Mere GST Deposit In Electronic Ledger Not Payment Until Appropriated To Government: Andhra Pradesh High Court

The Andhra Pradesh High Court has recently held that merely depositing GST in the electronic ledger does not amount to payment to the Government, while setting aside a tax and penalty order against Sona Enterprises.

"The provisions of Section 49(1) of the CGST Act read with Rule 87(6) & (7) of the CGST Rules makes it clear that the deposit of cash or the credit of input tax credit into the electronic ledger of the tax payer would not amount to payment of tax. Such payment of tax would occur only when the necessary amount is appropriated to the Government exchequer", the court held.

A Division Bench of Justice R. Raghunandan Rao and Justice T.C.D. Sekhar was hearing a plea by Sona Enterprises, a scrap trader purchasing from Indian Railways under the reverse charge mechanism.

The case arose after an audit found that the firm had deposited GST amounts under the reverse charge mechanism but had not debited and appropriated them to the Government account. Despite this, it had claimed input tax credit (ITC), leading to proceedings under Section 74 of the CGST Act alleging wrongful credit and suppression.

The court noted that although the petitioner had deposited the entire tax within time, the failure to appropriate it meant the payment was incomplete in law. Since the appropriation was made later, the Court held that interest would be payable for the delay.

On ITC, the Bench held that credit cannot be availed unless the tax has actually been paid to the Government, but found that recovery of ITC in addition to appropriation was not justified in the facts of the case.

“It is true that the petitioner could not have availed of the input tax credit, arising out of the payments made by him, as the same had not yet been appropriated to the Government. However, the view of the 2nd respondent that the said input tax credit should be recovered may not to be correct. The input tax credit, wrongful availed, without underlying payment of tax, could always be recovered. However,since the petitioner had made necessary debit entries, though later in point of time, the 2nd respondent could not have sought recovery of input tax credit apart from appropriating the amounts debiting to the account of the Government. To that extent, the order of the 2nd respondent does not appear to be correct.”, it observed.

The court also found that the order was flawed for covering multiple assessment years in a single proceeding and said the issue of whether the lapse amounted to suppression or merely an inadvertent error must be reconsidered by the adjudicating authority.

“The impugned order suffers from an inherent defect of being a composite order covering different tax periods, which requires the said order to be set aside.”

Accordingly, the High Court set aside the order dated May 27, 2022 and remanded the matter to the adjudicating authority to pass separate orders for each assessment period after examining the petitioner's objections.

For Petitioner: Advocate, Jyothi Ratna Anumolu

For Respondent: Sr. Standing Counsel Santhi Chandra for CBIC