GST Update No 145 on amended Section 49 of CGST Act, 2017

The GST Law was formulated with the objective of ‘simple and easy tax’ but in reality, the picture is very different. It was expected that a single rate of tax would be notified but on the contrary, CGST, SGST, IGST, Cess, Union Territory Tax were notified with complex mechanism of utilisation of the taxes for discharge of liability. The restriction as regards set-off of CGST and SGST was also not perceived by the taxpayers. Nonetheless, one beneficial amendment that has been recently implemented was the transfer of taxes between different heads by the assessee by filing GST PMT-09 vide notification no. 31/2019-Central Tax dated 28.06.2019. Taking the benefit one step further, Union Budget 2022-23 has further amended section 49 of the CGST Act, 2017 to make changes in transfer of the tax paid in electronic cash ledger and to restrict the payment of taxes by utilisation of credit. The analysis of the amended section 49 is the subject matter of discussion of our present update. Section 49(10) of the CGST Act, 2017 has been substituted to provide that a registered person may transfer any amount of tax, interest, penalty, fee or any other amount available in the electronic cash ledger under this Act to any other head. It has been also specified that registered person may also transfer any amount of tax to the electronic cash ledger for IGST or CGST of a distinct person. However, no transfer to distinct person can be made if the said registered person has any unpaid liability in his electronic liability register. The above provision is appreciated as it seeks to provide an opportunity to the registered person to transfer the excess paid tax under any head to another head or to distinct person because we all know that claiming refund from department is tedious task. The lucrative part of the provision is that the amount can also be transferred to the distinct person as IGST/CGST. However, one needs to ponder as to the reason why the amount cannot be transferred as SGST. Probably, the reason for transfer of the amount to IGST/CGST is that they pertain to Central Government. However, in our opinion, the excess tax paid in one particular head is equivalent to cash and there should not be embargo in transferring the same to the distinct person. It is pertinent to point here that during the initial stages of the implementation of GST regime, the assessees expected that they will be able to avail input tax credit of CGST portion irrespective of the fact that it pertains to any State. However, the reality is that assessee can avail input tax credit of CGST of the State in which he is registered under GST Laws. Consequently, when the input tax credit of CGST of any other State is not allowed, the logic of allowing transfer of excess tax paid as CGST is not understandable. Another probable reason for restricting the transfer of excess tax as SGST is that as per utilisation of tax norms, no set-off is possible between CGST and SGST. In our opinion, the above amendment is with respect to payment of excess tax which has no relation with the availment of input tax credit. Consequently, the restriction of transferring the amount as IGST/CGST is irrational and the tax should be allowed to be transferred under any head of distinct person. In this context, it is worth mentioning that even prior to the enactment of this provision, hon’ble Kerela High Court in the case of SAJI S VS COMMISSIONER, STATE TAX DEPARTMENT [2018-TIOL-162-HC-KERALA-GST] has held that GST paid under wrong head by mistake can be transferred to the right head. Consequently, the mechanism of PMT-09 and the present amendment followed the decision which is fruitful to the taxpayers. Furthermore, the section 49(12) has been inserted to provide that the government may, on the recommendations of the Council, subject to such conditions and restrictions, specify such maximum proportion of output tax liability under this Act or under the Integrated Goods and Services Tax Act, 2017 which may be discharged through the electronic credit ledger by a registered person or a class of registered persons, as may be prescribed. The above amendment seems to provide legal backing to the provision contained in Rule 86B of CGST Rule wherein the certain taxpayers are required to pay a minimum of 1% of their output tax liability in cash. It is worth noting that the restriction contained as regards utilisation of input tax credit balance for payment of taxes as contained in Rule 86B of the CGST Rules, 2017 was introduced vide notification no. 94/2020-Central Tax dated 22.12.2020 by exercising the general rule making power of the government provided under section 164 of the CGST Act, 2017. However, as it is observed in the past that the provisions are challenged before the Courts for legal backing, the government has made specific provision in section 49(2) of the CGST Act, 2017. To sum up, the amendment made in section 49 is little sweet little sour as the provision of transferring excess tax to the distinct person is beneficial to the assessee whereas the provision restricting the utilisation of input tax credit for discharging output tax liability is not at all proper. This is for the reason that the payment of tax by utilizing credit is valid mode for which no restriction should be imposed. It is submitted that the government should not have any objection if entire credit balance is used for discharging tax liability as the credit earned is also tax paid to the government by the supplier. Consequently, the provision needs to be re-considered and will be definitely challenged before the Courts of law.

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GST Update No 145 on amended Section 49 of CGST Act, 2017

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