APRIL 19, 2023

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.

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

The understanding was/is 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. If you remember, the Orissa High Court 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 tax payer 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)

From these do we get an impression that the GST laws never intended to allow payment of pre-deposit from the credit ledger?

Well, there is another twist.

Section 41(2) mentioned above has been amended by the Finance Act 2022 and it now reads as:

(2) The credit of input tax availed by a registered person under sub-section (1) in respect of such supplies of goods or services or both, the tax payable whereon has not been paid by the supplier, shall be reversed along with applicable interest, by the said person in such manner as may be prescribed:

So, the condition that the credit shall be utilised only for payment of self- assessed output tax, is not there now. That might mean that it could be used for payment of pre-deposit also.

Orissa High Court Judgement - 2021-TIOL-2007-HC-ORISSA-GST : The Orissa High Court in its order dated October 07, 2021 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.

So, the High Court did not allow payment of pre-deposit from the Electronic Credit Register. As mentioned earlier, this judgement was on October 07, 2021.

By Circular No. 172/04/2022-GST dated 6th July, 2022, the CBIC clarified:

that any payment towards output tax, whether self-assessed in the return or payable as a consequence of any proceeding instituted under the provisions of GST Laws, can be made by utilization of the amount available in the electronic credit ledger of a registered person.

I should add this was a bold clarification; what I mean is, this clarification was in bold letters, maybe for emphasis and to capture the attention of appellate authorities in the field who rush to reject appeals on the ground that pre-deposit was paid from the 'Credit Register' and not the 'Cash Register'.

The Bombay High Court in OASIS REALTY - 2022-TIOL-1287-HC-MUM-GST observed,

Therefore, CBIT&C has itself clarified that any amount towards output tax payable, as a consequence of any proceeding instituted under the provisions of GST Laws, can be paid by utilisation of the amount available in the Electronic Credit Ledger of a registered person. 

And held,

Since in the Petitions before us the amounts payable are towards output tax, we hold that Petitioners may utilise the amount available in the Electronic Credit Ledger to pay the 10% of Tax in dispute as prescribed under Sub-section (6) of Section 107 of MGST Act.

The High Court had made some very important observations:

We are not in agreement with the submission made on behalf of the State. This is because clause (b) of Sub-section (6) of Section 107 provides a precondition, "unless the appellant has paid" (not deposited a sum equal to 10% of remaining amount of Tax in dispute. It says 10% of Tax has to be paid as a precondition. That Tax can be Integrated Tax or Central Tax or the State Tax as in the case at hand, or Union Territory Tax. The amount of ITC available in the Electronic Credit Ledger can be utilised towards payment of Integrated Tax or Central Tax or State Tax or Union Territory Tax.

Therefore, in our view, Petitioner having to pay 10% of the Tax in dispute under clause (b) of Sub-section (6) of Section 107, can certainly utilise the amount of ITC available in the Electronic Credit Ledger. We hasten to add that in view of provisions of Sub-section (3) of Section 49, the party may also pay this 10% of the Tax in dispute by utilising the amount available in the cash ledger.

That clinches it!

And in a recent order (06.04.2023), The Orissa High Court observed, ( Ranjan Naik - 2023-TIOL-425-HC-ORISSA-GST)

The short ground on which the Petitioner is seeking the setting aside of the order dated 7th April, 2022 passed by the Joint Commissioner of CT & GST is that the appellate authority rejected the appeal as the pre-deposit of 10% of admitted tax amount was debited through the Electronic Credit Ledger (ECL) instead of Electronic Cash Ledger.

It is seen that by circular dated 6th July 2022 issued by the GST Policy Wing, Central Board of Indirect Taxes and Customs, Department of Revenue, Ministry of Finance, Government of India, it has been clarified that payment of pre-deposit can be made by using the ECL.

In that view of the matter, the impugned order dated 7th April, 2022 is set aside. As the learned counsel for the Petitioner points out that the Petitioner has already made the pre-deposit using the ECL, that will now be accepted by the Department. The appeal will now be listed before the 1st appellate authority i.e., the Joint Commissioner of CT & GST on 2nd May, 2023. The Petitioner will appear on that date before the appellate authority along with a downloaded copy of this order. The appeal thereafter be disposed of afresh after hearing the Petitioner and the Department within a period of three months thereafter.

Now, there should be no doubt that what we call pre-deposit is actually the tax and so can be paid from the electronic credit register.

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!

Government could have clarified in 2017 that the amount payable for making an appeal (what is called as pre-deposit, due to legacy language issues), can be debited from the 'Electronic Credit Register'. But then, how do you generate litigation?

Cash or credit, it's money, honey!

Until Next week