Royale Edible Company VS The State Tax Officer

The petitioner, a partnership firm operating an industrial unit manufacturing coconut oil from copra, primarily sells its products to SUPPLYCO and FACT, who deduct tax at a 2% rate according to Section 51 of the GST Act. To comply with GST Act regulations, the petitioner maintains two electronic ledgers: the Electronic Cash Ledger and the Electronic Credit Ledger, as mandated by Section 49 of the CGST Act. The Cash Ledger records deposits made toward taxes, interest, penalties, fees, or any other payable amount, while the Credit Ledger records Input Tax Credit based on self-assessment. Section 49 outlines the procedure for utilizing amounts in these ledgers for payment of output tax and other dues under the GST Act. The petitioner contends in their writ petition that the tax deductions by SUPPLYCO and FACT have impacted their financial position significantly.

Further, the petitioner argues that the excess amount already present in their Electronic Cash Ledger, which stood at Rs. 93,38,884/- as of April 30, 2019, was augmented by the tax deductions made by SUPPLYCO and FACT. This surplus, the petitioner claims, was unnecessary to maintain in the ledger, especially considering they had no outstanding liabilities under the Act. Consequently, the petitioner submitted applications to the authorities seeking a refund of this excess amount, which were later rejected by the 2nd respondent through Ext.P4 order. The rejection was based on Section 51 of the CGST Act, asserting that since there was no over or erroneous deduction by the tax deductors, the refund could not be processed under Section 54 of the Act. Although the petitioner appealed this decision, they have now approached the court through a writ petition, contesting the rejection of their refund claim primarily on the grounds that the 2nd respondent’s decision was erroneous.

In response, a statement filed by the 2nd respondent outlines the events leading to the issuance of Ext.P4 order, justifying it as compliant with Sections 51 and 54 of the CGST Act. The statement argues that according to Section 51(8) of the Act, refunds concerning excess or erroneous deductions in Tax Deducted at Source (TDS) should adhere to Section 54. Since the petitioner’s refund claim did not fall under either category, Section 54 was deemed inapplicable.

Upon hearing arguments from both parties, the court finds that the 2nd respondent misinterpreted the petitioner’s claim and the relevant provisions of Sections 51 and 54 of the CGST Act. It is observed that the petitioner’s claim did not fit within the parameters of the sections cited by the respondent. Thus, the rejection of the petitioner’s refund claim appears to be based on a misunderstanding of both the nature of the claim and the statutory provisions.

In the writ petition and upon reviewing the claim for refund filed by the 2nd respondent, it becomes apparent that the petitioner sought a refund of the remaining balance in their Electronic Cash Ledger, maintained in accordance with statutory provisions. Section 54(1) addresses claims for refund of any tax, interest, or other amounts paid by the taxpayer, while the proviso to Section 54(1) specifically deals with claims for refund of any balance in the Electronic Cash Ledger. This provision must be understood alongside Section 49(6), which states that the balance in the Electronic Cash Ledger, after the payment of various dues under the Act, may be refunded in accordance with Section 54.

The scheme of these provisions indicates that whenever amounts are credited into the Electronic Cash Ledger as per statutory requirements, and after fulfilling all liabilities, a balance remains in the ledger, the taxpayer is entitled to claim a refund of that balance under the first proviso to Section 54. In the current case, it is undisputed that during the relevant period for the refund claimed by the petitioner, there were no outstanding liabilities towards tax, interest, penalty, or any other dues under the Act. Therefore, the petitioner’s claim for refund of the balance in their Electronic Cash Ledger seems to be in line with the provisions of the CGST Act.

The petitioner, in their claim for refund, sought reimbursement of the surplus balance in their Electronic Cash Ledger, which was maintained in compliance with statutory provisions. Section 54(1) of the CGST Act pertains to refund claims for tax, interest, or other amounts paid by the taxpayer, with its proviso specifically addressing refunds of any balance in the Electronic Cash Ledger. This provision aligns with Section 49(6), indicating that after settling all dues under the Act, any remaining balance in the ledger can be refunded in accordance with Section 54.

It’s evident from the proceedings that the petitioner’s claim didn’t involve disputing excessive or erroneous deductions by SUPPLYCO/FACT. Therefore, there was no basis for the 2nd respondent to treat the claim under Section 51(8) of the Act. The only task for the 2nd respondent was to determine if there was a surplus in the Electronic Cash Ledger after settling the petitioner’s liabilities, which, if present, necessitated refunding to the petitioner.

Given these considerations, the court concludes that the 2nd respondent’s Ext.P4 order cannot stand legally. The order is therefore annulled, and the 2nd respondent is instructed to ascertain any excess amount in the petitioner’s Electronic Cash Ledger after accommodating any confirmed liabilities under the Act. Subsequently, the 2nd respondent must refund this excess amount to the petitioner within three weeks from the date of receiving the court’s directive.

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