Mere Deposit in Electronic Cash Ledger Does Not Amount to Payment of GST Unless Appropriated to Government Account

The Hon’ble Andhra Pradesh High Court in the case of Sona Enterprises, Prop. Shafi Mohmad Versus The State of Ap, Rep By Its Principal Secretary, State Tax Amaravati, Additional Commissioner, Office of Principal Commissioner of Central Tax Visakhapatnam - 2026 (4) TMI 1864 - ANDHRA PRADESH HIGH COURT held that mere deposit of cash into the electronic cash ledger of a taxpayer does not amount to payment of GST. Payment is completed only when the amount is appropriated to the Government account through necessary debit entries. However, where such appropriation is subsequently made, the tax liability stands discharged, though interest for the period of delay remains payable.

Facts:

Sona Enterprises ('the Petitioner'), a registered person under the GST Act engaged in the business of trading in ferrous waste and scrap, purchased scrap from Indian Railways. GST on such purchases was payable by the Petitioner under the Reverse Charge Mechanism (RCM). During the relevant period, the Petitioner deposited the GST amount in cash into its electronic cash ledger.

The State of Andhra Pradesh and the Additional Commissioner, Central GST ('the Respondent') conducted an audit for FY 2017-18 and FY 2018-19 and found that although the Petitioner had deposited the GST amount into the electronic cash ledger, the Petitioner had not passed the necessary debit entries appropriating the amount to the Government account. The audit also revealed that the Petitioner had availed input tax credit on the strength of such deposits before appropriation to the Government. Consequently, proceedings under Section 74 of the CGST Act were initiated.

The Petitioner contended that GST liability under RCM had been discharged within time by depositing cash into the electronic cash ledger. The Petitioner submitted that under the erstwhile Andhra Pradesh Value Added Tax regime there was no separate requirement of debiting the ledger after deposit, and therefore the omission was due to ignorance of the GST system. The Petitioner argued that the lapse was, at best, a case of misreporting and not fraud, wilful misstatement, or suppression of facts attracting Section 74 of the CGST Act.

The Respondent contended that mere deposit into the electronic cash ledger did not amount to payment of tax under the GST law. The Respondent further contended that the Petitioner had wrongly availed input tax credit without actual payment of tax to the Government and that the debit entries were made only after discrepancies were detected during audit. Therefore, the conduct amounted to suppression of facts and wilful misstatement attracting Section 74 of the CGST Act.

Aggrieved by the assessment and penalty order dated May 27, 2022 passed under Section 74 of the CGST Act demanding tax, interest, penalty and recovery of allegedly wrongful ITC, the Petitioner approached the High Court by filing a writ petition under Article 226 of the Constitution of India seeking quashing of the show cause notice and the consequential order.

Issue:

Whether mere deposit of GST amount into the electronic cash ledger amounts to payment of tax under the CGST Act, and whether failure to appropriate such amount to the Government account through debit entries can attract proceedings under Section 74 of the CGST Act?

Held:

The Hon’ble Andhra Pradesh High Court in Sona Enterprises, Prop. Shafi Mohmad Versus The State of Ap, Rep By Its Principal Secretary, State Tax Amaravati, Additional Commissioner, Office of Principal Commissioner of Central Tax Visakhapatnam - 2026 (4) TMI 1864 - ANDHRA PRADESH HIGH COURT held as under:

• Observed that, there was no dispute regarding the quantum of tax payable by the Petitioner and the dispute was confined to whether the tax could be treated as paid in time and whether availment of ITC based on such deposit was permissible.
• Noted that, the Petitioner had deposited cash in the electronic cash ledger equivalent to the GST liability and the amounts were deposited within the stipulated time, but the Petitioner omitted to debit the ledger in favour of the Government.
• Observed that, Section 49(1) of the CGST Act read with Rule 87(6) and Rule 87(7) of the CGST Rules makes it clear that deposit of cash or credit of ITC into the electronic ledger does not amount to payment of tax. Payment occurs only when the necessary amount is appropriated to the Government exchequer.
• Held that, mere deposit of cash into the ledger of the taxpayer would not be sufficient to claim discharge of GST liability.
• Observed that, since the Petitioner had subsequently made the necessary debit entries appropriating the amount to the Government, the GST liability arising from purchases from Indian Railways stood discharged. However, as appropriation did not occur within the prescribed time, the Petitioner was liable to pay interest for the period of delay.
• Noted that, although ITC could not have been availed before appropriation of the tax to the Government account, recovery of the ITC itself was not justified once the Petitioner subsequently made the required debit entries.
• Observed that, the central dispute as to whether the omission to debit the electronic cash ledger was an inadvertent omission or suppression of fact with intent to evade tax was a question of fact that required adjudication by the primary authority.
• Accordingly held that, the impugned order dated May 27, 2022 was liable to be set aside and the matter remanded to the second Respondent for passing separate orders of assessment and penalty, if any, for the two tax periods after considering the objections of the Petitioner.

Our Comments:

The Andhra Pradesh High Court primarily relied upon the statutory scheme contained in Section 49 of the CGST Act and Rule 87 of the CGST Rules to distinguish between deposit of money into the electronic cash ledger and actual payment of tax. The judgment in M/s. RSB Transmissions India Limited Versus Union of India through the Secretary, Ministry of Finance, Department of Revenue, New Delhi The Commissioner of Central Goods and Services Tax & Central Excise, Jamshedpur The Superintendent of Central Goods and Services Tax & Central Excise, Adityapur – V Range, Jamshedpur Goods and Services Tax Network through its Chairman, New Delhi - 2022 (11) TMI 483 - JHARKHAND HIGH COURT The Jharkhand High Court held that tax payment is completed only when the amount standing in the electronic cash ledger is utilized and appropriated to the Government account. The Andhra Pradesh High Court adopted the same reasoning and held that mere availability of funds in the ledger does not result in discharge of tax liability.

However, a contrary view has been taken by the Hon'ble Madras High Court in M/s. Eicher Motors Limited, Represented by its Group Manager, Finance, Mr. R. Hari Prasad Versus The Superintendent of GST and Central Excise, Range II, Tiruvottiyur Division, The Assistant Commissioner of Central Tax & Central Excise, Chennai - 2024 (1) TMI 1111 - MADRAS HIGH COURT, wherein it was held that once the GST amount is deposited into the electronic cash ledger by generating Form GST PMT-06, the amount stands credited to the Government account on the date of such deposit and the tax liability is discharged to that extent. Relying on Explanation (a) to Section 49(11) of the CGST Act, the Court held that no interest under Section 50(1) of the CGST Act would be payable where the amount was deposited within the prescribed time, even if the return in Form GSTR-3B was filed belatedly. The Madras High Court expressly differed from the view taken by the Jharkhand High Court in RSB Transmission (supra). The divergence between the High Courts on whether deposit in the electronic cash ledger amounts to payment of tax therefore remains a contentious issue awaiting an authoritative pronouncement.

Relevant Provisions:

Section 49(1) of the Central Goods and Services Tax Act, 2017

“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.”

Rule 87 of the Central Goods and Services Tax Rules, 2017

87. Electronic Cash Ledger.-

“(1) The electronic cash ledger under sub-section (1) of section 49 shall be maintained in FORM GST PMT-05 for each person, liable to pay tax, interest, penalty, late fee or any other amount, on the common portal for crediting the amount deposited and debiting the payment therefrom towards tax, interest, penalty, fee or any other amount.

…

(6) On successful credit of the amount to the concerned government account maintained in the authorised bank, a Challan Identification Number shall be generated by the collecting bank and the same shall be indicated in the challan.

(7) On receipt of the Challan Identification Number from the collecting bank, the said amount shall be credited to the electronic cash ledger of the person on whose behalf the deposit has been made and the common portal shall make available a receipt to this effect.”

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