MARCH 14, 2019

By Sonal Singh, Advocate

APPEAL provisions under most Indirect Tax legislations in the erstwhile regime came embedded with the condition of depositing a portion of the disputed amount at the time of filing of the appeal. For instance, in terms of Section 35F of the Central Excise Act, 1944, (applicable to appeals under Central Excise Act as well as the Finance Act, 1994) the Tribunal or the Commissioner (Appeals) as the case may be, were mandated to not entertain any appeals unless the assessee-appellant deposited 10% or 7.5% of the duty/tax respectively.

Value Added Tax legislations were no exception to such conditions. While some VAT legislations required only a percentage of disputed tax to be deposited, others required the assessee to deposit a certain percentage of the entire disputed amount including interest and penalty. The percentage of deposit required to be made under different State VAT legislations also ranged anywhere from 10% to 50%. While some States required the deposit as a mandatory pre-condition for admission of the appeal itself, others required such deposits to be made for the purpose of obtaining stay from recovery of the remaining portion of the demand.

In regard to the pre-deposits to be made under Central Excise or Service Tax, the assessee had an option of making the pre-deposit either by way of cash or by reversing CENVAT credit. Such options enabled the assessee to make payment of pre-deposit without affecting their cash flow.

Under the State VAT legislations, the only manner of making pre-deposit was by way of cash/challan. Notably, the percentage of pre-deposit to be made under most VAT legislations was also considerably higher than the pre-deposit mandated under Excise and Service Tax legislations. This created tremendous financial hardships for the assessee as a pre-deposit would directly impact the cash flow even if they had very strong case in their favour.

The question that arises now is, with the advent of GST, can this difference be ironed out and assessee would be allowed to make payment of pre-deposit for ongoing VAT litigations by utilising the SGST credit and debiting the electronic credit ledger. A close reading of relevant provisions is made hereinunder to understand if the provisions under the SGST Act(s) enable the deposit through the Electronic credit ledger.

Section 142(6)(b) and Section 142(7)(a) of the SGST Acts enacted by all the States stipulate that every proceeding of appeal, revision, review or reference relating to recovery of input tax credit/ output tax liability initiated whether before, on or after the appointed day under the existing law shall be disposed of in accordance with the provisions of the existing law, and if any amount of credit/tax becomes recoverable as a result of such appeal, revision, review or reference, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act.

Similarly, in terms of Section 142(8)(a) where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day under the existing law, any amount of tax, interest, fine or penalty becomes recoverable from the person, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act.

Thus, recovery of Value Added Tax and input tax credit arising out of assessment proceedings or litigation under the State VAT legislations initiated before, on or after 01.07.2017 is required to be made as an arrear of tax under the SGST Act(s).

In furtherance of such legislative mandate, various States have issued circulars and clarifications to the effect that arrears of VAT or wrongly availed input credit in terms of erstwhile VAT legislations may be recovered as State tax liability to be paid through the utilisation of amounts available in the electronic credit ledger or electronic cash ledger of the registered person.

Reference may be made to Circular No. KSA/GST/CR-108/2018-19 dated 16.04.2018 issued by the Government of Karnataka. Similar clarifications have also been issued by the Government of Haryana vide a circular dated 21.02.2019, Government of Delhi vide a circular dated 25.04.2018 and Government of West Bengal vide a circular dated 16.04.2018.

Now, these circulars restrict the application of the aforesaid provisions to recovery of arrears by debiting the electronic ledgers under GST. However, a pre-deposit being a portion of liability created under the erstwhile regime which is deemed to be a proceeding under the GST Acts, should be given the same treatment and be allowed to be made by debiting the electronic ledgers under SGST.

It is noteworthy that akin to aforesaid circulars issued by the State Government, circular no. 42/16/2018-GST dated 13.04.2018 read with Circular No. 58/32/2018-GST dated 04.09.2018 was issued by CBIC stating that recovery of arrears arising under erstwhile laws shall be made as central tax liability which can be paid by utilising amount available in electronic credit ledger or electronic cash ledger of the registered person. In the case of Dell International vs. Commissioner of Central Tax when the Appellant sought to pay the pre-deposit through Central Goods and Services Tax Credit, the same was objected to by the CESTAT Registry and the case was placed before the bench for adjudication. Vide an Interim No. 105/2018 order dated 13/12/2018 2019-TIOL-286-CESTAT-BANG, the Hon'ble CESTAT Bangalore after noting the aforesaid circulars held that the objections raised by the registry was untenable, thus, allowing pre-deposit to be made by debiting the electronic credit ledger.

In view of the above, it can be said that payment of pre-deposit for appeals filed under the erstwhile VAT legislations must also be similarly allowed to be made by utilising SGST credit available in the electronic credit ledger of the registered person. When the provisions under the SGST and CGST Act are alike and so are the aforesaid circulars issued under the SGST and CGST Acts, enabling recovery of arrears by utilising credit, then the position as regards payment of pre-deposit under Central and State legislations shall also be alike. Such a stance would be in line with the legal provisions under the SGST Act and will also bring great respite to the assessee dealers desirous of challenging re-assessment orders passed under the State VAT Acts.

What's good for the goose must be good for the gander - Tribunal in Picasso Overseas - 2005-TIOL-362-CESTAT-MUM

(The author is Principal Associate, Lakshmikumaran & Sridharan, Bangalore and the views expressed are strictly personal.)