3/2/23, 8:06 AM No Interest Is Payable On Tax Liability Paid Through Balance Lying In Electronic Credit Ledger

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Goods and Service Tax (https://vjmglobal.com/gst/) » Judgements (https://vjmglobal.com/gst/judgements/) » No interest is payable on tax
liability paid through balance lying in Electronic Credit Ledger

August 12, 2021

No interest is payable on
tax liability paid through
balance lying in Electronic
Credit Ledger

CA. Kapil Mittal

(https://vjmglobal.com/author/kapil/)
(https://vjmglobal.com/author/kapil/)

Held by Hon’ble Madras High Court in the matter of

M/s M/s F1 Components Pvt. Ltd. v. The State Tax Officer, Chennai
Recent Posts
[W.P. No.6631 of 2021 And WMP No.7188 of 2021, dated July 09, 2021]
Key takeaways from the 49th GST
In the given case, M/s F1 Auto Components P ltd (“The Petitioner”) received Council Meeting
(https://vjmglobal.com/gst/gst-
an order wherein tax liability was paid through balance lying in electronic
council-meetings/key-takeaways-from-
Credit Ledger and remaining amount was paid through cash remittance. the-49th-gst-council-meeting/)
However, the respondent levied interest on both payments under Section SCHEMES UNDER UNION BUDGET
2023-24
50.
(https://vjmglobal.com/income-
tax/budget/schemes-under-union-
The petitioner challenged the leviability of interest on tax liability paid
budget-2023-24/)
through Electronic Credit Ledger. On the matter, the Hon’ble High Court
Union Budget-2023-24| Amendments
relied on its own judgement in the matter of M/s. Maansarovar Motors in Indirect Tax- GST & Customs
Private Limited [WP.No.4468 of 2020, dated September 29, 2020] wherein (https://vjmglobal.com/gst/union-
budget-2023-24-amendments-in-
it was held that Proviso to Section 50 of CGST Act
indirect-tax-gst-customs/)
(https://vjmglobal.com/gst/gst-returns/mismatch-between-gstr-1-and- Union Budget-2023-24| Changes for
gstr-3b-rectify-as-early-as-possible/), i.e., interest is payable only on tax Salaried Assessee
(https://vjmglobal.com/income-
liability paid through Cash remittance, was inserted with effect from 1st
tax/budget/union-budget-2023-24-
September, 2020. changes-for-salaried-assessee/)
Union Budget-2023-24| Income Tax
However, as per GST Council (https://vjmglobal.com/gst/gst-council-
Amendments
meetings/gist-of-31st-gst-council-meeting/) recommendations and (https://vjmglobal.com/income-
clarification, such amendment came into effect from 1st July, 2017 itself. tax/budget/union-budget-2023-24-
income-tax-amendments/)
Therefore, leviability of interest on taxes paid through Electronic Credit
Ledger is liable to be set aside. Related Post

Leviability of interest on cash remittance is mandatory and Takeaways from 48th Revised procedure of
Council Meetings to Risky Exporters
compensatory in nature. Therefore, same is upheld. Further, The petitioner (https://vjmglobal.com (https://vjmglobal.com
council-meetings/take procedure-of-granting
also relied on provisions of Section 42 of CGST from-48th-gst-council- exporters/)
(https://vjmglobal.com/gst/changes-in-gstr-3b-with-effect-from-01- meetings/)
GST on liquidated dam No GST on ocean frei
09-2022/) Act. However, it was held that Section 42 can be invoked only compensation and pe Charge Mechanism o
when there is an error in the database of the revenue. In the given case, arising out of breach o (https://vjmglobal.com
contract, etc. gst-on-ocean-freight-u
there is an error in ITC (https://vjmglobal.com/income- (https://vjmglobal.com charge-mechanism-on
circulars/gst-on-liquida
tax/budget/union-budget-analysis-finance-act-2022-income-tax-gst/) damages-compensati
penalty-arising-out-of-
Claimed by the petitioner. Therefore, the question of invoking Section 42 of-contract/)
does not arise. Clarification on variou
related to GST| Circul
172/04/2022-GST
1. Brief Facts of the Case: (https://vjmglobal.com
circulars/clarification-o
various-issues-related
M/s F1 Auto Components P ltd (“The Petitioner”) is in receipt of an
order issued by respondent dated 27.01.2021.
Tax liability determined in impugned order was paid through
Electronic Credit Ledger and remaining amount was paid through
cash remittance.
Interest was levied under Section 50 (paid through levied under
Section 50 of CGST Act (https://vjmglobal.com/gst/9-gst-
amendment-effective-from-1st-october-2022-finance-act-2022/),
2017 (Interest on delayed payment of tax) on both payments.
The petitioner challenged the leviability of interest on tax liability paid
through balance lying in Electronic Credit Ledger.

2. Questions before Hon’ble Madras High

Court
1. Whether the petitioner is liable to pay interest on tax liability paid
through Electronic Credit Ledger?
2. Whether the Petitioner is liable to pay interest on the belated cash
remittance?

3. Question-1: Interest on tax liability paid

through Electronic Credit ledger?
In this matter, both the petitioner and the respondent relied on the
judgement of Hon’ble Madras High Court in the matter of M/s.
Maansarovar Motors Private Limited [WP.No.4468 of 2020, dated
September 29, 2020] wherein following was decided:
Every tax liability shall be paid either through balance lying in
Electronic Credit Ledger or through cash remittance.

https://vjmglobal.com/gst/judgements/no-interest-is-payable-on-tax-liability-paid-through-balance-lying-in-electronic-credit-ledger/ 1/3
3/2/23, 8:06 AM No Interest Is Payable On Tax Liability Paid Through Balance Lying In Electronic Credit Ledger
Interest on delay payment of taxes is levied under section 50 of
Home Who We Are  What We Do  Career Resources  Request call back
CGST Act for a period of delay.
(https://vjmglobal.com/) Interest on payment of taxes made through cash remittance is
never in question.
However, levy of interest on tax paid through balance lying in
Electronic Credit Ledger is subject matter of challenge.
In Section 50, a proviso has been inserted vide Notification No. 63
of 2020 dated 25.08.2020 wherein it has been clarified that
interest shall be payable on tax payment made through
Electronic Cash ledger and such proviso was effective from
01.09.2020.
However, GST (https://vjmglobal.com/gst/gst-
circulars/clarification-on-various-issues-related-to-gst/)
Council’s recommendations has clarified that Notification No. 60
of 2020 has inserted the proviso to Section 50, interest is payable
only on net cash liability, with effect from September 1, 2020.
However, such provision shall come into effect retrospectively
from July 1, 2017.
Accordingly, directions were issued to the appropriate authority
to compute the interest liability for belated remittances of cash
only.
Accordingly, in the given case, Hon’ble Madras high Court held that
leviability of interest on taxes paid through Electronic Credit Ledger is
liable to be set aside.

4. Question-2: Interest on tax liability

paid through Cash Remittance?
Interest on belated cash remittance is mandatory and
compensatory and levy is unheld to such extent.

5. Other discussions
In the given matter, the petitioner relied on provision of Section 42 of
CGST Act, 2017 (Matching, reversal and reclaim of input tax credit
(https://vjmglobal.com/gst/gst-returns/clarification-on-furnishing-
in-gstr-1-and-gstr-3b-and-amendment-in-gstr-3b/)) in the case of
mismatch of particulars at the end of the Petitioner, vis-à-vis
particulars furnished in the returns of the selling/purchasing dealer.
In the matter, Hon’ble Madras High Court held that Section 42 can be
invoked only when there is an error in the database of the revenue or
error has occurred at the end of revenue. However, in the given case,
there is an error in ITC Claimed by the petitioner. Therefore, the
question of invoking Section 42 does not arise.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP.
The contents of this article are solely for informational purpose. It does not constitute
professional advice or recommendation of firm. Neither the author nor firm and its
affiliates accepts any liabilities for any loss or damage of any kind arising out of any
information in this article nor for any actions taken in reliance thereon.

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3/2/23, 8:06 AM No Interest Is Payable On Tax Liability Paid Through Balance Lying In Electronic Credit Ledger

Home Who We
GST on liquidated damages, Are  What We Do 
compensation Career Resources  Request call back
and penalty arising out of breach of contract,
(https://vjmglobal.com/) etc. (https://vjmglobal.com/gst/gst-
circulars/gst-on-liquidated-damages-
compensation-and-penalty-arising-out-of-
breach-of-contract/)

Performance is the essence of a contract. Liquidated damages

cannot be said to be a consideration received for tolerating the
breach or non-performance of the contract.

READ MORE » (HTTPS://VJMGLOBAL.COM/GST/GST-

CIRCULARS/GST-ON-LIQUIDATED-DAMAGES-COMPENSATION-
AND-PENALTY-ARISING-OUT-OF-BREACH-OF-CONTRACT/)

15/11/2022 • No Comments

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