APRIL 22, 2020

By Shailesh Sheth, Advocate, Founder M/s. SPS LEGAL

"There is no worse torture than the torture of laws." 

[Francis Bacon]

THE provisions relating to the payment of tax, interest, penalty, fee or any other amount are contained in S.49 of the Chapter X of the CGST Act, 2017 (the CGST Act'). A taxable person can discharge his tax liability by due date, either by cash or by utilizing the input tax credit or both. However, the payment of interest, penalty, fee or any other amount can be made through cash only [S.49(3) & (4) refers]. A taxable person is required to maintain 'Electronic Credit Ledger' in Form GST PMT 02 and 'Electronic Cash Ledger' in Form GST PMT 05 as prescribed under Rule 86(1) and 87(1) respectively of the CGST Rules, 2017 (the CGST Rules').

The electronic cash ledger contains the Major Heads viz. Central Tax (CGST); Integrated Tax (IGST); State Tax (SGST); Union Territory Tax (UTGST) and GST Compensation Cess (Cess).

In each Major Head, there are Minor Heads viz. Tax, Interest, Penalty, Fee, Others and Total.

Many a times, it happens that a taxable person makes payment towards tax, interest, etc. under a wrong head. In such cases, he was earlier compelled to make a fresh payment under a proper head and claim refund of the amount paid in the wrong head. Needless to say, obtaining refund from the government, of any amount paid wrongly for any reason remains a cumbersome and herculean task!

To obviate the difficulties of the taxpayers in this regard, a provision was inserted in Rule 87 of the CGST Rules by the CGST (Fourth Amendment) Rules, 2019 ('the Amending Rules, 2019') issued vide Not. No. 31/2019-CT dt. 28th June, 2019. Sub-rule (13) inserted in Rule 87 by Rule 9(c) of the Amending Rules reads as under:

"9. (c) after sub-rule (12), with effect from a date to be notified later, the following sub-rule shall be inserted, namely:-

"(13) A registered person may, on the common portal, transfer any amount of tax, interest, penalty, fee or any other amount available in the electronic cash ledger under the Act to the electronic cash ledger for integrated tax, central tax, State tax or Union territory tax or cess in FORM GST PMT-09.".

[Emphasis supplied]

However, considering the possibility of the delay on part of the GSTN Portal to make this functionality available, the captioned sub-rule (13) inserted in Rule 87 was not given effect immediately. It was provided that the same would come into effect from the date to be notified later. Then followed an agonizing wait for the taxpayers! But the taxpayers are now reconciled to this inevitability realizing that 'patience is a virtue' under the GST regime!

For the record, sub-rule (13) inserted in Rule 87 on June 28, 2019 by the Amending Rules, 2019 is still lying dormant in the Statute and has not been made effective till date!

Here, one clarification is in order. It is widely believed and even reported that sub-rule (13) of Rule 87 has been made effective from April 1, 2020 vide Not. No. 71/2019-CT dt. 13th December, 2019. However, there is a misunderstanding here! The netizens may carefully observe that the subject notification seeks to make only Rule 5 of the Amending Rules, 2019 [vide which Rule 46 of the CGST Rules has been amended] effective from April 1, 2020.

Similarly, vide Not. No. 42/2019-CT dt. 24th September, 2019, the provisions of Rules 10, 11, 12 and 26 of the Amending Rules, 2019 are made effective from '24th September, 2019'.

However, as mentioned, sub-rule (13) has been inserted in Rule 87 vide Rule 9(c) of the Amending Rules, 2019 and the said Rule 9(c) has not been made effective till date.

In the meantime, another interesting development has also taken place. Various changes to the specified provisions including S.49 of the CGST Act were made by the Finance (No.2) Act, 2019 (23 of 2019) ('the said Act') enacted on August 1, 2019.

Vide. S. 99 of the said Act, sub-sections (10) and (11) were inserted in S.49 of the CGST Act that read as under:

"99. In section 49 of the Central Goods and Services Tax Act, after sub-section (9), the following sub-sections shall be inserted, namely:-

"(10) A registered person may, on the common portal, transfer any amount of tax, interest, penalty, fee or any other amount available in the electronic cash ledger under this Act, to the electronic cash ledger for integrated tax, central tax, State tax, Union territory tax or cess, in such form and manner and subject to such conditions and restrictions as may be prescribed and such transfer shall be deemed to be a refund from the electronic cash ledger under this Act;

(11) Where any amount has been transferred to the electronic cash ledger under this Act, the same shall be deemed to be deposited in the said ledger as provided in sub-section (1)".

[Emphasis supplied]

S.99 of the said Act was made effective from '1 st January, 2020' by Not. No. 01/2020-CT dt. 1st January, 2020. Unfortunately, this again led to a widespread belief that with these amendments to S.49 coming into force on January 1, 2020, the provisions of sub-rule (13) of Rule 87 had also become effective. Alas, here also there was a misconception and misunderstanding! Not. No. 01/2020-CT ibid has made only the specified provisions including S.99 of the said Act effective from January, 1, 2020. Sub-rule (13) inserted in Rule 87 vide the Amending Rules has not become nor can be said to have automatically become effective as a consequence of the amendments to S.49 of the CGST Act coming into force on January 1, 2020.

Amidst this chaotic situation, suddenly, the GSTN Portal enabled the uploading of the Challan in Form GST PMT 09 yesterday i.e. on April 21, 2020 !

While the development was greeted by all with enthusiasm, what is really surprising is the fact that the GSTN Portal has apparently not bothered to inform the CBIC and confirm whether it could go ahead with the activation of this activity or not! For once, the Portal appears to be one step ahead of the CBIC!

Such lack of coordination between the Portal and CBIC is, however, quite unfortunate and disturbing!

The entire exercise involving a simple and beneficial amendment of procedural nature has also unnecessarily become quite complicated and controversial for a different reason.

Sub-rule (13) was inserted in Rule 87 of the CGST Rules vide Rule 9(c) of the Amending Rules issued vide Not. No. 31/2019-CT issued by the Central Government under S.164 of the CGST Act. It is, however, now evident that the subject amendment i.e. insertion of sub-rule (13) in Rule 87 was perhaps invalid and without authority of law inasmuch as there were no enabling provisions or source available in the CGST Act at the relevant time on the strength of which such amending rule could have been enacted by the Central Government! Such source or enabling power came to be provided only by insertion of sub-sections (10) and (11) in S.49 of the CGST Act vide S.99 of the Finance (No.2) Act, 2019 which has been put into force w.e.f. January 1, 2020 vide Not. No. 01/2020-CT ibid.

Thus, the insertion of sub-rule (13) in Rule 87 by the Amending Rules, 2019, to put it mildly, is like 'putting a cart before the horse'! It may also be noted that no validity can be ascribed to the said sub-rule (13) on the ground that it has not been operationalized as yet. Such operationalization through a Notification in the Official Gazette is merely a procedural act. However, the insertion of a provision (whether new or amending) in the CGST Rules can only be done if there is an enabling provision existing in the parent Act i.e. the CGST Act on the relevant date. This is also evident from the explicit language of sub-section (10) inserted in S.49 which inter alia, provides for the transfer of any amount in the electronic cash ledger in such form and manner and subject to such conditions and restrictions as may be prescribed. The word 'prescribed' is defined vide S.2(87) of the CGST Act so as to mean ' prescribed by rules made under this Act on the recommendation of the Council'. Thus, S.49(10) requires a specific provision in the form of Rule/s which would act as machinery provision for its operationalization. Obviously, such machinery provision through Rules could have been made by the Central Government only after January 1, 2020 and not before this date. Consequently, insertion of sub-rule (13) in Rule 87 vide the Amending Rules, 2019 lacks any authority of law and is of no relevance or consequence. At the same time, admittedly, no Rules have yet been prescribed as required after the insertion of sub-section (10) in S.49 of the CGST Act.

A very piquant situation has, therefore, arisen inasmuch as:

- Sub-rule (13) inserted in Rule 87 on June 28, 2019 prescribing the manner and form for transfer of balance in electronic cash ledger is void ab-initio and is without the authority of law and its operationalization cannot serve any purpose; and

- No Rule has been issued by the Central Government as mandated by S.49(10) of the CGST Act, 2017, after the insertion thereof till date rendering the said sub-section a hitherto passive piece of legislation.

As if this complexity was not enough, the GSTN Portal has further queered the pitch by going ahead with the activation of the utility for uploading the Challan in Form GST PMT 09!

What remedial action can now be undertaken is the million dollar question that begs an answer. The author is of the view that for setting the house in order, the following remedial steps can be taken:

- Omit sub-rule (13) inserted in Rule 87 of the CGST Rules, by issue of fresh Rules under S.164 of the CGST Act (howsoever, embarrassing it may be!);

- Insert a fresh provision similar to or on the lines of sub-rule (13) in Rule 87 which is in consonance with S.49(10) of the CGST Act; and

- Insert the new provision in Rule 87 of the CGST Rules effective from April 21, 2020 being the date on which the uploading of the Challan in Form GST PMT 09 has been enabled.

It is indeed unfortunate that a simple exercise involving the insertion of a beneficial provision in the Statute has to become such a needlessly complicated and controversy-prone exercise! This was entirely avoidable as there was really no need to make any amendment in Rule 87 of the CGST Rules before S.49 of the CGST Act was suitably amended so as to provide a 'source' for effecting the amendment to Rule 87. As it is, sub-rule (13) inserted in Rule 87 has remained in the Statute without serving any purpose whatsoever! No doubt, the validity of sub-rule (13) of Rule 87 is unlikely to be challenged by anyone, being a beneficial piece of legislation, irrespective of its invalidity.

However, the 'law making process' is serious business and has to follow a set protocol and legal sequence and it would not be proper and advisable to take liberties with the same, even if the intentions are benevolent! This may unnecessarily lead to avoidable legal challenges particularly where the provision in question seeks to impose some burden or obligation on the taxpayer!

"Laws are like sausages. It's better not to see them being made."

[Otto von Bismarck, 19th  Century Prussian Prince]

[The views expressed are strictly personal.]