GST update no. 93rd on whether TCS deducted by E Commerce Operator available in electronic cash ledger is admissible as refund?

It is well known that obtaining refund from the tax department is a herculean task which requires lot of patience and efforts, especially when there is no clear-cut provision of refund. One of the situations, where assessees are being stuck for claiming refund is the excess balance in the electronic cash ledger accumulating due to deduction of TCS by electronic commerce operator (ECO) which the supplier of goods is unable to utilise. Similar issue was recently raised before the hon’ble Telangana High Court in the case of M/S. APPARIO RETAIL PRIVATE LIMITED, VERSUS THE UNION OF INDIA. The outcome of this decision is the subject matter of discussion of our present update. The petitioner contends that it is engaged in the business of trading of electronic goods over e-commerce platform by obtaining registration under the provisions of Goods and Service Tax Laws; that the petitioner procures electronic goods from various vendors based on forecasted demand of business and maintains huge inventory for the purpose of ensuring timely deliveries; that as a result of purchases effected by it, a very high balance of input tax credit of GST paid on its purchases is available in the electronic credit ledger; that on receiving orders through Electronic Commerce Operator (for short, ‘ECO’), the sale is affected through ECO and goods are dispatched to customers; and that the tax liability is discharged by the petitioner by debiting the Electronic Credit ledger. The petitioner would further contend that upon effecting the sale through the e-platform of ECO, the consideration is received by the ECO from the customers and is remitted to the petitioner thereafter. The ECO, before remitting the amount for the supply of goods effected through it to customers, retains a percentage of amount from and out of such consideration received and deposits such amount retained by the ECO with the Government in terms of Section 52 of the CGST Act as ‘Collection of tax at source’; and that the such deposit of amount made by the ECO with the Government is allowed to be claimed as credit by the petitioner in the electronic cash ledger of the petitioner, on the basis of the statement filed by ECO in Form GSTR-8 in terms of Rule 67 of the Central Goods and Services Tax Rules, 2017. The petitioner also contends that due to maintenance of huge inventory on account of purchases affected to meet the forecasted demand, the petitioner invariably has excess balance of ITC in its electronic credit ledger, which is utilized for discharge of GST liability, as and when sale of goods is effected through ECO, and therefore, the amount retained by the ECO and deposited with the Government under Section 52 of the CGST Act, as tax collected at source and reflected in petitioner’s electronic cash ledger remains unutilized; The petitioner seeks to claim refund of the said unutilized balance in the electronic cash ledger in terms of Section 49(6) read with Section 54 of the CGST Act. The said refund was earlier granted by the proper officer initially but was later rejected on due to review by higher authority. The petitioner also contended that the CBIC, vide Circular No.125/44/2019/GST, dt.18.11.2019, has clarified that refund of excess balance in electronic cash ledger arising on account of TCS can be claimed under the category of ‘refund of excess balance in electronic cash ledger’ and that a CA certificate was also furnished in terms of Rule 89(2)(n) of the CGST Rules, in support of the fact that incidence of amount paid and claimed as refund, i.e. TCS, credited to electronic cash ledger, has not been passed to any other person. The departmental authorities contended that there is no provision under Section 54(1) for refund of TCS under deposited Section 52 of the CGST Act; that the Circular dt.18.11.2019 allows refund of TCS – TDS, only when the same has been erroneously deposited in excess, under wrong head; that as the case of the petitioner is not an erroneous deposit in excess under wrong head, refund would not be admissible. It was also pleaded that as the amount deducted by ECO is not a ‘tax’, refund is not admissible to the petitioner. The High court after analyzing the necessary provisions observed that any person can deposit amount in the electronic cash ledger of an assessee and once any amount is deposited, the said amount is credited in the name of such person. Consequently, the amount of TCS appearing in the electronic cash ledger of the petitioner is valid balance, the refund of which can be claimed by them. As regards, the contention that the amount of TCS is not to be considered as ‘tax’, the High Court held that it is to be treated as ‘tax’ because collection under section 52 pertaining to TCS falls under chapter X dealing with payment of tax. If it all it is considered that amount is not ‘tax’, then it is being collected without authority of law. Reliance was also placed on the FAQ released by CBIC confirming that refund of TCS credited in electronic cash ledger is available to the supplier. The High Court also turned down the issue of maintainability of writ petition on the grounds of alternate remedy available to the petitioner by stating that even after more than 3 years of implementation of GST, Appellate Tribunal has not been constituted and petitioner cannot be compelled to wait for eternity to agitate its refund claim which has adverse impact on its cash flows. Hence, the High Court allowed refund to the petitioner. The above decision is yet another example that relief is granted to the assessee only by knocking the doors of High Court which is quite an expensive affair. The issue being disputed was very clear that the amount deposited as TCS in electronic cash ledger of the supplier should be granted as refund if the same is not being utilised by the supplier but the refund was denied on flimsy grounds that the supplier cannot claim refund of amount deposited by e-commerce operator as TCS. It is often observed that the refund claims are rejected for reasons that are not supported with the provisions of Statue and the present case was an illustration of the same. It is hoped that the issues are resolved at an early stage so that high litigation costs to be incurred for petitions in courts is not incurred by the assessees.

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GST update no. 93rd on whether TCS deducted by E Commerce Operator available in electronic cash ledger is admissible as refund?

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