B of the Rules. In case of the

petitioner of Special Civil Application

No.8871 of 2022 also similar issue has arisen

by the Superintendent of CGST demanding the

interest under Section 50 of the CGST Act from

date of deposit of the amount towards tax in

electronic cash ledger of the petitioner till

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the date of filing of return.

7. Learned advocate Mr.Uchit Sheth for the

petitioners submitted as under :

7.1. Section 50 of the GST Acts provides for

imposition of interest if the taxable person

fails to pay the tax. Where the taxable person

has sufficient balance in the electronic cash

ledger, there is no failure to pay tax and

therefore charge of interest under Section 50

of the GST Acts is not attracted.

7.2. There is internal indication in the

scheme of the GST Acts that credit amount in

the electronic cash ledger is nothing but

payment of tax. The following provisions are

relevant in this regard:

(a) Section 49(1) according to which every

deposit made towards tax, interest,

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penalty, fee or any other amount shall be

credited to the electronic cash ledger.

(b) Section 49(3) provides that the amount

available in electronic cash ledger may be

used for making payment towards tax,

interest, penalty, fees or any other

amount payable under the GST Acts.

(c) Section 49(6) which provides that the

balance in electronic cash ledger or

electronic credit ledger may be refunded

in accordance with provisions of Section

54. There is corresponding provision in

Proviso to Section 54(1) of the GST Acts

requiring filing of refund application in

prescribed form and manner. If balance in

the cash ledger was not "tax" as sought to

be canvassed, then the question having to

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file refund application for getting refund

would nor arise.

(d) Clause (a) of Explanation to Section

49 of the GST Acts provides that the date

of credit to the account of Government in

the authorized bank shall be deemed to be

the date of deposit in the electronic cash

ledger.

7.3. Challan for payment of tax gets generated

at the time of deposit of tax into the

electronic cash led ger itself. When return is

filed in Form GSTR-3B and if there is

sufficient balance available in the electronic

cash ledge then the liability as per return is

simply offset against such balance. Thus tax

is paid at the time of deposit into electronic

cash ledger and the same is then adjusted

against liability at the time of filing

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return. Hence there cannot be any imposition

of interest for the period beyond deposit of

tax amount in the electronic cash ledger.

7.4. The Petitioners are squarely supported by

the judgment of Hon. Supreme Court in the case

of Commissioner of Income Tax-II v/s Modipon

Ltd. (2018) 13 SCC 426 (Compilation Vol. II -

Page 73 - Relevant Paras 10 to 12) wherein it

was held by Hon. Supreme Court that deposit in

Personal Ledger Account (PLA) under the Excise

regime is nothing but payment of tax and

therefore it is admissible as deduction under

Section 43B of the Income Tax Act, 1961 even

if it is adjusted against excise duty

liability at a later stage. It is submitted

that PLA under the Excise regime is equivalent

to electronic cash ledger under the GST regime

and therefore the decision of Hon. Supreme

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7.5. The Petitioners rely upon the judgement

of this Hon. Court in the case of State of

Gujarat v/s T.J. Agro Fertilizer Pvt. Ltd. Tax

Appeal No. 225 of 2015 decided on 9.4.2015

(Compilation Vol. II - Page 95 - Relevant

Paras 4, 4.1 and 5). It was held by this Hon.

Court that interest could not be imposed for

the period between the date of adhoc payment

of tax and date of passing of assessment order

as the State had already received the amount

of tax.

7.6. It is well settled that imposition of

interest is compensatory in nature. Reliance

is placed in this regard on the judgment of

Hon. Supreme Court in the case of Indodan

Industries Ltd. /s State of U.P. & Others

Civil Appeal No. 2352 of 2007 decided on

20.10.2009 (Compilation Vol.II - Page 99 -

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Relevant paras 7,8) and Mahalaxmi Sugar Milla

Co. V/S C.I.T. Delhi (1930) 3 SCC 475

(Compilation Vol.II - Page 102 - Relevant Para

11). In the present case, since the amount

gets credited 10 the electronic cash ledger

only after actual deposit of amount into

Government treasury, there is no loss of

revenue to the Government merely because it

gets adjusted against actual liability at a

later date at the time of filing returns.

Therefore also imposition of interest is not

justifiable.

7.7. Judgment of Hon. Madras High Court in the

case of Eicher Motors Ltd. V/S Superintendent

of GST & Central Excise W.P. No. 16866 of 2023

decided on 23.1.2024 squarely supports the

Petitioners. Hon'ble Madras High Court has

taken into consideration the entire scheme of

the GST Acts and thereafter arrived at a

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conclusion that no interest is leviable under

Section 50 of the GST Acts if sufficient

balance is available in the electronic cash

ledger.

7.8. Proviso to Section 50 of the GST Acts

which is relied upon by the Respondents in

support of the impugned imposition of interest

is mechanical and without considering the

purpose for which such proviso was introduced.

There was earlier a controversy 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.

This issue was favourably considered in the

31st GST Council meeting and it was decided to

incorporate proviso to Section 50 of the GST

Acts so as to clarify that interest was

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leviable only on net tax liability. Such

proviso was introduced prospectively by

Finance Act, 2019 and notified vide

Notification No. 63/2020 dated 25.8.2020.

Thereafter it was decided in the 39th GST

Council that such provision was required to be

introduced retrospectively. Hence the

provision was retrospectively introduced

w.e.f. 1.7.2017 by Finance Act, 2021. The

retrospective insertion was notified by

Notification No. 16/2021 dated 1.6.2021.

7.9. Thus the entire purpose of introduction

of Proviso to Section 50 of the GST Acts was

to clarify with regard to where interest was

leviable on gross tax liability or net tax

liability. The proviso has nothing to do with

the period for which interest is to be levied.

Hence interest can be levied only from the due

date of payment of tax ill deposit of such tax

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into the electronic cash ledger and demand of

interest for even subsequent period is not

supported by Proviso to Section 50 of the GST

Acts.

7.10. It is well settled that proviso can

ordinarily not be used to expand the scope of

the main provision. Reliance is placed on the

judgment of Hon. Supreme Court in the case of

Dwarka Prasad V/S Dwarka Das Saraf reported in

(1976) 1 SCC 128 (Compilation Vol. 1 - Page 38

- Relevant paras 16,17,18) and Commissioner of

Income Tax v/s The Indo Mercantile Bank

reported in 1959 SCC online SC 5 (Compilation

Vol. 1 - Page 52 - Relevant paras 10,11).

7.11. Rule 88B of the Central Goods and

Services Tax Rules, 2017, which is again

relied upon by the Respondents, was also

introduced in the context of amendment to

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Section 50(3) of the GST Acts. This is

apparent from the discussion in the 47th GST

Council meeting which was followed by

insertion of Rule 88B by Notification No.

14/2022 dated 5.7.2022. In any case rule

cannot go beyond the provisions of the GST

Acts and if it does so, then the same needs to

be struck down/read down to bring it in

conformity with the statutory provision.

7.12. If at all the submission of the

Respondents is accepted that there cannot be

any tax payment before the same is adjusted

against liability at the time of filing of

returns, then as such the liability can be

said to have arisen only at the time of filing

of returns and therefore the question of

delayed payment of tax cannot arise. Reliance

is placed in this regard to the judgment of

Hon. Supreme Court in the case of Maruti Wires

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Industries Pvt. Ltd. v/s S.I.O. (2001) 3 SCC

735 wherein it was held that there can be no

interest liability if no return is filed at

all by the assessee as the tax liability would

get crystalized only upon filing of returns.

7.13. Thus, looked at from any angle, the

impugned demand of interest for the period

after deposit of tax in the electronic cash

ledger is wholly without jurisdiction and

contrary to the provisions of the GSI Acts.

7.14. In support of his submissions, reliance

was placed on the following decisions:

(1) M/s.Megha Engineering &

Infrastructures Ltd. versus the

Commissioner of Central Tax;

(2) Vishnu Aroma Pouching Pvt. LTD.

Versus Union of India (2020) DB;

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(3) India Yamaha Motors Private Limited

versus the Assistant Commissioner and

Others;

(4) M/s. RSB Transmission (India)

Limited, Adityapur Industrial Area,

Jamshedpur, Gamharia, Saraikela-

Kharswan through its Authorized

signatory and General Manager

S.M.Nausherwan versus Union of India

and Others;

(5) Eicher Motors Limited versus The

Superintendent of GST & Central Excise

(HC) Madras W.P. No.16866 & 22013 of

2023;

(6) Commissioner of Income Tax-II

versus Modipon Ltd;

(7) Maruti Wire Industries Pvt. Ltd.

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versus S.T.O. IST Circle Mattancherry

and Others;

(8) Prathibha Processors & Other versus

Union of India and Others;

(9) State of Gujarat versus TJ Agro

Fertilizer Pvt. Ltd.;

(10) Indodan Industries Ltd. versus

State of U.P. & Others;

(11) Mahalaxmi Sugar Mills Co. Versus

C.I.T. Delhi;

(12) Torrent Powers Ltd. & Another

versus State of Gujarat & Another.

8.1. Per contra, learned advocate Mr.Utkarsh

Sharma and learned advocate Ms.Hetvi Sancheti

for the respondents submitted that electronic

cash ledger is an account of the tax payer

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maintained by the GST system reflecting the

cash deposits in the recognised banks and

payment of taxes and other dues made by the

tax payer. The tax deducted at source (TDS)

and tax collected at source (TCS) are also

accounted in electronic cash ledger as cash

deposits of the tax payer and such deposits

can be used for making payments like tax

liability, interest, penalty, fee and others.

8.2. It was submitted that electronic cash

ledger has four measure head-IGST, CGST, SGST/

UTGST and CESS having five minor heads as tax,

interest, penalty, fees and others. It was

submitted that when the challans created by

taxpayer making any payments, the tax payer is

required to choose the amount to be added to

each of the minor head within major head and

the amount so deposited shall remain credited

to be utilised for payment of tax liability,

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interest, penalty, fees and other charges for

the respective major heads and minor heads.

8.3. Reliance was placed on the circular

issued by the Central Board of Indirect Taxes

and Customs vide F.No.CBEC-20/01/08/2019-GST

dated 18.09.2020 on recovery of interest on

net cash liability with effect from 01.07.2017

wherein, it is clarified that for the period

01.07.2017 to 31.08.2020, field formations in

your jurisdiction may be instructed to recover

interest only on the net cash liability i.e.

that portion of the tax that has been paid by

debit in the electronic cash ledger or is

payable through cash ledger.

8.4. Relying upon the above clarification, it

was submitted that amount lying in the

electronic cash ledger cannot be assigned to

any liability unless a tax payer makes a debit

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entry from a cash ledger for a specific

liability.

8.5. Learned advocate for the respondent,

referred to and relied upon the provisions of

Section 49(1) of the CGST Act which provides

that if an amount is deposited towards tax

than the amount which is credited in the

electronic credit ledger is nothing but actual

tax payment for discharging duty, interest,

penalty and other amounts and therefore,

learned advocates for the respondents

referring to Section 49(3) of the CGST Act

read with Rule 87 of the Rules submitted that

the amount payable in electronic cash ledger

may be used for making any payment towards

tax, interest, penalty, fees or any amount

payable under the provisions of the Act by

debit in the electronic cash ledger. It was

therefore submitted that the deposit of amount

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will be credited in electronic cash ledger and

thereafter, the payment shall be made from the

said ledger account from debit in the same

towards tax, interest and penalty on the date

on which the return interest is filed and

therefore, the petitioner is liable to pay

interest up to the date of filing of return

irrespective of deposit made in the electronic

cash ledger by the petitioner.

8.6. It was further pointed out that after

debit in the electronic cash ledger for

payment of tax, interest, penalty etc., the

amount is transferred to the Government

account and the tax payer can claim refund of

the remaining amount of access deposit lying

in electronic cash ledger since the amount

deposited in electronic cash ledger belong to

the tax payer. Therefore, reliance was placed

on the provisions of Section 50 for charging

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interest read with Section 54 for the

procedure for filing retrn of any balance in

the electronic cash ledger in accordance with

the provisions of Sub-section (6) of Section

49 of the CGST Act.

8.7. Referring to the provisions of Section

50, it was submitted that interest is payable

on that portion of the tax which is payable by

debit in electronic cash ledger and the

interest has to be levied from the date on

which the tax is paid by debit in electronic

cash ledger and not from the date when the

amount is deposited by credit in the

electronic cash ledger. Learned advocates for

the respondents therefore submitted that the

respondent-authorities have rightly calculated

the interest payable by the petitioners up to

the date of filing of the return as the

electronic cash ledger was debited with the

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amount of tax as per the return.

8.8. It was submitted that mere deposit in

electronic cash ledger cannot be considered as

payment of tax in terms of Section 50 read

with Rule 86 and whenever, there is delay in

debit in the electronic cash ledger in respect

of the tax payment, the tax payer shall be

liable for the interest in terms of Section 50

in respect of delayed payment of tax. In

support of his submissions, reliance was

placed on the following decisions :

(1) Shree Automotive (P) Ltd. & Another

versus Joint Commissioner of State Tax,

Government of West Bengal & Others

(W.P.A. 16781 of 22019 with CAN 1 of

2020 CAN 2 of 2020 CAN 5406 of 2020)

decided on 07.09.2021;

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(2) Pratibha Processors Versus Union of

India reported in AIR 1997 SC 138;

(3) Maithan Steel and Powers Ltd. versus

Commissioner of Central Excise-2016

(344) ELT 792 (Sett.Com).

8.9. Referring to the above provisions, it was

further submitted that mere credit in

electronic cash ledger and considering the

date of credit of cash ledger as a date of

payment of tax in respect of net cash

liability cannot be considered in view of the

provisions of Section 50 of the Act which

clearly stipulates that the interest is

payable till the date of debit of electronic

cash ledger for payment of tax, interest,

penalty, etc. Reliance was also placed in the

newly inserted rule 88B of the Rules which

provides for manner of calculating interest on

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belayed payment of tax. It was submitted that

as per Rule 88B, interest on tax payable by

the assessee is required to be calculated on

the portion of tax which is paid by debiting

the electronic cash ledger for the period of

delay in filing the return beyond the due date

and such rate as may be notified under Sub-

section (1) of Section 50. Reliance was also

placed on the provisions of Section 39(7) of

the CGST Act which requires full payment of

tax due at the time of filing of the return

before the due date. It was therefore

submitted that when the petitioner filed a

return, there was a debit on the electronic

cash ledger for payment of the full amount of

tax and therefore, the petitioner was liable

to pay the interest up to the date of filing

of return as provided under provisio to

Section 50(1) of the CGST Act. It was

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therefore submitted that the return filing

date is the only date required to be

considered for calculating interest liability

for any tax payer and accordingly, the demand

is raised by the respondents.

8.10. Learned advocates for the respondents

referred to and relied upon the decision of

the Madras High Court in case of

M/s.Srinivasa Stampings versus the The

Supreintendent of GST and Central Excise and

others rendered on 08.04.2022 in WP No.7129 of

2021 and other allied matters wherein, the

Hon'ble Madras High Court has held as under :

"16. Since tax was paid by the

petitioner belatedly, petitioner is

liable to interest during the period

default. There was no excuse for not

paying the tax in time from its

electronic cash register. Nothing

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precluded the petitioner from

discharging the tax liability from its

electronic credit.

17. If there is a belated payment of

tax declared in the returns filed,

interest has to follow. The petitioner

has to pay the interest on the belated

payment of tax and as has been

demanded. Even where there is a failure

to file returns or circumstances

specified under Sections 73 and 74 of

CGSI Act, 2017, in interest has to be

paid."

8.11. Reliance was also placed on the decision

of the Patna High Court in case of Sincon

Infrastructure Private Limited versus Union of India reported in 2024 SCC Online 896

wherein, it is held as under :

"9. M/s RSB Transmissions (India)

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Limited (supra) again raised a question

as to whether, the amount deposited as

tax through valid challans by a

registered person into the government

exchequer, prior to the filing of GSTR-

3B returns, could be treated as

discharge of the tax liability and

whether there could be interest levied,

deeming such delayed filing of returns

to be a circumstance which attracts

Section 50 of the GST Act. Therein, the

period was between July 2017 to 2019 and

the amount of tax had already been

deposited in the Electronic Cash Ledger,

even prior to the filing of the return.

We have to immediately notice that the

facts indicate a circumstance clearly

covered under the proviso to Section

50(1). The learned Division Bench found

that the Electronic Cash Ledger is an

account of tax ledger (sic) maintained

with the department reflecting online

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deposits; made from accounts maintained

by the assessee Patna High Court CWJC

No.11621 of 2023 dt. 19-04-2024 with

banks, from which payments can be made

as tax. The mere deposit of an amount in

an Electronic Cash Ledger does not make

it a tax deposit or payment to a

government account. After extracting the

various provisions especially Section 49

it was found that Explanation to sub-

section (11) deems the date of deposit

in the Electronic Cash Ledger to be a

mere deposit which does not amount to

payment of the tax liability. Only when

the Electronic Cash Ledger is debited

towards payment of tax, interest or

penalty or any other dues under the Act,

the money gets transferred to the State

for utilization. It was also found that

the scheme of the Act is that no person

can make payment of tax prior to filing

of the returns though the deposit may be

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made or lying, in the Electronic Cash

Ledger. The tax liability, it was

categorically held, gets discharged only

upon filing of the GSTR-3B return, the

last date of which is the 20 th of the

succeeding month on which the tax is

due. A return could be filed even prior

to the last date and such tax liability

can be discharged on its filing but a

mere deposit in the cash ledger on any

date prior to filing of GSTR-3B return

does not amount to payment of tax due,

into the State exchequer. Patna High

Court CWJC No.11621 of 2023 dt. 19-04-

2024.

10. We bow in approval, to the

proposition as laid down by the Division

Bench of the High Court of Jharkhand at

Ranchi, even though this too does not

have the sheen of a precedent. We are of

the opinion that this applies squarely

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to the Electronic Credit Ledger also;

which we would demonstrate from the

various provisions under the Act. As far

as the two conflicting decisions of the

learned Single Judge we agree with the

later decision in M/s. India Yamaha

Motor Pvt. Ltd (supra) and would

demonstrate as to how, the proposition

as laid down in the first decision would

be contrary to the scheme and provisions

of the GST Act.

13. Now, we look at what an Electronic

Cash Ledger and Electronic Credit Ledger

are; which are defined under sub-

sections (43) and (46) of Section 2 as

the ledger referred to respectively in

sub-section (1) and (2) of Section

49. Section 49 has the nominal

heading of 'Payment of tax penalty

and other amounts'. Sub-section (1)

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defines an Electronic Cash Ledger as

a ledger available to the assessee,

to credit by way of internet banking

or by way of credit or debit cards

or NEFT or RTGS or by such other

mode, subject to conditions and

restrictions as may be prescribed.

As held by the Division Bench of the

High Court of Jharkhand the

Electronic Cash Ledger is an account

maintained by the assessee with the

department and the credits made to

itself is not necessarily payment of

tax. The Electronic Cash Ledger is

akin to a current account maintained

by a legal entity with a Bank; where

no interest is accrued with only the

restriction that the debits made,

Patna High Court CWJC No.11621 of

2023 dt. 19-04-2024 have to be as

against payment of tax, interest,

penalty or any other dues under the

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GST Act. Section 49(1) read with the

provisions of Section 39 as spoken

of by us hereinabove, would indicate

that the payment of tax occurs only

on the furnishing of returns, which

payment is by way of a debit made

from the cash ledger.

21. On the interpretation placed by us

on the various provisions under the Act,

which also is the proper understanding

of the very scheme of the enactment, we

are persuaded to reject the claim of the

petitioner that the proviso of Section

50(1) mandates a levy of interest only

when there is a delayed furnishing of

return and debit made and payment

effected from the Electronic Cash

Ledger. As we found Section 50(1)

specifically mulcts liability of Patna

High Court CWJC No.11621 of 2023 dt. 19-

04-2024 interest on any delayed

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furnishing of return, since it is the

furnishing of the return which results

in payment of tax, interest, penalty or

other amounts due under the Act as self-

assessed in the return. Neither the

deposit made in the cash ledger nor the

remittances made on the tax paid on

purchases, results in payment of the

amounts due under the Act to the

Government. Insofar as the payment of

tax by the supplier on the purchases

made by an assessee, even the credit of

the input tax occurs in the Electronic

Credit Ledger only when the return is

furnished on self-assessment raising a

claim for input tax.

22. With this interpretation we have to

find that, on furnishing of delayed

returns, interest liability would be

automatic, whether the payment be made

from the Electronic Credit Ledger or

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Electronic Cash Ledger as per the

provisions of Section 50(1). It also

mandates that on delay occasioned the

assessee has to pay the interest, by

himself; which is a statutory compulsion

independent of any order or demand made

under the Act. The proviso only dispels

notion of any anomaly and further

fortifies the scheme of the Act and

enables mulcting of liability on a Patna

High Court CWJC No.11621 of 2023 dt. 19-

04-2024 delayed payment made from the

Electronic Cash Ledger; despite the cash

ledger having such amounts deposited by

way of online transactions even prior to

the due date of filing of return."

9. Having heard the learned advocates for the

respective parties and considering the

question of law which has arisen in this

petition that whether the petitioner is liable

to pay interest on the amount of tax from the

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date of deposit made in electronic cash ledger

till the date of filing of the return. It

would be therefore germane to refer relevant

provisions of the CGST Act and Rules which

read as under:

"Section 39. Furnishing of returns.

(1) Every registered person, other than

an Input Service Distributor or a non-

resident taxable person or a person

paying tax under the provisions of

section 10 or section 51 or section 52

shall, for every calendar month or part

thereof, furnish, a return,

electronically, of inward and outward

supplies of goods or services or both,

input tax credit availed, tax payable,

tax paid and such other particulars, in

such form and manner, and within such

time, as may be prescribed:

Provided that the Government may, on

the recommendations of the Council,

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notify certain class of registered

persons who shall furnish a return for

every quarter or part thereof, subject

to such conditions and restrictions as

may be specified therein.

(7) Every registered person who is

required to furnish a return under sub-

section (1), other than the person

referred to in the proviso thereto, or

sub-section (3) or sub-section (5),

shall pay to the Government the tax due

as per such return not later than the

last date on which he is required to

furnish such return:

4[Provided that every registered person

furnishing return under the proviso to

sub-section (1) shall pay to the

Government, in such form and manner,

and within such time, as may be

prescribed,-

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(a) an amount equal to the tax due

taking into account inward and outward

supplies of goods or services or both,

input tax credit availed, tax payable

and such other particulars during a

month; or

(b) in lieu of the amount referred to

in clause (a), an amount determined in

such manner and subject to such

conditions and restrictions as may be

prescribed.]

Provided further that every registered

person furnishing return under sub-

section (2) shall pay to the

Government, the tax due taking into

account turnover in the State or Union

territory, inward supplies of goods or

services or both, tax payable, and such

other particulars during a quarter, in

such form and manner, and within such

time, as may be prescribed.

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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.

(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

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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.

Section 54.Refund of tax.

(1) Any person claiming refund of any

tax and interest, if any, paid on such

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tax or any other amount paid by him,

may make an application before the

expiry of two years from the relevant

date in such form and manner as may be

prescribed:

Provided that a registered person,

claiming refund of any balance in the

electronic cash ledger in accordance

with the provisions of sub-section (6)

of section 49, may claim such refund in

1 [such from and] manner as may be

prescribed.

Rule 85. Electronic Liability

Register.-(1) The electronic liability

register specified under subsection (7)

of section 49 shall be maintained in

FORM GST PMT-01 for each person liable

to pay tax, interest, penalty, late fee

or any other amount on the common

portal and all amounts payable by him

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shall be debited to the said register.

(2) The electronic liability register

of the person shall be debited by-

(a) the amount payable towards tax,

interest, late fee or any other amount

payable as per the return furnished by

the said person;

(b) the amount of tax, interest,

penalty or any other amount payable as

determined by a proper officer in

pursuance of any proceedings under the

Act or as ascertained by the said

person;

(c) the amount of tax and interest

payable as a result of mismatch under

section 42 or section 43 or section 50;

or

(d) any amount of interest that may

accrue from time to time.

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(3) Subject to the provisions of

section 49, every liability by a

registered person as per his return

shall be made by debiting the

electronic credit ledger maintained as

per rule 86 or the electronic cash

ledger maintained as per rule 87 and

the electronic liability register shall

be credited accordingly.

(4) The amount deducted under section

51, or the amount collected under

section 52, or the amount payable on

reverse charge basis, or the amount

payable under section 10, any amount

payable towards interest, penalty,

feeor any other amount under the Act

shall be paid by debiting the

electronic cash ledger maintained as

per rule 87 and the electronic

liability register shall be credited

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accordingly.

(5) Any amount of demand debited in the

electronic liability register shall

stand reduced to the extent of relief

given by the appellate authority or

Appellate Tribunal or court and the

electronic tax liability register shall

be credited accordingly.

(6) The amount of penalty imposed or

liable to be imposed shall stand

reduced partly or fully, as the case

may be, if the taxable person makes the

payment of tax, interest and penalty

specified in the show cause notice or

demand order and the electronic

liability register shall be credited

accordingly.

(7) A registered person shall, upon

noticing any discrepancy in his

electronic liability ledger,

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communicate the same to the officer

exercising jurisdiction in the matter,

through the common portal in FORM GST

PMT-04.

Rule 86. Electronic Credit Ledger.- (1)

The electronic credit ledger shall be

maintained in FORM GST PMT-02 for each

registered person eligible for input

tax credit under the Acton the common

portal and every claim of input tax

credit under the Act shall be credited

to the said ledger.

(2) The electronic credit ledger shall

be debited to the extent of discharge

of any liability in accordance with the

provisions of section 49.

(3) Where a registered person has

claimed refund of any unutilized amount

from the electronic credit ledger in

accordance with the provisions of

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section 54, the amount to the extent of

the claim shall be debited in the said

ledger.

(4) If the refund so filed is rejected,

either fully or partly, the amount

debited under subrule (3), to the

extent of rejection, shall be re-

credited to the electronic credit

ledger by the proper officer by an

order made in FORM GST PMT-03.

[(4A) Where a registered person has

claimed refund of any amount paid as

tax wrongly paid or paid in excess for

which debit has been made from the

electronic credit ledger, the said

amount, if found admissible, shall be

re-credited to the electronic credit

ledger by the proper officer by an

order made in FORM GST PMT-03.]

(5) Save as provided in the provisions

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of this Chapter, no entry shall be made

directly in the electronic credit

ledger under any circumstance.

(6) A registered person shall, upon

noticing any discrepancy in his

electronic credit ledger, communicate

the same to the officer exercising

jurisdiction in the matter, through the

common portal in FORM GST PMT-04.

Explanation. - For the purposes of this

rule, it is hereby clarified that a

refund shall be deemed to be rejected,

if the appeal is finally rejected or if

the claimant gives an undertaking to

the proper officer that he shall not

file an appeal.

[86A. Conditions of use of amount

available in electronic credit ledger.-

(1) The Commissioner or an officer

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authorised by him in this behalf, not

below the rank of an Assistant

Commissioner, having reasons to believe

that credit of input tax available in

the electronic credit ledger has been

fraudulently availed or is ineligible

in as much asa) the credit of input tax

has been availed on the strength of tax

invoices or debit notes or any other

document prescribed under rule 36-

i. issued by a registered person who

has been found non-existent or not to

be conducting any business from any

place for which registration has been

obtained; or

ii. without receipt of goods or

services or both; or

b) the credit of input tax has been

availed on the strength of tax invoices

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or debit notes or any other document

prescribed under rule 36 in respect of

any supply, the tax charged in respect

of which has not been paid to the

Government; or

c) the registered person availing the

credit of input tax has been found non-

existent or not to be conducting any

business from any place for which

registration has been obtained; or

d) the registered person availing any

credit of input tax is not in

possession of a tax invoice or debit

note or any other document prescribed

under rule 36, may, for reasons to be

recorded in writing, not allow debit of

an amount equivalent to such credit in

electronic credit ledger for discharge

of any liability under section 49 or

for claim of any refund of any

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unutilised amount.

(2)The Commissioner, or the officer

authorised by him under sub-rule (1)

may, upon being satisfied that

conditions for disallowing debit of

electronic credit ledger as above, no

longer exist, allow such debit.

(3) Such restriction shall cease to

have effect after the expiry of a

period of one year from the date of

imposing such restriction.

Rule 86B. Restrictions on use of amount

available in electronic credit ledger-

Notwithstanding anything contained in

these rules, the registered person

shall not use the amount available in

electronic credit ledger to discharge

his liability towards output tax in

excess of ninety-nine per cent. of such

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tax liability, in cases where the value

of taxable supply other than exempt

supply and zero-rated supply, in a

month exceeds fifty lakh rupees:

Provided that the said restriction

shall not apply where -

(a) the said person or the proprietor

or karta or the managing director or

any of its two partners, whole-time

Directors, Members of Managing

Committee of Associations or Board of

Trustees, as the case may be, have paid

more than one lakh rupees as income tax

under the Income-tax Act, 1961(43 of

1961) in each of the last two financial

years for which the time limit to file

return of income under subsection (1)

of section 139 of the said Act has

expired; or

(b) the registered person has received

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a refund amount of more than one lakh

rupees in the preceding financial year

on account of unutilised input tax

credit under clause (i) of first

proviso of sub-section (3) of section

54; or

(c) the registered person has received

a refund amount of more than one lakh

rupees in the preceding financial year

on account of unutilised input tax

credit under clause (ii) of first

proviso of sub-section (3) of section

54; or

(d) the registered person has

discharged his liability towards output

tax through the electronic cash ledger

for an amount which is in excess of 1%

of the total output tax liability,

applied cumulatively, upto the said

month in the current financial year; or

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(e) the registered person is -

(i) Government Department; or

(ii) a Public Sector Undertaking; or

(iii)a local authority; or

(iv)a statutory body:

Provided further that the Commissioner

or an officer authorised by him in this

behalf may remove the said restriction

after such verifications and such

safeguards as he may deem fit.

Rule 88B: Manner of calculating

interest on delayed payment of tax (1)

In case, where the supplies made during

a tax period are declared by the

registered person in the return for the

said period and the said return is

furnished after the due date in

accordance with provisions of section

39, except where such return is

furnished after commencement of any

proceedings under section 73 or section

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74 in respect of the said period, the

interest on tax payable in respect of

such supplies shall be calculated on

the portion of tax which is paid by

debiting the electronic cash ledger,

for the period of delay in filing the

said return beyond the due date, at

such rate as may be notified under sub-

section (1) of section 50.

(2) In all other cases, where interest

is payable in accordance with

subsection (1) of section 50, the

interest shall be calculated on the

amount oftax which remains unpaid, for

the period starting from the date on

which such tax was due to be paid till

the date such tax is paid, at such rate

as may be notified under sub-section

(1) of section 50.

(3) In case, where interest is payable

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on the amount of input tax credit

wrongly availed and utilised in

accordance with sub-section (3) of

section 50, the interest shall be

calculated on the amount of input tax

credit wrongly availed and utilised,

for the period starting from the date

of utilisation of such wrongly availed

input tax credit till the date of

reversal of such credit or payment of

tax in respect of such amount, at such

rate as may be notified under said sub-

section (3) of section 50.

Explanation-For the purposes of this

sub-rule,-

(1) input tax credit wrongly availed

shall be construed to have been

utilised, when the balance in the

electronic credit ledger falls below

the amount of input tax credit wrongly

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availed, and the extent of such

utilisation of input tax credit shall

be the amount by which the balance in

the electronic credit ledger falls

below the amount of input tax credit

wrongly availed.

(2) the date of utilisation of such

input tax credit shall be taken to be,

(a) the date, on which the return is

due to be furnished under section 39 or

the actual date of filing of the said

return, whichever is earlier, if the

balance in the electronic credit ledger

falls below the amount of input tax

credit wrongly availed, on account of

payment of tax through the said return;

or

(b) the date of debit in the electronic

credit ledger when the balance in the

electronic credit ledger falls below

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the amount of input tax credit wrongly

availed, in all other cases.]"

10. On perusal of the above provisions of the

Act and the Rules, of the CGST Act for payment

of interest for levy of interest on the

outstanding tax payable by the assessee, the

scheme of the CGST Act is required to be

considered.

11. The provisions of the CGST Act provides

for self assessment by the assessee. Section

39 provides for furnishing of returns. Section

39(1) provides for furnishing of return

electronically of inward and outward supplies

of goods or services of both input tax credit

availed, tax payable, tax paid and such other

particulars in such form on manner and within

such time as may be prescribed. Sub-section

(7) of Section 39 stipulates that every person

who is required to furnish return under Sub-

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section (1) shall pay to the Government the

tax due as per such return not later than the

last date on which he is required to furnish

such return. Section 49 of the CGST Act

provides for payment of tax, interest, penalty

and other amounts. Sub-section (1) of Section

49 stipulates that every deposit made toward

tax, interest, penalty, fee or any other

amount by a person by internet banking or by

using credit or debit cards etc. shall be

credited to the electronic cash ledger of such

person to be maintained in such manner as may

be prescribed whereas, Sub-section (3)

provides that amount available in electronic

cash ledger may be used for making any payment

towards tax, interest, penalty, etc. under the

provisions of the CGST Act or the rules made

there under in such manner and subject to such

condition and within such time as may be

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prescribed. Sub-section (6) of Section 49

provides the balance in electronic cash ledger

or electronic credit ledger after payment of

tax, interest, etc., may be refunded in

accordance with the provisions of Section 54.

Sub-section (8) of Section 49 provides for

discharging the tax liability by self assessed

tax. Explanation to Section 49 reads as

under :

"Explanation.--For the purposes of this

section,--

(a) 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 cash ledger;

(b) the expression,--

(i) "tax dues" means the tax payable

under this Act and does not include

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interest, fee and penalty; and

(ii) "other dues" means interest,

penalty, fee or any other amount

payable under this Act or the rules

made thereunder."

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

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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

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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

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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

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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

provisio 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

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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

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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

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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

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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

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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 must prima facie be read

and considered in relation to the

principal matter to which it is a

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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."

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17. The Hon'ble Supreme Court in case of

Commissioner of Income Tax versus Indo

Merchantile Bank Limited has held as under

with regard to the function of a proviso to a

section of the statute as under :

"10. Thus the Privy Council emphasised

that the object of s. 24(1) was to

allow a set off of profits against

losses arising under different heads

and Only in such cases could recourse

be had to s. 24(1). In cases where

profits and losses arose under the same

head they had to be adjusted against

each other. This Court in Anglo-French

Textiles Co. Ltd. v. Commissioner of

Incometax, Madras (1) again emphasised

that distinction in the following

words:-

" Next, a, set off under section

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24(1) can only be claimed when the

loss arises under one head and the

profits against which it is sought

to be set off arises under a

different head. When the two arise

under the same head, of course the

loss can be deducted but that is

done under section 10 and not under

section 24(1) (Per Bose, J.)"

Indeed it is not disputed that when

profit and loss arose under the same

head in any place which was not an

Indian State recourse had to be had to

the provisions of ss. 7 to 12B and not

to any other section. But it was

contended on behalf of the Revenue that

the first proviso to s. 24(1) of the

Indian Act not only affected the

generality of the main enactment but

also introduced an addendum that where

the profits of the business arose in

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what was British India in the case of

the Indian Act or what was Travancore

State in the case of the Travancore Act

and the losses under the head business

were sustained in an Indian State or in

the latter case in any other Indian

State or British India, these losses

could not by virtue of the proviso be

deducted from profits made in British

India or Travancore State as the case

may be. They could only be adjusted

against profits arising in an Indian

State or in the case of Travancore

State in British India or another

Indian State. Thus the proviso, it was

contended, was a modification of the

method of computation under s. 10(2) of

the Indian Act for determining profits

and gains of the business of any

resident. We should be averse to lend

any countenance to such a mode of

construing a proviso unless the

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language used expressly or by necessary

intendment leads to that conclusion.

The proper function of a proviso is

that it qualifies the generality of the

main enactment, by providing an

exception and taking out as it were,

from the main enactment, a portion

which, but for the proviso would fall

within the main enactment. Ordinarily

it is foreign to the proper function of

a proviso to read it as providing

something by way of an addendum or

dealing with a subject which is foreign

to the main enactment. " It is a

fundamental rule of construction that a

proviso must be considered with

relation to the principal matter to

which it stands as proviso ". Therefore

it is to be construed harmoniously with

the main enactment (Per Das, C. J.) in

Abdul Jabar Butt v. State of Jammu &

Kashmir (1). Bhagwati, J., in Ram

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Narain Sons Ltd. v. Assistant

Commissioner of Sales Tax (2) said:

"It is a cardinal rule of

interpretation that a proviso to a

particular provision of a statute

only embraces the field which is

covered by the main provision. It

carves out an exception to the main

provision to which it has been

enacted as a proviso and to no

other".

11. Lord Macmillan in Madras & Southern

Mahratta Railway Co. v. Bezwada

Municipality (3) laid down the sphere

of a proviso as follows :-

" The proper function of a proviso

is to except and deal with a case

which would otherwise fall within

the general language of the main

enactment, and its effect is

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confined to that case. Where, as in

the present case, the language of

the main enactment is clear and

unambiguous, a proviso can have no

repercussion on the interpretation

of the main enactment, so as to

exclude from it by implication what

clearly falls within its express

terms ".

The territory of a proviso therefore is

to carve out an exception to the main

enactment and exclude something which

otherwise would have been within the

section. It has to operate in the same

field and if the language of the main

enactment is clear it cannot be used

for the purpose of interpreting the

main enactment or to exclude by

implication what the enactment clearly

says unless the words of the proviso

are such that that is its necessary

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effect. (Vide also Corporation of The

City of Toronto v. Attorney-General for

Canada) (1)."

18. The Hon'ble Supreme Court in case of

Commissioner of Income Tax versus Modipon

Limited has held that the amount deposited in

personal ledger account "PLA" under the excise

provisions of the Central Excise Act is

nothing but payment of tax and therefore, it

was held to be an admissible deduction under

Section 43B of the Income Tax Act, 1961 as

under :

"9. Deposit of Central Excise Duty in

the PLA is a statutory requirement. The

Central Excise Rules, 1944, specify a

distinct procedure for payment of

excise duty leviable on manufactured

goods. It is a procedure designed to

bring in orderly conduct in the matter

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of levy and collection of excise duty

when both manufacture and clearances

are a continuous process. Debits

against the advance deposit in the PLA

have to be made of amounts of excise

duty payable on excisable goods cleared

during the previous fortnight. The

deposit once made is adjusted against

the duty payable on removal and the

balance is kept in the account for

future clearances/removal. No

withdrawal from the account is

permissible except on an application to

be filed before the Commissioner who is

required to record reasons for

permitting an assessee to withdraw any

amount from the PLA. Sub-rules (3),

(4), (5) and (6) of Rule 173G indicates

a strict and vigorous scrutiny to be

exercised by the central excise

authorities with regard to manufacture

and removal of excisable goods by an

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assessee. The self removal scheme and

payment of duty under the Act and the

Rules clearly shows that upon deposit

in the PLA the amount of such deposit

stands credited to the Revenue with the

assessee having no domain over the

amount(s) deposited.

10. In C.I.T. vs. Pandavapura Sahakara

Sakkare Karkhane Ltd.7 and C.I.T. vs.

Nizam Sugar Factory Ltd.8 cited at the

Bar, the High Courts of Karnataka and

Andhra Pradesh 7 198 ITR 690 (Kar.) 8

253 ITR 68 (AP) respectively had

occasion to consider as to whether the

amounts credited to the Molasses

Storage Fund out of the sale proceeds

of molasses received by the assessee

constitute taxable income of the

assessee. Under the scheme, the

assessee had no control over the

amounts deposited in the fund and the

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assessee was also not entitled to

withdraw any amount therefrom without

the approval of the authorities.

Further the amount deposited could be

utilized only for the purpose

specified. In those circumstances, the

High Court held and in our view

correctly, that the deposits made,

though a part of the sale proceeds of

the assessee, did not constitute

taxable income at the hands of the

assessee. We do not see why the same

analogy would not be applicable to the

case in hand."

19. This Court in case of State of Gujarat v/s

T.J. Agro Fertilizer Pvt. Ltd. held that the

interest could not be imposed for the period

between the date of ad-hoc payment of tax and

date of passing of assessment order as the

amount was already received by the State as

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under :

"4.1. Considering the aforesaid

provisions and even otherwise

considering the fact that once the

dealer has made payment before the

actual order of assessment, may be on

ad-hoc basis, meaning thereby, the

amount of tax due and payable as per

the assessment order, already paid

prior to the assessment order and the

State/Department received the said

amount of tax, there cannot be any

interest levied during the aforesaid

period. It cannot be disputed that levy

of interest would be on delayed payment

of tax due and payable. It is not the

case that on finalization of the

assessment, any amount more than the

amount paid on ad-hoc basis, was

assessed and/or required to be paid by

the assessee."

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20. The Hon'ble Apex Court in case of Indodan

Industries Limited versus State of U.P. &

Others has held as under :

"7. One more aspect needs to be

highlighted. In the present case, we

are concerned with the levy of interest

for delayed payment. Under sub-Section

(2B) to Section 9, such interest for

delayed payment is given the status of

"tax due". The said interest is

compensatory in nature in the sense

that when the assessee pays tax after

it becomes due, the presumption is that

the Department has lost the revenue

during the interregnum period (the date

when the tax became due and the date on

which the tax is paid). The assessee

enjoys that amount during the said

period. It is in this sense that the

interest is compensatory in nature and

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in order to recover the lost revenue,

the levy of interest is contemplated by

Section 120 of the Finance Act, 2000

retrospectively."

21. The Hon'ble Supreme Court in case of

Mahalaxmi Sugar Mills Co. versus C.I.T. Delhi

has held as under :

"10. It is apparent that section 3(2)

requires the payment of cess on the date

prescribed under the rules. Rule 4 of

the U.P. Sugarcane Cess Rules, 1956

provides that the cess due on the

sugarcane entering into the premises

during the first fortnight of each

calendar year must be deposited in the

Government treasury by the twenty second

day of that month and the cess due for

the remainder of the month must be

deposited before the seventh day of the

next following month. If the cess is not

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paid by the specified date, then by

virtue of s.3(3) the arrear of cess will

carry interest at the rate of six per

cent per annum from the specified date

to the date of payment. Section 3(5) is

a very different provision. It does not

deal with the interest paid on the

arrears of cess but provides for an

additional sum recoverable by way of

penalty from a person who defaults in

making payment of cess. It is a thing

apart from an arrear of cess and the

interest due thereon.

11. Now the interest payable on an

arrear of cess under s. 3(3) is in

reality part and parcel of the liability

to pay cess. It is an accretion to the

cess. The arrear of cess "carries"

interest; if the cess is not paid within

the prescribed period a larger sum will

become payable as cess. The enlargement

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of the cess liability is automatic under

s. 3(3). No specific order is necessary

in order that the obligation to pay

interest should accrue. The liability to

pay interest is as certain as the

liability to pay cess. As soon as the

prescribed date is crossed without

payment of the cess, interest begins to

accrue. It is not a penalty, for which

provisions has been separately made by

s.3(5). Nor is it a penalty within the

meaning of s.4, which provides for a

criminal liability and a criminal

prosecution. The penalty payable under

s.3(5) lies in the discretion of the

collecting officer or authority. In the

case of the penalty under s.4, no

prosecution can be instituted unless,

under s.5(1), a complaint is made by or

under the authority of the Cane

Commissioner or the District Magistrate.

There is another consideration

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distinguishing the interest payable

under s.3(3) from the penalty imposed

under s.3(5). Section 3(6) provides that

the officer or authority empowered to

collect the cess may forward to the

Collector a certificate under his

signature specifying the amount of

arrears including interest due from any

person, and on receipt of such

certificate the Collector is required to

proceed to recover the amount specified

from such person as if it were an arrear

of land revenue. The words used in

s.3(6) are "specifying the amount of

arrears including interest", that is to

say that the interest is part of the

arrear of cess. In the case of a penalty

imposed under s.3(5), a separate

provision for recovery has been made

under s.3(7). Although the manner of

recovery of a penalty provided by s.3(7)

is the same as the manner for recovery

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provided by s.3(6) of the arrears of

cess, the Legislature dealt with it as

something distinct from the recovery of

the arrears of cess including interest.

In truth, the interest provided for

under s.3(3) is in the nature of

compensation paid to the Government for

delay in the payment of cess. It is not

by way of penalty. The provision for

penalty as a civil liability has been

made under s.3(5) and for penalty as a

criminal offence under s.4. The Delhi

High Court proceeded entirely on the

basis that the interest bore the

character of a penalty. It was,

according to the learned Judges "penal

interest". The learned Judges failed to

notice s.3(5) and s.4 and the other

provisions of the Cess Act."

22. From the above decision, if applied to the

facts of the present case, when the assessee

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petitioner deposited the amount which is

credited into electronic cash ledger after

actual deposit in the Government Treasury,

there is no loss to the Government Revenue

merely because such deposit gets adjusted

against the actual liability at the later date

at the time of filing of return. The Hon'ble

Madras High Court in case of Eicher Motors

Limited versus The Superintendent of GST &

Central Excise (HC) Madras has taken into

consideration the entire scheme of the GST Act

and thereafter arrived at a conclusion that no

interest is leviable under Section 50 of the

Act if sufficient balance is available in the

electronic cash ledger as under :

"43. As discussed above, for the payment of tax to the account of Government, the filing of GSTR-3B is immaterial, which means either with or without filing of monthly returns, the tax can

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be remitted to the Government. Therefore, no interpretation can be made as held in the judgement of the Hon'ble Division Bench of Jharkand High Court rendered in RSB Transmission case (referred supra) stating that no payment of tax can be made until the filing of GSTR-3B, which is against the provisions of Section 39(1) and 39(7) of the Act and thus, the said finding would render a disastrous consequences in utilisation of GST collections by the exchequers. Merely, for the default on the part of a registered person in filing the GSTR-3B, the utilisation of tax amount, which was already deposited into the account of Government, cannot be postponed. The GST collections made by the registered person, have been made on behalf of Government and once the said collections were deposited to the Government account and the same is made available to the Government for its use at once, otherwise the rights of the exchequers in utilising the GST collections in time for welfare

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measures of public will be deprived, which is not permissible under the Act.

72. In view of the above finding and following the law laid down by the Gujarat High Court in the aforesaid Vishnu Aroma case, since in the present case, the tax amount has already been credited to the Government within the prescribed time limit, i.e., before due date, the question of payment of interest would not arise. Under these circumstances, this Court passes the following orders:

1) The credit to the account of Government would always occur not later than the last date for filing the monthly returns in terms of the provisions of Section 39(7) of the Act.

2) Once the amount is paid by generating GST PMT-06, the said amount will be initially credited to the account of the Government

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immediately upon deposit, at which point, the tax liability of a registered person will be discharged to the extent of the deposit made to the Government. Thereafter, for the purpose of accounting only, it will be deemed to be credited to the ECL as stated in the Explanation (a) to Section 49(11) of the Act.

3) As long as the GST, which was collected by a registered person, is credited to the account of the Government not later than the last date for filing the monthly returns, to that extent, the tax liability of such registered person will be discharged from the date when the amount was credited to the account of the Government. If there is any default in payment of GST, even subsequent to the due date for filing the monthly returns i.e., on or before 20th of every succeeding month, for the said delayed period alone a registered person is liable

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to pay interest in terms of Section 50(1) of the Act."

23. The Hon'ble Supreme Court in case of

Maruti Wire Industries Pvt. Ltd. versus S.T.O

IST Circle Mattancherry and Others has held

that there can be no interest liability if no

return is filed at all by the assessee and the

tax liability would crystalized only upon

filing of return. Therefore, if the contention

raised by the respondent is accepted, then

there cannot be any liability to pay the tax

before the same is adjusted against the

liability at the time of filing return and

therefore, such liability can be said to have

arisen only at the time of filing of return

and therefore the question of delayed payment

of tax could not arise so as to levy interest

under Section 50(1) of the Act.

24. In view of the above analysis of the

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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

ishnu 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

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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

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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

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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.

(BHARGAV D. KARIA, J)

(NIRAL R. MEHTA,J)

PALAK

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