Mere GST Deposit not payment until debited and appropriated to Government: High Court

The petitioner, a registered GST dealer engaged in trading scrap purchased from Indian Railways, was liable to pay GST under the reverse charge mechanism. During audit for FY 2017–18 and 2018–19, it was found that although the petitioner had deposited the required GST amount into the electronic credit ledger, the same was not debited and appropriated to the Government account. Despite this, the petitioner availed of input tax credit (ITC) on such amounts. Upon audit objection, the petitioner subsequently made the required debit entries. However, proceedings under Section 74 were initiated, alleging wrongful ITC availment and suppression of facts, resulting in demand of tax, interest, and penalty exceeding Rs.1.11 crore each under multiple heads.

Central Issue: Whether the deposit of GST into the electronic credit ledger amounts to payment of tax and whether delayed debit and ITC availment attract penalty under Section 74 for suppression or fraud?

HC’s Decision: The Andhra Pradesh High Court held that mere deposit of tax into the electronic credit ledger does not amount to payment of GST unless the amount is debited and appropriated to the Government account. Since the petitioner made such debit entries belatedly, the tax liability stood discharged, but interest for delay was payable. On the issue of ITC, the Court held that although the petitioner could not have availed ITC prior to proper appropriation of tax, recovery of ITC separately was not justified once the tax had eventually been paid.

Importantly, the Court found that the question of whether the petitioner’s conduct amounted to “suppression of facts” or was merely an inadvertent omission is a factual issue requiring proper adjudication. The authority had failed to undertake this exercise. Further, the Court held that passing a composite order covering multiple assessment periods is impermissible. Therefore, the impugned order was set aside and the matter remanded back to the authority for fresh consideration, including separate orders for each assessment period.

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