The Andhra Pradesh High Court (Amaravati Bench) has held that mere deposit of cash into the electronic ledger does not amount to payment of GST; rather the payment is complete only upon appropriation/debit to the Government account under Section 49(1) of the CGST Act read with Rule 87(6) and (7) of the CGST Rules. The Court clarified that where such appropriation is made belatedly, the tax liability stands discharged on such later appropriation, but interest remains payable for the period of delay.
The Court emphasised that Input tax credit (ITC) cannot be validly availed before the underlying reverse charge tax is appropriated to the Government; however, once the tax is subsequently appropriated, separate recovery of the input tax credit in the manner adopted in the impugned order is not sustainable.
The Court also held that whether failure to debit the electronic ledger constitutes inadvertent omission or suppression / wilful misstatement, attracting Section 74 of CGST Act is a factual issue that must be properly examined by the adjudicating authority. A composite assessment / penalty order covering separate tax periods is impermissible and is liable to be set aside on that ground as well. Accordingly, the High Court set aside the impugned order and remanded the matter to the second respondent to pass separate orders for the two tax periods, after considering the objections of the petitioner.
The Division Bench comprising Justice R Raghunandan Rao and Justice T.C.D. Sekhar recorded that there was no dispute as to the quantum of tax payable, and that the dispute was confined to whether tax had been paid in time, whether input tax credit was validly availed, and the consequences of those issues. The Bench specifically noted that the petitioner had deposited cash equal to the GST liability within the stipulated time, and that the only omission was failure to debit and appropriate that amount in favour of the Government.
On the payment issue, the Bench held that Section 49(1) of the CGST Act read with Rule 87(6) and (7) of the CGST Rules makes clear that deposit of cash or credit in the electronic ledger does not by itself amount to payment of tax; payment occurs only when the amount is appropriated to the Government exchequer. Accordingly, the Bench held that the petitioner had eventually cleared the GST liability when the debit entries were made, but since such appropriation did not take place within the prescribed time, the petitioner was liable to pay interest for the period of delay.
On input tax credit, the Bench observed that the petitioner could not have availed such credit before the underlying tax payment stood appropriated to the Government. However, once the petitioner subsequently made the necessary debit entries, the authority could not recover the input tax credit separately in the manner it had done, apart from appropriating the debited amount to the Government account. To that extent, the impugned order was held to be incorrect.
On mens rea / Section 74, the Bench treated the issue whether the omission was merely inadvertent or amounted to suppression of fact with intention to evade tax as a question of fact requiring proper consideration by the primary authority in light of the petitioner’s objections. The Court found that this exercise had not been properly undertaken. The Bench also held that the impugned order suffered from an inherent defect because it was a composite order covering two separate tax periods, and noted its earlier ruling in SJ Constructions that such composite proceedings are not permissible.
Briefly, the petitioner, a registered person under the GST regime engaged in trading ferrous waste and scrap, purchased scrap from Indian Railways, for which GST was payable by the purchaser under the reverse charge mechanism. An audit for FY 2017-18 and 2018-19 found that the petitioner had deposited the reverse charge GST amount in cash in his electronic ledger, but had not made the necessary debit entries appropriating that amount to the Government. The audit also found that the petitioner had availed input tax credit referable to such payments before such appropriation was made. After the audit, the petitioner debited the available cash in the electronic ledger to the Government, but proceedings were initiated under Section 74 of the CGST Act.
The show cause notice alleged, in substance, that: (i) mere deposit in the electronic ledger was not payment of GST unless appropriated to the Government account; (ii) availment of input tax credit before such appropriation was wrongful; (iii) the case fell within Section 74; and (iv) interest was payable for the delay.
The petitioner’s defence was that the tax had been deposited within time, that he had proceeded on the basis of his understanding from the earlier APVAT system, and that the non-debit was at worst an irregularity or misreporting, not fraud, wilful misstatement, or suppression of facts attracting Section 74.
The adjudicating authority nevertheless passed an assessment and penalty order holding that deposit into the ledger did not amount to payment, that the input tax credit was wrongly availed, and that the subsequent appropriation after audit amounted to suppression of fact and wilful misstatement. It ordered appropriation of tax already paid, recovery of interest, and penalties including penalty under Section 74(9).
Appearances:
Jyothi Ratna Anumolu, for Petitioner
Santhi Chandra, Sr. Standing Counsel for CBIC, and GP For Commercial Tax
