Background and Context
The petitioner, a registered dealer under the Goods & Services Tax Act, 2017 (GST Act), engaged in trading ferrous waste and scrap, purchased scrap from Indian Railways. Under the reverse charge mechanism, the petitioner was required to discharge GST liability. An audit for the periods 2017-2018 and 2018-2019 revealed that while the petitioner had deposited GST amounts in cash into his electronic credit ledger, he had not made the necessary debit entries to appropriate these amounts to the government account. Despite subsequently making the required debit entries after the audit, assessment and penalty proceedings were initiated under Section 74 of the GST Act.
Proceedings and Submissions
The show-cause notice alleged that the petitioner had not properly appropriated GST payments to the government account and had wrongfully availed input tax credit (ITC) without such appropriation, amounting to contravention of Section 16 of the CGST Act and falling within the ambit of Section 74. The petitioner argued that he had paid the GST in time by depositing cash and that the omission to debit the amounts was due to ignorance of the new GST regime, not with intent to evade tax. He contended that the error was at most a case of misreporting, not suppression or fraud, and thus penalty under Section 74 was unwarranted.
The assessing authority, however, concluded that mere deposit into the electronic credit ledger did not amount to payment of GST, and that ITC could only be availed after appropriation to the government account. The authority treated the omission as suppression of fact and imposed recovery of tax, interest, and penalties.
Court’s Reasoning and Legal Principle
The High Court examined whether the deposit of cash into the electronic credit ledger constituted payment of GST. Referring to Section 49(1) of the CGST Act and relevant rules, the Court held that payment of tax occurs only when the amount is appropriated to the government exchequer, not merely upon deposit into the ledger. The Court cited the Jharkhand High Court’s decision in RSB Transmission (India) Limited, affirming this interpretation.
The Court found that while the petitioner had ultimately made the necessary debit entries, these were made after the audit and not within the stipulated time. Therefore, the petitioner was liable to pay interest for the period of delay. However, the Court disagreed with the assessing authority’s view that ITC should be recovered in addition to appropriating the amounts, noting that since the petitioner had subsequently made the required appropriations, recovery of ITC was not warranted.
Importantly, the Court observed that whether the petitioner’s omission was inadvertent or amounted to suppression with intent to evade tax was a factual question that had not been properly considered by the primary authority. Furthermore, the Court noted a procedural defect: the impugned order was a composite order covering two separate tax periods, contrary to the Court’s earlier ruling in SJ Constructions v. Assistant Commissioner, which held that such composite proceedings are impermissible.
Decision and Outcome
The High Court set aside the impugned assessment and penalty order dated 27.05.2022, remanding the matter to the assessing authority for fresh consideration. The authority was directed to pass separate orders for each tax period after considering the petitioner’s objections and submissions. The Court left open the primary factual dispute regarding the nature of the petitioner’s omission for reconsideration by the authority. No order as to costs was made.
This decision clarifies that under the GST regime, payment of tax is only effected upon appropriation to the government account, and composite assessment orders covering multiple periods are procedurally defective. The ruling underscores the importance of procedural compliance and proper factual inquiry in GST assessment and penalty proceedings.
Case Reported at:
Case Name: Sona Enterprises v. State of AP and Anr.
Case Citation: (2026) taxcode.in 909 HC
