NOVEMBER 10, 2022

By Neethu James, Partner, Rohan Karia, Principal Associate and Nischal K M,   Associate, Lakshmikumaran & Sridharan

Background

1. THE manner of payment of mandatory pre-deposit for filing appeals under the GST law and for filing appeals under the erstwhile laws have been subject matter of much deliberation recently.

2. The issue came to the fore with the decision of the Orissa High Court in M/s. Jyoti Construction v. Deputy Commissioner - 2021-TIOL-2007-HC-ORISSA-GST holding that in terms of Section 41 of the GST Act, electronic credit ledger cannot be debited for making of pre-deposit at the time of filing of the appeal in terms of Section 107 of GST Act. A contrary view was taken by the Bombay High Court in Oasis Realty & Ors. v. Union of India - 2022-TIOL-1287-HC-MUM-GST permitting payment of pre-deposit for filing appeals under Section 107 CGST Act by debiting electronic credit ledger or electronic cash ledger. However, while dealing with payment of pre-deposit in appeals filed under the erstwhile laws (Central Excise Act and Chapter V of the Finance Act, 1994), the Bombay High Court in the case of Sodexo India Services Pvt. Ltd. v. Union of India - 2022-TIOL-1398-HC-MUM-ST directed CBIC to pass suitable instructions clarifying the method for payment of pre-deposit.

3. CBIC has now issued instruction dated 28.10.2022 ¹ regarding the pre-deposit payment method for cases pertaining to central excise and service tax appeals. The instruction clarifies that DRC-03 under GST regime is not a valid mode of payment for making pre-deposits under the erstwhile laws and the GST laws. In light of the instruction dated 28.10.2022, doubts are raised on the mode of payment of pre-deposit for appeals filed under the GST laws and the erstwhile laws.

Analysis

4. Section 41 of the GST Act prior to its amendment with effect from 01.10.2022 mandated utilization of input tax availed on provisional basis in the electronic credit ledger only for payment of self-assessed output tax as per the return. As mandatory pre-deposit is not an output tax liability self-assessed in the return, a doubt could arise regarding utilization of credit for making payment of pre-deposit. While the context of the restriction under Section 41 may be inapplicable to pre-deposit, Section 41 has since been amended. The amended Section 41 does not contain any such restriction. Further the provisions of Section 49 relating to payment of tax and other amounts permits utilization of electronic cash ledger and electronic credit ledger for payment of output tax. The CGST Rules ² also permits utilization of electronic cash ledger and electronic credit ledger towards payment of output tax, even when the same is not self-assessed in the return. Where the law contemplates a bar on utilization of credit for payment of tax dues, the same is explicitly mentioned as in the case of reverse charge liability ³. Such a restriction is conspicuously absent in respect of pre-deposit.

5. The Instruction dated 28.10.2022 proceeds on the premise that it is settled law that pre-deposit is neither in the nature of duty nor can be considered as arrears under the erstwhile law. On the contrary, the High Courts have observed that pre-deposit partakes the color of duty and, therefore, the pre-deposit under Section 35F of the erstwhile Central Excise Act, 1944 can be paid by utilizing Cenvat credit through the Cenvat credit ledger ⁴. Circular F. No. 15/CESTAT/General/2013-14 , dated 28-8-2014 also clarified that pre-deposit of excise duty/service tax can be paid by cash or through Cenvat credit subject to certain conditions stipulated therein.

6. Transitional provisions provide that any credit, tax, interest, fine or penalty recoverable from a person before or after 01.07.2017 under the erstwhile law may be recovered as arrears of tax under the CGST Act ⁵. It stands to reason that the modes for payment of arrears of tax under CGST Act should be available for payment of duty / tax dues arising under the erstwhile laws including pre-deposit.

Conclusion

7. To summarize, the Courts have opined that electronic credit ledger and electronic cash ledger can be utilized for payment of pre-deposit of duty / tax under the GST law and erstwhile laws ⁶. The insistence on GST DRC-03 not being the prescribed mode of payment of pre-deposit may need further ruminations considering that the appeal form (Form GST APL-1) facilitates utilization of credit and cash for payment of GST. Moreover, insistence on accessing CBIC (ICEGATE) E-payment for payment of pre-deposit under the erstwhile laws would be highly procedural so long as the payment is made using cash, albeit using GST DRC-03.

8. One should be prudent to follow the instruction to the extent possible. However, the instruction is hardly the last word on the subject. In the meanwhile, the appeals filed under GST law and the erstwhile laws await their impending fate.

[The views expressed are strictly personal.]

¹ Ref. No. CBIC-240137/14/2022-SERVICE TAX SECTION-CBEC dated 28.10.2022

² Rule 86 and Rule 87 of the CGST Rules, 2017

³ Section 2(82) read with Section 49 of the CGST Act, 2017

⁴ Akshay Steel Works Pvt. Ltd. v. Union of India, 2013 (9) TMI 777 - Jharkhand High Court and Cadila Health Care Pvt. Ltd. v. Union of India, 2018-TIOL-1236-HC-AHM-CX

⁵ Section 142(8)(a) of the CGST Act, 2017

⁶ Dell International Services India Pvt. Ltd. v. Commissioner of Central GST Commissionerate, 2019-TIOL-286-CESTAT-BANG and Oasis Realty and Ors. v. Union of India, (supra (2))