The Andhra Pradesh High Court addressed a case involving Sona Enterprises, a GST-registered dealer, who faced proceedings under Section 74 of the CGST Act due to an omission in debiting their electronic cash ledger, despite having deposited the GST amount. This procedural oversight was discovered during an audit. The petitioner argued that the error was due to a misunderstanding of new GST procedures, not an attempt to evade taxes.
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The court examined whether the delayed debit and subsequent ITC claim amounted to suppression or tax evasion. It ruled that simply depositing money into the electronic cash ledger does not equate to GST payment; the tax is only considered paid once debited and appropriated to the government account. Although Sona Enterprises eventually made the necessary debit, they were still liable for interest on the delay.
The court found that recovering ITC was unjustified once the tax was appropriated, as ITC should not be availed before valid tax payment. However, the department could not reclaim both the tax and the corresponding ITC, rendering that part of their order legally unsustainable. The court emphasized that determining whether the omission was inadvertent or deliberate requires a factual examination by the adjudicating authority before imposing penalties under Section 74.
The court also noted a procedural defect in the assessment order, as it combined different tax periods into one adjudication. Consequently, the court set aside the impugned order, remanding the matter for separate assessments for each tax period, ensuring the petitioner's objections were independently considered.
Order Date - 27 April 2026
Parties: Sona Enterprises (Prop. Shafi Mohmad) Vs State of Andhra Pradesh & Additional Commissioner, Central GST, Visakhapatnam
Facts -
- Petitioner Sona Enterprises, a registered GST dealer engaged in scrap trading, purchased scrap from Indian Railways and was liable to pay GST under the Reverse Charge Mechanism (RCM). During audit, it was found that although GST was deposited into the electronic cash ledger, the amount was not debited to the Government account, while corresponding ITC had already been claimed.
- They explained that the tax amount had been deposited within time and the failure to debit the electronic cash ledger was due to ignorance of the new GST procedure, believing the earlier VAT practice of mere deposit was sufficient. The debit entries were made immediately after the audit pointed out the omission.
- The petitione was nevertheless subjected to proceedings under Section 74 of the CGST Act. The department treated the omission as suppression of facts, raised tax, interest and substantial penalties, and also sought recovery of ITC alleged to have been wrongly availed.
- They challenged the assessment before the Andhra Pradesh High Court, arguing that there was neither fraud nor wilful suppression and that the mistake was procedural rather than an attempt to evade tax.
Issue -
- Whether delayed debit of GST from the electronic cash ledger and consequent availment of ITC automatically amounts to suppression or tax evasion?
Order -
- The Court held that depositing money into the electronic cash ledger alone does not constitute payment of GST. Tax is considered paid only when the amount is debited and appropriated to the Government account. Since the petitioner made the debit later, the GST liability stood discharged, but interest for the delay remained payable.
- The Court observed that wrongful availment of ITC could not justify recovery once the underlying tax was subsequently appropriated to the Government. While ITC cannot be availed before valid payment of tax, the department could not recover both the tax already appropriated and the corresponding ITC, making that part of the order legally unsustainable.
- The Court further held that whether the omission to debit the electronic cash ledger was an inadvertent mistake or deliberate suppression is a pure question of fact. Such determination requires proper examination of the taxpayer's explanation and evidence by the adjudicating authority before invoking Section 74 and imposing penalties.
- The Court also found that the assessment order suffered from a procedural defect because it combined two different tax periods into a single adjudication. Accordingly, it set aside the impugned order and remanded the matter for fresh, separate assessment orders after considering the petitioner's objections independently for each tax period.
