2022 (9) TMI 118 - HC - GST

Interest on belated GST remittance: mere availability of credit does not avoid interest; actual debit and return filing required.

Issue concerns levy of interest for belated remittance of GST where taxpayers relied on available balances in electronic cash and credit registers without ... Interest on delayed payment of tax is compensatory in nature - payment by debit to the electronic cash ledger as constituting 'remittance' under Section 50 - availability of balance in the electronic credit ledger is not equivalent to payment unless debited by filing the return - interest under Section 50 chargeable only on the cash portion after amendment - reverse charge mechanism (RCM) liabilities attract interest on delayed cash payments - proviso to Section 50 operates to protect assessee only when tax is paid by debiting electronic cash ledger - assessees must file returns and effect ledger debits for tax payments to be recognized for interest computationAvailability of balance in the electronic credit ledger is not equivalent to payment unless debited by filing the return - payment by debit to the electronic cash ledger as constituting 'remittance' under Section 50 - Whether mere availability of input tax credit or generation of e-challans in the electronic ledgers, without filing the statutory return and effecting a debit entry, protects the assessee from liability to pay interest under Section 50 of the TNGST Act. - HELD THAT: - The Court examined the language of Section 50 and the proviso and held that protection from interest is tied to actual remittance by way of debit in the electronic cash ledger arising on filing the return. The mere presence of balances in the electronic credit or cash ledgers, or generation of e-challans, does not amount to payment for the purposes of Section 50 unless the return is filed and the relevant ledger(s) are debited. The Court observed that treating mere availability of credit as payment would require rewriting the statutory proviso and would be risky for revenue because credits available may be subsequently found to be erroneously availed or incorrectly applied. On these bases the contention that electronic ledger balances alone exempt the assessee from interest was rejected. [Paras 14, 16, 21]Availability of balances in electronic ledgers without filing the return and effecting the requisite debit does not constitute payment under Section 50; interest cannot be disallowed on that ground.Interest under Section 50 chargeable only on the cash portion after amendment - reverse charge mechanism (RCM) liabilities attract interest on delayed cash payments - interest on delayed payment of tax is compensatory in nature - Whether, having regard to the amendment to Section 50 and the factual matrix, interest should be computed only on the cash portion (as recomputed by authorities) in respect of RCM liabilities for the periods July-October 2017. - HELD THAT: - The Court noted that respondents recomputed interest in light of the amendment to Section 50 and accepted that interest is now chargeable on the net tax liability's cash portion. The order of the authority computed interest on delayed cash payments under RCM for the tax periods July to October 2017 and reduced the demand accordingly. The Court endorsed the legal proposition that interest is compensatory and payable for the period the tax remains unpaid, and that, in the circumstances of this case where cash payments under RCM were belated, interest is properly chargeable on the delayed cash component as worked out by the authority. The reasoning in the impugned order, including reliance on precedents and the calculation in Table B, was held to support confirmation of the recomputed demand. [Paras 9, 12, 13]Interest was correctly recomputed and levied only on the delayed cash portion (RCM payments) for July-October 2017; the demand as recomputed stands confirmed.Final Conclusion: Writ petition partly allowed to the extent of directions already given by the Court (order dated 18.01.2021); challenge to the remainder of the demand is dismissed. The levy of interest is upheld: mere ledger balances do not constitute payment under Section 50 and interest properly applies to the belated cash portion as recomputed by the authorities for July-October 2017. Issues Involved:1. Legality of the demand for interest on delayed GST payment without pre-intimation notice/show cause notice.2. Impact of error in the July 2017 GSTR 3B return on subsequent returns and tax liabilities.3. Justification for the levy of interest under Section 50 of the TNGST Act.4. Distinction between cash balance and credit balance in the electronic ledgers for interest computation.5. Relevance of judicial precedents and amendments to Section 50 of the TNGST Act.Detailed Analysis:1. Legality of the Demand for Interest Without Pre-Intimation Notice:The petitioner challenged the order dated 10.04.2019, which demanded interest for delayed GST payment, on the grounds that it was issued without a pre-intimation notice/show cause notice. The court acknowledged this procedural lapse but did not set aside the order. Instead, it directed the jurisdictional Commissioner to consider the petitioner's representation dated 28.09.2017 and pass a fresh order after a hearing.2. Impact of Error in July 2017 GSTR 3B Return:The petitioner's error in the July 2017 GSTR 3B return, where data for the Faridabad plant was included instead of the Chennai plant, led to a short disclosure of liability. This error caused a delay in filing returns for subsequent months (August to October 2017), as the petitioner awaited rectification of the July return to accurately determine the tax liability for these months. The petitioner argued that the cascading effect of this error justified the delay in subsequent filings.3. Justification for the Levy of Interest Under Section 50:The court examined the levy of interest under Section 50 of the TNGST Act, which mandates interest on delayed tax payments. The petitioner contended that sufficient ITC credit in the electronic cash ledger and electronic credit register negated the need for interest, as there was no loss to the revenue. However, the court highlighted that interest is compensatory in nature and is levied for withholding tax payments. The court noted that the amendments to Section 50, which reduced the interest liability, were applied to recompute the interest from Rs.5,00,00,000/- to Rs.1,19,00,000/-.4. Distinction Between Cash Balance and Credit Balance:The court addressed the distinction between cash balance and credit balance in electronic ledgers. It was argued that while cash payments denote actual availability of funds, credits in the electronic credit register do not guarantee that resources are within reach of the Department. The court emphasized that tax payment is considered complete only when returns are filed and the respective ledgers are debited. Thus, mere availability of credit does not equate to payment and does not insulate the petitioner from interest.5. Relevance of Judicial Precedents and Amendments:The court referred to several judicial precedents, including the case of Refex Industries Limited and the Supreme Court's judgment in Union of India Vs Bharti Airtel Limited & Ors. These cases discussed the retrospective application of amendments to Section 50 and the scheme of the TNGST Act. The court concluded that the specific issue of interest on delayed tax payments, where returns were not filed, was not addressed by these precedents. The court upheld the demand for interest, aligning with the compensatory nature of interest as established in the case of Pratibha Processors Union of India.Conclusion:The court partly allowed the writ petition, granting relief as per the order dated 18.01.2021, which reduced the interest liability. The demand for interest, as per the revised computation, was confirmed. The court emphasized the importance of filing returns and debiting electronic ledgers for tax payments to be considered complete, thereby rejecting the petitioner's argument that mere availability of credit suffices to avoid interest. The connected miscellaneous petition was closed with no costs.