PRE DEPOSIT TO BE PAID FOR FILING APPEAL CANNOT BE EQUATED WITH THE OUTPUT TAX

[Mr. M. GOVINDARAJAN]

Output tax

Section 2(82) of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) defines the expression ‘output tax’  in relation to a taxable person, as the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis.

Section 49(3) of the Act provides that 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 there under in such manner and subject to such conditions and within such time as may be prescribed.

Pre deposit

Section 107 of the Act provides the procedure for filing appeal before the Appellate Authority.  Section 107(1) of the Act provides that any person aggrieved by any decision or order passed under this Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act by an adjudicating authority may appeal to such Appellate Authority as may be prescribed within three months from the date on which the said decision or order is communicated to such person.

Section 107(6) of the Act provides that no appeal shall be filed under sub-section (1), unless the appellant has paid-

• in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him; and
• a sum equal to 10%of the remaining amount of tax in dispute arising from the said order subject to a maximum of ₹ 25 crores, in relation to which the appeal has been filed.

Where the appellant has paid the amount under sub-section (6), the recovery proceedings for the balance amount shall be deemed to be stayed.

Thus any person intends to file appeal before the Appellate Authority he has to make pre deposit @ 10% of the disputed amount. This is different from payment of output ax.

Section 49(4) of the Act provides that 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 in such manner and subject to such conditions and within such time as may be prescribed.  Therefore pre deposit cannot be paid by debiting electronic credit ledger.  The same has been upheld by the Orissa High Court.

Case law

In ‘Jyoti Construction v. Deputy Commissioner of CT & GST, BARBIL  Circle, Jaipur and another’ – 2021 (10) TMI 524 – Orissa High Court (decided on 07.10.2021), a demand was raised by the Deputy Commissioner which has resulted extra payment of tax including interest by the appellant.  Aggrieved against the order of the Deputy Commissioner, the petitioner filed an appeal before the first appellate authority in Form GST – APL -01.  Section 107(6) of Orissa Goods and Services Tax Act, 2017  requires the appellant  to pay 10% of the disputed amount of tax arising from the order against which the appeal is filed.  The petitioner sought to make payment of the pre-deposit by debiting the electronic credit ledger.  The petitioner made payment of the pre-deposit being 10% of the disputed amount under the IGST, CGST and SGST by debiting its electronic credit ledger and did not pay it from the electronic cash ledger and furnished the proof of payment of the mandatory pre-deposit.   The same was considered to be defective and liable for rejection of the appeal, a show cause notice was issued on 25th January 2021 and 17th February, 2021.

The petitioner contended before the Appellate Authority the following-

• Under Section 49 (4) of the OGST Act, the amount available in the electronic credit ledger could be used for making ‘any payment towards output tax’ under the OGST Act or the IGST Act ‘in such manner and subject to such conditions and within such time as may be prescribed’. 
• Under Rule 85 (4) of the OGST Rules, the amount deducted under Section 51, or collected under Section 52, or the amount payable on reverse charge basis, or the amount payable under Section 10, or any amount payable towards interest, penalty, fee or ‘any other amount under the Act’ shall be paid by debiting the Electronic Cash Ledger.
•  On a collective reading of the above Rules, the pre-deposit could be made by debiting the Electronic Credit Leger.
• Section 107 (6) of the OGST Act was merely a machinery provision and that it must be interpreted purposively to subserve the purpose of collecting the pre-deposit amount which could be done even by debiting the electronic credit ledger.

The Revenue contended that-

• The pre-deposit cannot be equated to the output tax.
• The proviso to Section 41 (2) of the OGST Act sets out the purposes for which the in out tax credit can be utilized. It can be utilized for payment of ‘self assessed output tax as per the return’.
• Except payment of tax on self assessment basis, no other payments can be made by utilizing the input tax credit available in Electronic Credit Ledger.
• The pre deposit shall be paid only by cash.

The Appellate Authority observed that if statute provides a thing to be done in a particular manner, then it has to be done only in that manner  The input tax credit itself is a concession and has to be utilized as per the provisions in the GST statute and not otherwise.  The Appellate Authority upheld the order of the lower authority holding that the appeal filed by the petitioner is defective.

Aggrieved against the order of the Appellate Authority the petitioner filed this present writ petition before the High Court.  The High Court has taken 5 other similar cases together and passed a common order.   Both the parties put forth the same arguments put forth before the First Appellate Authority.

The petitioner relied on the following judgments-

• In BIRLA CEMENT WORKS & JK. SYNTHETICS LTD. VERSUS COMMERCIAL TAXES OFFICER AND STATE OF RAJASTHAN [1994 (5) TMI 233 - SUPREME COURT] in which it was held that the provisions that permit the levy and collection of interest, even if construed as forming part of the machinery provision, ‘is substantive law for the simple reason that in the absence of contract or usage, interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount.’
• In ASSOCIATED CEMENT CO. LTD. VERSUS COMMERCIAL TAX OFFICER, KOTA AND OTHERS [1981 (10) TMI 146 - SUPREME COURT] in which the Supreme Court held that  a provision made in a statute for charging interest on delayed payment of tax must be construed as a substantive law and not a procedural provision.

The High Court observed that the above two case laws will not be helpful to the petitioners.  The High Court did not accept the plea of the petitioner that ‘output tax’ could be equated with the pre deposit to be made in terms of Section 107(6) of the Act.   The proviso to Section 41 (2) of the OGST Act limits the usage to which the electronic credit ledger could be utilized.   It cannot be debited for making payment of pre-deposit at the time of filing of the appeal in terms of Section 107 (6) of the OGST Act. It is not therefore possible to accept the plea that Section 107 (6) of the OGST Act is merely a ‘machinery provision’.  The High Court finds no merit in these writ petitions and accordingly, the writ petitions are dismissed.