Mere deposit of cash into an electronic credit ledger does not constitute payment of GST; payment is only discharged upon actual appropriation of funds to the government exchequer. Additionally, assessment proceedings for different tax periods cannot be combined into a single composite order.

The Court made the following Order:

(per Hon’ble Sri Justice R. Raghunandan Rao)

The petitioner, who is a registered person, under the Goods & Services Tax Act, 2017 [for short “the GST Act”], is in the business of trading of ferrous waste and scrap etc. As part of his business, the petitioner purchases scrap from Indian Railways. The GST, payable on purchase of such scrap from Indian Railways is to be discharged by the purchaser under the reverse charge mechanism.

An audit was conducted, on the books of the petitioner, for the period 2017-2018 and 2018-2019. In the course of this audit, it was found that the petitioner had deposited, in cash, in his electronic credit ledger, the GST payable under the reverse charge mechanism. However, the necessary debit entries, appropriating these amounts, to the Government were not carried out. Apart from this, the audit report also reveals that the petitioner without passing necessary debit entries and appropriating the amount to the Government account, had availed input tax credit, that would arise in relation to payments made under the reverse charge mechanism. The petitioner, immediately after the audit exercise had been conducted, had debited the cash credit available in his electronic credit ledger, to the Government. However, the assessment and penalty proceedings were initiated against the petitioner under Section 74 of the GST Act.

The show-cause notice, issued, in the course of these proceedings stated as follows:-

1) Though, the petitioner had deposited, in cash, the GST paid on reverse charge mechanism, in his electronic credit ledger, the same was not appropriated to the Government account and consequently, there was no payment of the GST.

2) The petitioner, without appropriating, the GST payable under the reverse charge mechanism, to the Government account, had claimed input tax credit, in relation to the amounts which he had paid into cash in his electronic credit ledger. This would amount to wrongful availment of Input tax credit, as such credit would only be available, in relation to the amounts deposited in the electronic credit ledger of the petitioner, which had been appropriated to the Government account.

3) As the said GST liability was not cleared by the petitioner, till the audit had been conducted, there was contravention of Section 16 of the Central Goods & Services Act, 2017 [for short “the CGST Act”] and would fall within ambit of Section 74 of the GST Act.

4) As there was delay in debiting the GST payment, the petitioner would also be liable to pay interest for the period of delay.

In response to these contentions, the petitioner filed his objections. The petitioner contended that the petitioner had paid the GST, under reverse charge mechanism, within time by depositing cash in his electronic credit ledger. The petitioner, contended that under the earlier Andhra Pradesh Value Added Tax regime etc., the tax payers were only required to deposit the tax and there was no further step of debiting the same to the Government. The petitioner contended that he had proceeded on that basis and had assumed that such payment was sufficient for discharging his liability. The petitioner further contended that the petitioner was ignorant of the new filing system under the GST Act and the Rules and the non debit of the cash paid, was at best an irregularity which may be treated as a case of misreporting rather than suppression of fact.

The petitioner contended that in such circumstances, the question of penalty would not arise and the provisions of Section 74 of the GST Act cannot be pressed into service. It was contended that none of the three ingredients of fraud, willful misstatement or suppression of facts, set out in Section 74 of the GST Act, are available in the present case.

The 2nd respondent, after considering the submissions passed an order of assessment and penalty, dated 27.05.2022 under Section 74 of the GST Act. In this order, the 2nd respondent took the view tha