OCTOBER 13, 2021

By Vijay Kumar

FOR a First Appeal to be filed before the Appellate Authority, as per Section 107 of the CGST Act, the appellant has to pay -

(a) in full, admitted amount of tax, interest, fine, fee and penalty; and

(b) a sum equal to ten per cent. of the remaining amount of tax in dispute subject to a maximum of twenty-five crore rupees, in relation to the appeal.

Similarly for an appeal to the GST Appellate Tribunal, under Section 112, the appellant has to pay -

(a) in full, admitted amount of tax, interest, fine, fee and penalty arising from the impugned order, and

(b) a sum equal to twenty per cent. of the remaining amount of tax in dispute, in addition to the amount paid for the first appeal, subject to a maximum of fifty crore rupees, in relation to the appeal.

So, to file an appeal before the GST Appellate Tribunal, the appellant has to make a pre-deposit of about one-third of the tax demanded.

How to pay this pre-deposit? Can the credit in the electronic credit ledger be utilised for payment of this deposit?

This problem is as old as the original modvat credit. Just like the electronic cash ledger and credit ledger now, there was a Personal Ledger Account - PLA (the cash ledger) and a RG-23 Part-II (the credit ledger). Then also the question arose whether the pre-deposit for an appeal to the Tribunal could be made from the credit register.

In Haryana State Electricity Board V Collector of C. Ex., New Delhi - 1994 (73) E.L.T. 588 (Tribunal), the CEGAT, (as the CESTAT was then called) allowed the applicant's prayer for payment of pre-deposit by debit in RG 23 Part II. The Tribunal held that the amount may be paid either by debit or by PLA or by cash.

In Jhalani Tools (I) Ltd. V Commissioner of Central Excise, New Delhi - 1997 (95) E.L.T. 105 (Tribunal), the Tribunal held that the appellants will be at liberty to pay the pre-deposit by adjustment in PLA/RG 23 Part II.

In Birla Yamaha Ltd. V Collector of Central Excise, Meerut - 2002-TIOL-456-CESTAT-DEL-SB, a Larger Bench of the Tribunal held:

It is true that what is required to be done at this stage is deposit under the statute and what can be given credit to for the Modvat amount is duty. If the appellant had not filed the appeal, he should certainly be given credit for the amount of duty out of the Modvat credit to the extent of the Modvat credit. The effect of filing of appeal cannot be that he is temporarily deprived of the right to adjustment out of the Modvat credit and should deposit the amount over again. That would amount to a double payment in the sense the amount lying to his credit continues to lie in the account and he has to make a cash deposit. The statutory provision regarding deposit came into existence long before the Modvat credit system was introduced. With the introduction of the Modvat, the statutory provision of deposit has to be understood in the light of the Modvat system. That being so, it appears reasonable to hold that to the extent of credit available in the Modvat credit account, it will be possible for the appellant before the Tribunal to get credit by temporary adjustment to the extent to which adjustment can be made. This is what the Tribunal did in the cases earlier..

In Manak Moti Forgings Pvt Ltd Vs Commissioner of Central Excise, Aurangabad - 2010-TIOL-1863-CESTAT-MUM, the appellate authority directed the appellant to pre-deposit an amount of Rs. 1.00 lakh. The appellant debited the amount in their MODVAT account and claimed that they had complied with the direction for pre-deposit under Section 35F. The appellate authority did not accept this to be 'due compliance' with Section 35F. He took the view that the above amount of Rs. 1.00 lakh should have been deposited through TR-6 challan. On this basis, the assessee's appeal came to be dismissed for non-compliance with Section 35F.

And the matter reached the CESTAT.

The Tribunal - 2010-TIOL-1863-CESTAT-MUM observed, "we are of the view that pre-deposit of the duty amount by way of debit in MODVAT account can be accepted as sufficient compliance with Section 35F and, therefore, the assessee need not be called upon to make any payment towards penalty through TR-6 challan.

The CESTAT registry had issued a Circular - in F. No. 15/CESTAT/General/2013-14, Dated:August 28, 2014 clarifying that if mandatory deposit is made from CENVAT account, appeal will be registered.

In Manaksia Ltd. V Commissioner Of Central Excise, Haldia- 2017 (354) E.L.T. 415 (Tri. Kolkata), the Tribunal observed,

Similarly, in the case of demand of duty, if Cenvat credit is permissible for payment of tax, the same can always be debited from Cenvat Account of an assessee. As per procedure followed by CESTAT Registry at Kolkata, payments made from Cenvat Credit Account are considered as due payments for considering as deposit under Section 35F(ii) and (iii) of Central Excise Act, 1944. First Appellate Authority could have a view if debit of mandatory deposit was with respect to personal penalty or payment of interest.

In view of the above observations, the view taken by the First Appellate Authority, that deposit under Section 35F(i) cannot be made from Cenvat Credit Account, is not the correct appreciation of law so long as the Cenvat credit is permissible for utilisation as per Rule 3(4) of the Cenvat Credit Rules, 2004. Accordingly, appeal filed by the appellant is allowed by way of remand to the ld. Commissioner (Appeals) to decide the appeal on merits without insisting on any further pre-deposit.

The Gujarat High Court in the case of CADILA HEALTH CARE PVT LTD - 2018-TIOL-1236-HC-AHM-CX held -

"Pre-deposit made by the petitioners by availing cenvat credit shall be accepted for the purpose of section 35F of the Central Excise Act."

So, the understanding so far may be that the money in the Electronic Credit Ledger can be used for making the huge mandatory deposits under the GST laws. Logically and logistically it sounds good too. No more. The Orissa High Court last week held otherwise.

If credit is available in the credit ledger, what is the problem in allowing it to be used for pre-deposit? Or why should a taxpayer pay cash when credit is available in his account? And if tax can be paid from the credit ledger, why not deposit, which is after all a temporary payment and the taxpayer can claim refund if he wins the case, which he would in most cases. After all credit is also money already paid to the government. Well, that is the trick - the money in your credit account is already with the government and must have already been spent. For our welfare, the government needs more money and how will more money come if audacious assessees choose to file appeals and use the credit for pre-deposit?

The CGST laws contain some interesting provisions:

1. The credit shall be utilised only for payment of self- assessed output tax - Section 41(2)

2. The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the provisions of this Act or the rules made thereunder in such manner and subject to such conditions and within such time as may be prescribed - Section 49(3)

3. The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act. - Section 49(4)

4. The amount deducted under section 51, or the amount collected under section 52, or the amount payable on reverse charge basis, or the amount payable under section 10, any amount payable towards interest, penalty, fee or any other amount under the Act shall be paid by debiting the electronic cash ledger maintained as per rule 87 and the electronic liability register shall be credited accordingly. - Rule 85(4)

Does this give an impression that the GST laws never intended to allow payment of pre-deposit from the credit ledger?

Orissa High Court Judgement last Wednesday - 2021-TIOL-2007-HC-ORISSA-GST: The High Court held:

1. It is not possible to accept the plea of the Petitioner that "Output Tax", could be equated to the pre-deposit required to be made.

2. Further, Section 41 (2) limits the usage to which the ECRL could be utilised. It cannot be debited for making payment of pre-deposit at the time of filing of the appeal.

3. It is not therefore possible to accept the plea that Section 107 (6) of the Act is merely a "machinery provision".

4. It is not possible in the present case to equate the output tax payable to the amount of pre-deposit required to be made. There is world of difference between an amount which is refundable and an amount which is liable to be paid as output tax. Here there is no amount refundable to the Petitioner which could be utilized for making of payment of the pre-deposit.

5. The Court is unable to find any error having been committed by the appellate authority in rejecting the Petitioner's contention that the electronic credit ledger ( ECRL) could be debited for the purposes of making the payment of pre-deposit.

Interestingly in Dell International Services India Pvt Ltd Vs Commissioner of Central Tax - 2019-TIOL-286-CESTAT-BANG, the CESTAT allowed pre-deposit in a service tax case to be made from CGST Credit!

GST Appellate Tribunal is yet to start functioning, but before that we have to settle this issue. The only way is for the Government to amend the laws and/or clarify that payment from the Credit Ledger is as good as from cash ledger. Otherwise, taxpayers will have to run around to organise cash to pay the already backbreaking deposit in the tribunal while credit in their account will lie useless.

In the meanwhile, what will happen if another High Court holds that the amounts in the Credit Ledger can be used for payment of pre-deposit? It's the same route - Supreme Court followed by retrospective amendment.

Government is the final authority and so has to be fair, reasonable and benevolent.

Cash or credit, it's money, honey!

Until Next Week.