S.49 CGST Act | Gujarat High Court Upholds Bail in GST Case, Reaffirms That Once Penalty Deposited in Electronic Cash Ledger Is Credited to Government, Tax Liability Stands Discharged
Sanchayita Lahkar
The High Court of Gujarat, Single Bench of Justice Divyesh A. Joshi rejected a plea by the tax department to cancel the bail of an accused in a GST-related case, holding that the bail condition of depositing ₹90 lakh had been duly met. The Court held that once a penalty, interest, fee or similar amount deposited by a registered person in the electronic ledger is credited to the government’s account, the tax liability stands discharged to that extent. The dispute centered on whether the deposit in the electronic cash ledger without an immediate debit entry under Form GST DRC-03 amounted to compliance, which the Court affirmed.
The case arose from allegations against respondent Virbhadrasinh Pratapsinh Chauhan for non-compliance with statutory provisions under the Central Goods and Services Tax (CGST) regime, leading to alleged financial losses to the Government Exchequer. Following investigation and arrest, Chauhan applied for bail before the High Court. During the bail proceedings, it was submitted that the accused had already deposited Rs. 60 lakhs and had agreed to deposit an additional Rs. 90 lakhs within seven days as part of the conditions for bail. Accordingly, the Court granted bail on the condition that the respondent would deposit the specified amount within the given period.
The applicant later moved for cancellation of bail, arguing that the respondent failed to comply with the Court’s directive. It was contended that although Rs. 90 lakhs had been deposited in the company’s Electronic Cash Ledger, it was not debited through Form GST DRC-03, and hence, could not be considered as payment to the Government Exchequer. The applicant submitted that the credited amount could still be utilized by the respondent and that the undertaking to make a debit entry had not been fulfilled, constituting a breach of bail conditions.
In response the respondent, argued that the respondent had fulfilled the conditions within the permissible timeframe. He presented records showing withdrawal of Rs. 90 lakhs on 1 November 2024 through cheques credited into Government accounts—Rs. 45 lakhs each into CGST and SGST portals. He also submitted the corresponding receipts and challans validated by the competent authorities. He cited Section 49 of the CGST Act, 2017, asserting that once the amount is credited to the Government’s account in an authorized bank, the liability stands discharged. He stated that filling Form GST DRC-03 would prejudice the respondent’s right to appeal in pending proceedings. The respondent further undertook not to use or claim refund of the said amount.
The Court referred to the statutory explanation 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.” The Judge noted that this provision was crucial in determining whether the respondent had met the bail condition.
The Court also relied on the Gujarat High Court’s earlier Division Bench decision in Arya Cotton Industries v. Union of India [2024] 164 taxmann.com 2 (Gujarat). Citing paragraph 24 of that judgment, the Court quoted: “It is therefore held that the tax amount which has already been credited to the Government by depositing an electronic cash credit ledger by the petitioner is required to be considered as a payment of tax which gets adjusted at the time of filing of the return by debit in the electronic cash ledger as per the scheme of the CGST Act.”
Justice Joshi recorded that “there is no breach of terms and conditions on the part of the respondent no.1 herein.” The apprehension raised by the applicant regarding the possible use of the funds by the respondent was held to be unfounded, particularly since the respondent had expressed willingness to file an undertaking not to utilize or seek refund of the deposited amount.
The Court further remarked that the parameters for granting bail and those for its cancellation were “quite different and distinct,” stating adherence to principles laid down by the Supreme Court regarding cancellation of bail. Justice Joshi stated that “considering the above-stated factual aspects of the facts of the matter, I am of the considered opinion that the present application for cancellation of bail is required to be rejected.”
The Court held: “Considering the Section 49 of the Central Goods and Services Tax Act, 2017 and para-24 of Arya Cotton Industries (supra), which clearly go on to show that the amount once debited from the person concerned and credited into the Government account, in that event, the tax liability of such registered person stands discharged on the said date.” The Judge found that the apprehension about possible future use of the funds was not tenable in light of the respondent’s voluntary undertaking not to use or claim refund for the same.
“In view of the above, I do not find any reason to entertain the present application as there is no breach of terms and conditions on the part of the respondent no.1. Hence, the present application is hereby rejected. Notice is discharged.”
Advocates Representing the Parties
For the Applicant: Ms. Hardika Vyas, Advocate for the Superintendent (AE), Central GST and Central Excise, Gandhinagar
For the Respondents: Mr. Apurva N. Mehta, Advocate, Mr. Rohan Shah, Additional Public Prosecutor
Case Title: Superintendent (AE) Thro Arihant Kumar Jain v. Virbhadrasinh Pratapsinh Chauhan & Anr.
Case Number: R/Criminal Misc. Application (for Cancellation of Bail) No. 24758 of 2024
Bench: Justice Divyesh A. Joshi
