Madras HC: No Interest Liability for Timely Tax Deposits in Electronic Cash Ledger

Introduction

The Hon’ble Madras High Court (‘HC’) in the case of Eicher Motors Ltd. v. Superintendent of GST and Central Excise, Range II[i], preferred by way of a writ petition (‘WP’), set aside the order and recovery notice issued by the Directorate General of GST Intelligence (‘DGGI’). The HC held that there is no liability on Eicher Motors (‘Petitioner’) to pay interest when the goods and services tax (‘GST’) amount payable by the Petitioner had been timely deposited in the electronic cash ledger (‘ECL’), even if the monthly returns in Form GSTR-3B were filed belatedly.

Brief Facts

• When GST was introduced in 2017, the Petitioner had accumulated a balance of approximately Rs. 33 crores as CENVAT credit, which as per the proposed scheme, was to be transitioned into the GST regime through the filing of Form GSTR – TRAN-1.

• However, even though the Petitioner duly filled out Form GSTR-TRAN-1, not all the credit sought was made available as an input tax credit, even after submitting Form GSTR-TRAN-1. Consequently, the Petitioner was unable to file their monthly returns under Form GSTR-3B for July 2017 within the due date i.e., 28.08.2023, as the balance amount of approximately Rs. 33 crores was not entirely reflected in the ECL.

• The non-filing of Form GSTR-3B for the month of July 2017 had a cascading effect, and the Petitioner was unable to file their returns for the subsequent months from August 2017 to December 2017. This cascading effect was due to the statutory bar provided under s. 39(10) of the Central GST Act, 2017 (‘CGST Act’), which prevented the assessees from filing GST returns if the previous month’s returns were unpaid/due.

• However, despite the aforementioned issue, the Petitioner ensured that the taxes were paid in full by depositing them in an ECL under the appropriate heads such as CGST, State GST, and Integrated GST into the Government’s account (‘GA’) before the due date for GST payment. Subsequently, upon the accumulated credit being reflected in the Petitioner’s ECL, they were able to file returns under Form GSTR-3B for July 2017, and the subsequent months.

• After a lapse of 6 years, a recovery notice was served upon the Petitioner demanding payment of interest of approximately Rs. 23 crores for the belated GST payment from July 2017 to December 2017. The Petitioner was compelled to approach the HC when even after filing a detailed response to the recovery notice, the GST Department (‘Respondent’) failed to withdraw the proceedings initiated against the Petitioner.

Issue

The issue was whether the Petitioner was liable to pay interest on the GST amounts deposited into the GA despite the delayed filing of Form GSTR-3B.

Held

The HC, while allowing the said WP, and quashing the recovery notice and order made the following observations:

• A person’s tax liability is discharged once the amount is credited to the GA. Therefore, upon payment via GST PMT-06, and its immediate deposit into the GA, the tax liability is settled to the extent of the amount deposited. Hence a person’s tax liability stands discharged to the extent of the amount deposited with the GA.

• As per s. 50(1) of the CGST Act, a person is only liable to pay interest on the delayed period, i.e., if the payment of GST is made by the assessee beyond the 20th day of each month, they shall be liable to interest on such delay. Thus, the tax liability of an assessee would only accrue if they failed to make the payment of GST on or before the 20th of each month. In the present case, the tax amount was credited into the GA well within the prescribed limit; hence, the issue of interest payment would not arise. Further, the proviso to s. 50(1) of the CGST Act was interpreted as not altering the prescribed period for tax payment.

Analysis

The decision passed by the HC in the aforementioned matter establishes important jurisprudence regarding the levy of interest and penalty in taxation matters harmonizing strict statutory interpretation with practical compliance realities. By expanding the interpretation of s. 50 of the CGST Act, the HC emphasized that timely tax payment into the ECL absolves taxpayers of interest liabilities for delayed return filings, highlighting the absence of intent to evade tax by the Petitioner.

This judgment aligns with the Hon’ble Supreme Court precedents, notably Munshi Ram & Anr. v. Balkar Singh & Ors.[ii], and CIT v. Modipon Ltd.[iii], which distinguishes between procedural lapses and substantive tax compliance. These references support the principle that compliance is fundamentally about remitting the due taxes timely, rather than merely adhering to filing deadlines.

In essence, the HC’s decision, backed by supreme jurisprudence, champions fairness in tax administration, advocating that penalties should reflect the taxpayer’s compliance intent and actual payment conduct, rather than penalizing them for procedural oversights.

End Notes:

[i] [2024] 158 taxmann.com 593 (Madras), dated 23.01.2024.

[ii] 2016 SCC OnLine P&H 11166

[iii] 2017 (356) ELT 481 (SC)

Authored by Anshi Bhatia, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.