Interest not payable if GST return filed belatedly but amount deposited in Cash Ledger within due date?

During the establishment of GST era and with the nascent GST portal, one of the most popular confusion that conned everyone was, whether payment is concluded only after the click on ‘Offset of liabilities’ or payment of GST is completed with deposition of tax amount in Cash Ledger (CL). Also due to technical glitches in earlier period, various assesses faced undue delay in filing return with prompt payment in cash ledger, which resulted in GST notice for recovery of interest.  Interestingly, determining the actual date of payment of taxes is also crucial in various other practical scenarios like, existence of excess balance in CL (similar to credit ledger) to avoid interest/penalty on any liability crystallized in future, eligibility of claiming credit on RCM transactions in the same month that of payment of RCM taxes, belated reflection of amount in CL, etc.

Department has initiated proceedings for retrieval of interest when GST returns were filed belatedly. However, in many cases filing of return happened belatedly but cash ledger was credited within the time. There are strong reasons why interest should not be levied in such cases. Let us understand the various aspects around this issue.

The most important aspect to be understood here is the statutory flow as to how a particular liability gets registered and at what instance the same gets nullified as per the GST law. According to Chapter IX of CGST Rules 2017 read with Chapter X of CGST Act 2017:

  • Any amount payable as per the return by the assessee filed shall be debitedin his Electronic Liability Register.
  • On deposition of amount (payment made from bank account) in CL the amount shall be creditedin CL.
  • Upon offsetting the liability by filing the return, the amount shall be creditedto Electronic Liability Register and debited to Electronic Cash/Credit ledger.

It can be observed from above that, when actual funds are released from assessee’s bank account and deposited in CL, the amount is flagged as a ‘CREDIT’ entry. This is similar to any bank transaction, like when cash is deposited in bank account, the bank flag the said entry as ‘CREDIT’ to the depositor’s account. Such ‘CREDIT’ entries generally signify that the said amount is a liability of the one who credits the depositor’s ledger i.e., liability of Bank/Government. Thus, payment from assessee’s bank account to CL creates a liability on the part of Government. This liability gets DEBITED (reduced) at the time of filing the return (Offsetting liability), etc. However, at the time of such DEBIT, there is no actual movement of funds at all. The said DEBIT entry at the max, in Author’s opinion is “ALLOCATION” entry wherein no bank account either of the assessee or of the Government is altered.

At this point, it is important to understand the significance of CIN (Challan Identification Number). Rule 87(6) and rule 87(7) states that, CIN shall be generated only on successful credit of the amount to the concerned government account maintained in the authorised bank and on receipt of the CIN from the collecting bank, the said amount shall be credited to the electronic CL of the person. Thus, the actual movement of funds happen at the first stage only i.e., CREDIT to CL and at the time of DEBIT to CL (with CREDIT to liability register), bank accounts are not altered at all. Thus, the entries at the time of ‘Offsetting Liability’ signify merely allocation of funds to respective heads as per the return, etc. This creates a very strong ground to consider the deposition of funds in CL as tangible entry for payment of taxes by the assessee. The funds are available for use to the treasury of Government immediately on generation of CIN i.e., deposit in CL. It has been stated in the explanation to section 49 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 CL. Thus, when funds are available with the government for further exploitation, assessee in turn should not be flagged as non-compliant or still liable for payment. Non allocation of funds in respective head, should not be treated at par with Non payment of taxes.

To begin with, as per section 27(2), a casual taxable person is required to make an advance deposit of tax in an amount equivalent to the estimated tax liability. The said compliance or liability is considered as discharged by merely depositing the amount in CL. Therefore, as per provisions of section 27 read with Rule 13, ‘Advance deposit of Tax’ is to be made by virtue of ‘Depositing funds in CL’. Hence, amount in CL is treated at par with ‘Advance Tax payment’.

Further, as per section 53A of the Act, where any amount is transferred by the assessee from CGST CL to SGST/UTGST CL, the Government is required to transfer to the State/UT tax account, an amount equal to the amount so transferred. Irrespective of filing of return, with switch of balances in CL the Government is mandated to undertake the actual fund transfer of equivalent amount to the respective State/UT. Thus, exploitation of funds is triggered on deposition of amount in CL and not after filing of return.

As per section 77 of CGST Act and section 19 of IGST, interest is not required to be paid in case assessee pays wrong taxes considering a transaction as inter/intrastate earlier and later correcting the same to be other one. The genesis behind not charging the interest on an incorrect transaction, is nothing else than the fact that actual payment had already been done, although in wrong head. This saving provision highlights the actual form of payment which is bank payment and not the allocation under any specific head.

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