JUNE 01,2020

By L S Karthikeyan, Advocate

TAX is a monetary charge imposed by the government on persons, entities, transactions, or property to yield public revenue. The revenue so collected is used by the State for various purposes such as maintenance of armed forces, for payment of salary to the members of defence forces, civil servants, police or for development / welfare programmes etc.

Article 266 of the Constitution mandates that all revenues received by the Government of India / any State, all loans raised through Treasury Bills, loans or ways and means advances and all moneys received by repayment of loans shall form part of the Consolidated Fund of India or the Consolidated Fund of the State, as the case may be. Article 150 provides that the accounts of the Union and the States shall be kept in such form as may be prescribed by the President with the advise of Comptroller & Auditor General (CAG).

Government Accounting Rules, 1990 (the Rules, in short) has been made in pursuance of Article 150. Elaborate procedure has been prescribed in the Rules for reconciliation and determination of cash balances of the respective Governments involving co-ordination of the authorised banks, the Central Accounting Section of Reserve Bank of India, the Pay & Accounts offices of every Ministry / Department, the Controller General of Accounts etc. Any amount paid into the bank is credited to the Consolidated of India / respective State on a daily basis and is accounted under respective head of account prescribed in the List of Major & Minor Heads (LMMH).

The Annual Accounts of the Government of India prepared by the CGA are audited by CAG and submitted to the President. Similarly, the annual accounts of the States are prepared by the Accountants General in respective States and submitted to the Governor. The President / Governor cause the accounts to be laid before the Parliament / Legislative Assembly.

On introduction of GST, new Major Heads 0005 / 0006 / 00077 / 0008 & 0009 have been created under the LMMH to capture CGST, SGST, UTGST, IGST and GST Compensation Cess respectively. Like any other Revenue Receipt, any payment towards GST, stand credited to the Consolidated Fund on the same day of deposit into the Bank.

The Revenue Receipts so accounted on comparison with the Revenue Estimates would show whether there is shortfall or excess collection of taxes. To ensure that the Revenue Estimates of the Government(s) do not go haywire, it is expected that the Registered / taxable persons discharge their tax liabilities duly for every tax period.

Though GST has subsumed most of the indirect taxes and forms a major chunk of Revenue to the Governments (at least expected to be so), the GST Acts unfortunately failed to clearly prescribe the due date for payment of the taxes giving rise to numerous litigation.

Section 49 of CGST Act relating to 'Payment of tax', prescribes that any deposit made towards tax etc. shall be credited to Electronic Cash Ledger and ITC shall be credited to the Electronic Credit Ledger. The section provides that the amount available in the Cash Ledger / Credit ledger can be used for payment of taxes. The order of utilization of credit from the credit ledger is also provided. Rule 86 provides that the ITC shall be credited to the credit ledger and the ledger shall be debited to the extent of discharge of any liability. Rule 87 provides that cash ledger shall be maintained for crediting any amount deposited and debiting therefrom for payment towards tax, interest, penalty, fee or any other amount.

However, neither Section 49 nor Rules 86 / 87 specify the date by which the debits towards payment of taxes are to be made.

Instead, one is left to decipher the due date for payment of taxes indirectly from Section 39(7), which states that the Registered person required to file return under 39(1) shall pay to the Government the tax due as per such return not later than the last date on which he is required to furnish such return.

Rule 85 provides that the Electronic Liability Register maintained in terms of Section 49(7) shall be debited by the amount payable towards tax, interest, late fee or any other amount payable as per the return furnished by the person liable to pay tax and credited whenever the cash ledger and / or credit ledger are debited.

It is felt that too much emphasis on the due date for filing the return to reckon the due date for payment of taxes has created uncertainty, particularly in the light of the fact that the Government is unable to enable filing of returns by the taxable persons as originally envisaged.

Sadly, instead of addressing the crux of the problem, taxpayers are asked to accept the stop-gap return in form GSTR-3B as 'THE RETURN' in Section 39(1) instead of the still born GSTR-3 returns through retrospective amendments. The controversy over what is the return prescribed in Section 39(1) is consuming time and efforts from both Revenue and taxpayer side, without resolving the dispute. It is felt that such controversies could have been averted if simple solutions are provided rather than facing exposure of shortcomings in the law with obstinacy and brute legislative power.

It can be seen that as per the Accounting principles discussed above, the tax stands credited to the Government kitty on the date of deposit into the Bank. In this regard, it is relevant to note that Rule 87(6) also states that 'on successful credit of the amount to the concerned government account maintained in the authorized bank, a Challan Identification Number shall be generated by the collecting bank'. Thus, it is obvious that the Government(s) receive the Revenue on the date of depositing amount into the bank through challans.

It is also pertinent to note that the payment of tax through Input Tax Credit does not mean real revenue to the Government(s) as the amount allowed as ITC is nothing but cash paid into Government account earlier by another taxpayer and has already been accounted as Revenue. While a taxpayer may be discharging his tax liability by debiting his credit account, such 'payments' does not enhance the 'Revenue Receipts' of the Government.

In GST scenario, the amount of tax paid through cross utilization of credits is required to be known for inter-se adjustment between Major Heads and transfer of funds from Central to appropriate State Government or vice versa. Apart from this aspect, which anyway does not alter the fact of 'payment of tax' by the taxpayer, the tax paid by cash alone is accounted as revenue receipts. The situation was the same in the erstwhile indirect taxes.

The laws governing Central Excise, Service Tax and VAT, had clearly spelt out the date by which the tax is to be paid, which were not with reference to the date of filing returns. Service Tax returns were to be filed only for half yearly periods; however, there was no dispute on ascertaining the date of payment of taxes every month, as the law was clear on the due date for payment of taxes.

The Central Excise Act, 1944 / Finance Act, 1994 contained provisions stating that the 'date of deposit / presentation of cheque' into the authorized bank is the date of payment of tax (subject to realization of cheque). Such provisions clearly admitted that the Government gets its revenue, irrespective of the whether returns are filed or not. Whereas, we find in GST Act, a half measure in the form of explanation (a) under Section 49 stating that 'the date of credit to the account of the Government in the authorised bank shall be deemed to be the date of deposit in the electronic cash ledger'.

It is not comprehensible as to why so much of fuss is created around filing of GSTR-3B for ascertaining date of payment of taxes, if the amount is 'credited to the account of the Government' and why at all there should be an explanation as above when the date of 'deposit' in the cash ledger is not considered as payment of tax.

The long and short point sought to be driven through this article is that the Government gets its revenue when cash is deposited into authorized bank and there is no justification in saying that GST is paid only when the electronic cash or credit ledger is debited and a return is filed.

It is felt that instead of bringing retrospective amendments to Section 39(1) / Rule 61 etc., a proviso can be inserted in Section 49 clearly specifying the due date for payment of tax and the explanation (a) thereunder can be amended to state that 'the amount of deposit into Government account through authorised bank shall be construed as payment of tax'. Similarly, the expression 'tax due as per such return' in Section 39(7) can be substituted with the expression 'tax due for the tax period' and the expression 'as per the return' in sub-clause (a) of Rule 86(2) can be deleted.

Such measures could provide certainty and put to rest the disputes and legal tangles giving bigger than life size significance to Section 50.

[The views expressed are strictly personal.]