AUGUST 09, 2019

By Rohini Mukherjee

WHILE litigations under the erstwhile central excise and service tax laws continue under the GST regime as well, the requirement of depositing an amount towards pre-deposit when filing an appeal also continues. This mandate gives rise to an inevitable question: whether credit can be utilised for such payment?

As far as arrears of tax under the erstwhile laws are concerned, the transitional provision under GST law under Section 142 of the Central Goods and Services Act, 2017 (CGST Act) lays down that where the amount of tax, interest, fine or penalty becomes recoverable under any proceedings under the erstwhile laws, the same would be recovered as an arrear of tax under the CGST Act.

In this context, Circular No. 42/16/2018-GST dated 14.03.2018 addressed certain issues regarding procedure for recovery of arrears under the existing law and reversal of inadmissible input tax credit. With respect to the arrears of central excise duty, service tax or wrongly availed CENVAT credit under the erstwhile laws, the Circular has clarified that the same would be recovered as central tax liability to be paid through the utilization of amounts available in the electronic credit ledger or electronic cash ledger of the registered person.

On the specific question of the mode of payment, the aforesaid Circular further clarifies that such arrears of central excise and service tax can be paid through utilization of amounts available in the electronic credit ledger or electronic cash ledger. In effect, the arrears can be paid via cash or credit so option of payment through credit is open.

On the other hand, with respect to the payment of interest, late fee and penalty, the Circular clarifies that such amounts are required to be paid through Electronic Cash Ledger only.

While the above Circular clarifies the position regarding payment of arrears of tax and other payments such as interest, late fee and penalty, the Circular is silent on the payment of pre-deposit.

This brings us to the question, whether payment of pre-deposit can be placed on the same footing as payment of arrear of tax? If this is answered in the affirmative, then the circular would apply to payment of pre-deposit as well.

Insofar as the position under the erstwhile regime is concerned, there are judicial decisions [Cadila Healthcare Pvt. Ltd. - 2018-TIOL-1236-HC-AHM-CX, Hindprakash International Pvt. Ltd vs. Commissioner of S.T., Ahmedabad -   2014-TIOL-2225-CESTAT-AHM wherein adjustment of credit for payment of pre-deposit has been allowed. Given this, the moot question is whether the same position continues now as well?

This question came up recently before the Bangalore Tribunal [Dell International Services India Pvt. Ltd. - 2019-TIOL-286-CESTAT-BANG] wherein objection was raised by the CESTAT Registry that the appellant is required to pay 7.5%/10% of the duty/tax as pre-deposit and file proof of the same. The Tribunal noted that the appellant has already reversed 7.5% of the duty demanded through CGST and had indicated the same in Column 4B(2) of GSTR-3B. In this decision, relying on Circular No. 58/32/2018-GST dated 04.09.2018 and Circular No. 42/16/2018-GST dated 13.04.2018, the applicant submitted that the Circular very clearly states that the arrears of Central Excise duty, Service Tax or wrongly availed CENVAT credit under the existing law is permissible to be paid through the utilization of amounts available in the electronic credit ledger. The Tribunal accepted the submissions of the appellant and held that the objection raised by the Registry was untenable.

While the Tribunal decision above supports the argument that pre-deposits can be made by utilising the amount lying in Electronic Credit Ledger, the lack of suitable clarification on the same lines as 'arrears of tax' leaves the question open to interpretation. As the payment of pre-deposit for filing appeal is a regular occurrence, there is an imminent need for clarity on this front.

[The author is Joint Partner, Lakshmikumaran & Sridharan and the views expressed are strictly personal.]