2025 (11) TMI 63 - HC - GST

Application to cancel bail dismissed as tax payment credited before deadline and undertaking prevented refund or use

HC rejects application to cancel bail. The court found no breach of bail conditions because the required amount was debited and credited to government ... Cancellation of bail - breach of terms of bail - cancellation of bail is sought on the ground that the respondent no.1 herein has not strictly adhered with the terms and conditions imposed by this Hon'ble court while enlarging him on bail - HELD THAT:- Considering the Section 49 of the Central Goods and Services Tax Act, 2017 and para 24 of Arya Cotton Industries [2024 (7) TMI 239 - GUJARAT HIGH COURT] which clearly go onto show that the amount once debited from the person concerned and credited into the Government account, in that event, the tax liability of such registered person stands discharged on the said date. Here in the case on hand, the order enlarging the respondent no.1 was passed on 25.10.2024 and he has to deposit the said amount on or before 02.11.2024, and it transpires from the Electronic Cash Ledger that the respondent no.1 has deposited the said amount in the respective departments of the Government on 01.11.2024 and those datas are tallied with the copy of the Electronic Cash Ledger for the period between 01.04.2024 to 29.11.2024, therefore, there is no breach of terms and conditions on the part of the respondent no.1 herein. Further, the apprehension with regard to the said amount lying in a particular place in a portal and the respondent no.1 herein is in a position to use and utilize the said amount at any given point of time cannot be considered as the respondent no.1 is ready to file undertaking to the effect that he will not use the said amount and/or will not claim refund for the same. Further, it is well within the knowledge of one and all that the criteria to consider the bail application and to reject the bail granted by the trial court are quite different and distinct, and certain parameters and guidelines laid by the Hon'ble Apex Court are strictly required to be adhered with. Considering the above-stated factual aspects of the facts of the matter, it is opined that the present application for cancellation of bail is required to be rejected. There are no reason to entertain the present application as there is no breach of terms and conditions on the part of the respondent no.1. Hence, the present application is hereby rejected. ISSUES PRESENTED AND CONSIDERED 1. Whether there was breach of bail condition requiring deposit of a specified sum when the accused credited funds to an Electronic Cash Ledger but had not, at the time of challenge, recorded a debit via Form GST DRC-03. 2. Whether crediting an amount to the Electronic Cash Ledger constitutes deposit to the Government exchequer for purposes of Section 49, Central Goods and Services Tax Act, 2017, thereby discharging tax liability and satisfying a court-imposed condition to deposit. 3. Whether apprehension that funds credited to an Electronic Cash Ledger remain usable by the depositor, absent an express debit/DRC-03, justifies cancellation of bail. 4. Whether principles and standards for cancellation of bail differ from criteria for initial grant of bail and, if so, whether those standards permit cancellation in the present factual matrix. ISSUE-WISE DETAILED ANALYSIS Issue 1: Breach of bail condition where funds were credited to Electronic Cash Ledger but no DRC-03 debit recorded Legal framework: Section 49 (Payment of tax, interest, penalty and other amounts) of the Central Goods and Services Tax Act, 2017, including the Explanation that 'the date of credit to the account of the Government in the authorised bank shall be deemed to be the date of deposit in the electronic cash ledger.' Form GST DRC-03 is the mechanism for debiting the Electronic Cash Ledger against tax liability. Precedent treatment: The Court relied on a divisional bench precedent of this High Court holding that amounts deposited by generating a challan get credited to Government account immediately upon deposit and are to be adjusted by debiting the Electronic Cash Ledger at the time of filing returns (para 24 of that decision). Interpretation and reasoning: The Court interpreted Section 49 and the cited precedent to mean that the act of crediting via challan effectively results in deposit to the Government account; the subsequent debit from the electronic ledger is an accounting step at the time of return-filing and does not negate the earlier credit to Government funds. Therefore the absence, at a point in time, of a DRC-03 entry does not amount to non-deposit where supporting receipts/challans and electronic ledger entries show the amount credited to Government portals. Ratio vs. Obiter: Ratio - the act of crediting by challan that shows Government receipt discharges the tax liability for the purpose of a court-imposed deposit condition; absence of contemporaneous Form DRC-03 is an accounting/formal step and not determinative of deposit status. (This follows the High Court precedent applied by the Court.) Conclusion: There was no breach of the bail condition where documentation showed the required sum credited to Government portals before the deadline, despite no contemporaneous DRC-03 debit entry. Issue 2: Whether credit to Electronic Cash Ledger equals deposit into Government exchequer under Section 49 Legal framework: Section 49 and its Explanation deem credit to the Government account in an authorised bank to be credit to the electronic cash ledger; the statutory scheme contemplates immediate credit upon generation of challan and later adjustment by debiting the ledger in returns. Precedent treatment: The Court followed the High Court decision holding that amounts deposited by generating challan are credited to Government account immediately and discharge tax liability to the extent of such deposit; contrary authorities were noted but not followed as inconsistent with the statutory scheme. Interpretation and reasoning: The Court held that the statutory explanation, read with the scheme of the Act and the High Court precedent, supports the proposition that deposit by challan results in immediate credit to Government account; debiting the electronic ledger is for accounting at return-filing and does not postpone the date of payment. Hence, once funds are shown as credited in Government portals and bank/receipt challans are produced, the tax liability stands discharged from that date. Ratio vs. Obiter: Ratio - credit by challan that results in immediate Government receipt constitutes payment under Section 49 for discharge of tax liability; adjustment by DRC-03 at return-filing is an accounting operation and does not affect the discharge. Conclusion: Credit to the Electronic Cash Ledger via challan/portal receipts constitutes deposit into the Government exchequer for purposes of Section 49 and satisfies a court-ordered deposit requirement. Issue 3: Whether the possibility of the depositor later using or claiming refund of ledger funds justifies cancellation of bail Legal framework: Statutory mechanism allows electronic ledger entries and later adjustment; courts may impose terms to secure interests of State but must assess actual compliance and risk of misuse. Precedent treatment: The Court applied the High Court precedent and noted that regulatory/accounting features of the GST architecture limit the force of speculative apprehensions regarding misuse once credit to Government account is demonstrated; the Court accepted an undertaking as a further safeguard. Interpretation and reasoning: The Court found the apprehension speculative where documentary evidence (bank debits, receipts, electronic ledger entries) showed the credited amounts had been moved to Government portals on the required date. Additionally, the accused offered an undertaking not to utilize or claim refund of the amount. Given the statutory scheme and documentary proof, the Court held that hypothetical future misuse did not constitute a present breach warranting bail cancellation. Ratio vs. Obiter: Ratio - speculative apprehensions about future use of ledger credits do not justify cancellation where objective documentary proof shows funds credited to Government accounts within the stipulated timeframe and an undertaking is offered; such speculative risk is insufficient to annul bail. Conclusion: The apprehension that ledger funds might be used did not justify cancellation of bail in the face of documentary evidence of deposit and an undertaking against utilization/refund. Issue 4: Applicability of cancellation-of-bail standards versus initial grant-of-bail standards Legal framework: Judicial principles distinguish criteria for grant of bail from criteria for cancellation; established parameters and guidelines (including those of the Apex Court) constrain cancellation to situations where continued bail would be palpably unjust or prejudicial. Precedent treatment: The Court emphasized established jurisprudential differences between grant and cancellation of bail, noting that cancellation requires strict adherence to parameters and cannot be lightly invoked on speculative grounds. Interpretation and reasoning: Applying the higher thresholds for cancellation, the Court found no material to show the accused had breached bail terms or that continued bail would be prejudicial; the documentary record and statutory interpretation negated the central factual premise of the cancellation application. Ratio vs. Obiter: Ratio - cancellation of bail demands strict compliance with legal standards and cannot be ordered merely on speculative or technical contentions when objective compliance is demonstrated; absence of breach in fact is fatal to an application to cancel bail. Conclusion: The standards for cancellation of bail were not met; the application to cancel bail was therefore rejected.