The Gujarat High Court has held that when a registered person deposits amounts like penalty, interest, or fees into their electronic cash ledger and those amounts are credited to the government’s account, the tax liability gets discharged to the extent of that deposit. In interpreting Section 49 of the Central Goods and Services Tax Act, the bench, led by Justice Divyesh A. Joshi, recalled the earlier decision in Arya Cotton Industries and noted that once funds are debited from the taxpayer and credited into the government account, the registered person’s liability is accordingly reduced.
The Court noted that Section 49(12) empowers the government to, by regulation, prescribe a maximum portion of output tax liability that may be discharged using the electronic credit ledger by a registered person or class of registered persons. The statute further explains 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.” By emphasising this, the Court asserted that crediting the government’s ledger is the event that settles the liability, regardless of when the debit is effected in the taxpayer’s electronic cash ledger entries.
In the facts before the Court, the Department had challenged an order granting bail to a person who had deposited ₹ 90 lakh into the electronic cash ledger. The Department contended that mere placement of amounts in the ledger without making a formal debit via Form GST DRC-03 meant the liability remained unsettled. However, the Court rejected this contention, stating that the accounting mechanics of debiting the ledger at a later stage do not negate the fact that the government has already received the funds. In doing so, the Court relied on the scheme and purpose of Section 49, which contemplates that amounts deposited and credited must be treated as discharging liability.
The bench held that the taxpayer cannot be made liable to pay interest for the period between deposit into the government account and the filing of the return, since the liability had already stood discharged on the date of credit. The Court further observed that the apprehension about funds lying in a portal and being susceptible to misuse was addressable by the taxpayer furnishing an undertaking not to use or claim a refund of those amounts.
Accordingly, the Gujarat High Court dismissed the Department’s application for cancellation of bail, concluding that there was no non-compliance with the condition of deposit. The decision underscores the principle that under the GST regime, once amounts are properly credited to the government by way of deposits in the electronic cash ledger, the corresponding tax obligations are extinguished to that extent.
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