Pre=deposit under section 107 of the CGST Act, 2017

[niranjan gupta]

The right to appeal is a statutory right which operates within the limitations placed on it by the law. One such limitation flows from the principle that an appellant must first deposit the certain percentage of disputed amount before filing the appeal. This is also given a big relief to appellant for recovery of disputed demand. Earlier to pre-deposit concept, the appellant need to take stay from the department or the court. Another basic purpose is that only genuine appeal will be filed and unnecessary adjudication to delay the demand will be avoided. Under GST Laws, there is also requirement of pre-deposit before filing the appeal. The appeal shall not be admitted unless the pre-deposit is made by the appellant, and on the other side, once the pre-deposit is made as prescribed under the law, the stay is automatic for the balance amount till the disposal of appeal. One question arises i.e

Whether the pre-deposit can be made from Electronic Credit ledger or not?

Relevant Provisions:

Pre-deposit

Section 107 of the CGST Act, 2017 provides the procedure for filing appeal before the Appellate Authority.

Section 107(1) of the CGST 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.

Pursuant to Section 107(6) of the CGST Act, no appeal shall be filed before Appellate Authority, unless the appellant has paid-

1. 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
2. a sum equal to 10% of the remaining amount of tax in dispute arising from the said order subject to a maximum of twenty-five crore rupees, in relation to which the appeal has been filed.

It is hereby submitted that the pre-deposit ensures staying of the recovering proceedings for the balance amount of demand in dispute. Minimum of 10% of the disputed amount of tax needs to be paid as pre-deposit before filing an appeal.  There is no deed to pre-deposit any percentage of disputed interest, fine, fee and penalty arising from impugned order.

 Payment of Pre-deposit

Section 49 of the CGST Act deals with payment of taxes. Pursuant to Section 49(3) of the CGST Act, 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

Further, Section 49(4) of the CGST Act, prescribes that the amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act.

As per Rule 86(2), “the electronic credit ledger shall be debited to the extent of discharge of any liability in accordance with the provisions of Section 49 or Section 49A or Section 49B.”

Definition of Output Tax

The term has been defined under section 2(82) of the CGST Act 2017, “output tax” in relation to a taxable person, means 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.

At the outset, the author of this article would like to draw attention towards the recent judgement of Hon’ble Orissa High Court in M/S. JYOTI CONSTRUCTION VERSUS DEPUTY COMMISSIONER OF CT & GST, BARBIL CIRCLE, JAJPUR AND ANOTHER [2021 (10) TMI 524 - ORISSA HIGH COURT] held that Petitioner firm could not be permitted to reverse debit of electronic credit ledger (ECRL) for paying pre-deposit and then making payment of pre-deposit of tax by debiting electronic cash ledger (ECL).

M/s. Jyoti Construction v. Deputy Commissioner of CT & GST, Jajpur          

In the instant case, the appeals of the Petitioner were rejected by the First Appellate Authority on the grounds that the pre-deposit of 10% was made by the Petitioner by debiting its Electronic Credit Ledger (ECLR) and it did not pay the pre-deposit amount from Electronic Cash Ledger (ECL). Being aggrieved the Petitioner filed the said Writ Petitions before the High Court of Orissa.

The Hon’ble High Court of Orissa has held that it is not possible to accept the plea of the Petitioner that "Output Tax", as defined under section 2(82) of the OGST Act could be equated to the pre-deposit required to be made in terms of Section 107 (6) of the OGST Act. Further, as rightly pointed out by learned Additional Standing Counsel (ASC), the proviso to Section 41 (2) of the OGST Act limits the usage to which the electronic credit ledger (ECRL) could be utilised. 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 Section 107 (6) of the OGST Act is merely a "machinery provision".

That the prayer of the Petitioner that the debiting of the ECRL made by it should be reversed is a separate cause of action for which the Petitioner should independently seek appropriate remedies in accordance with law. The making of the pre-deposit by the Petitioner is not contingent upon the above reversal of the debit entry in the ECRL.  For the aforementioned reasons, the Court finds no merit in these writ petitions and accordingly, the writ petitions are dismissed.

Analysis

With due respect to Hon’ble Orrisa HC, at this juncture, it is worth pointing that the said judgement is not maintainable with the provisions of GST Laws.  As, it is evident from the FORM GST APL-01 as prescribed in Rule 108 of CGST Rules, 2017 Part B, that the amount of tax can be paid by debiting the Electronic Credit Ledger (ECLR) and any amount payable on account of interest, penalty, fee or any other amount can be paid only from Electronic Cash Ledger (ECL).

Thus from a plain reading of the above, it can be construed that the pre-deposit amount can be made by debiting the Electronic Credit Ledger (ECLR). The Author is of the opinion that the reasoning given by Hon’ble High Court of Orissa in supra mentioned case, that the pre-deposit amount could not be paid from Electronic Credit Ledger (ECLR) appears to be reviewed again.

Now, the Author would like to apprise and shed light on the judgement of CESTAT Bangalore Bench which is definitely not binding on the Hon’ble High Court, and circulars issued by the Government where Pre-deposit at the time of filing of appeal can be made by debiting the electronic credit ledger and the recovery of arrears of wrongly availed CENVAT credit under the existing law and CENVAT credit wrongly carried forward as transitional credit in the GST regime can be made through the amount available in electronic credit ledger:-

1. In M/S. DELL INTERNATIONAL SERVICES INDIA PVT. LTD. VERSUS COMMISSIONER OF CENTRAL TAXGST COMMISSIONERATE ( 2019 (1) TMI 1033 - CESTAT BANGALORE) dated December 13 2018, The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore bench has held that the mandatory pre-deposit can be made through CGST Credit.

In this case, the appellant reversed 7.5% of the duty demand through the CGST Credit and indicated the same in the GSTR-3B. The same was informed to the Assistant Commissioner. However, the Registry raised an objection for the same.

The appellants relied on the CBIC Circular which stated 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 appellants contended that they have paid 7.5% and the objection raised by the Registry is not tenable.

After considering the submissions, the Tribunal found that the appellants have reversed 7.5% of the duty demand through the CGST Credit and the same is indicated in the Column 4B (2) of the GSTR-3B filed for the month of August 2018.

The learned AR also accepted the legal Position that mandatory pre-deposit can be made through the CGST Credit.

2. Circular - 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.
    

Extract of the Circular is reproduced below: -

In absence of any classificatory Circular on the issue, all the DRs/ARs/TOs are directed that the appeals received on or after 06.08.2014 may be registered in following cases:

• If the mandatory deposit of duty or penalty, as the case may be, has been made in Cash and evidence thereof is produced at the time of filing appeal.
• If mandatory deposit of duty confirmed is made from CENVAT account and evidence thereof is produced.

3. CBIC vide Circular No. 42/16/2018-GST dated 13.04.2018 has clarified that the recovery of arrears arising under the existing law shall be made as central tax liability to be paid through the utilization of the amount available in the electronic credit ledger or electronic cash ledger of the registered person, and the same shall be recorded in Part II of the Electronic Liability Register.

4. CBIC vide Circular No. 58/32/2018-GST dated 4.09.2018 issued clarification on the process of recovery of arrears of wrongly availed CENVAT credit under the existing law and CENVAT credit wrongly carried forward as transitional credit in the GST regime. It was mentioned by CBIC that taxpayers may reverse the wrongly availed CENVAT credit under the existing law and inadmissible transitional credit through Table 4(B)(2) of FORM GSTR-3B, as the functionality to record this liability in the electronic liability register was not available on the common portal at that time.

Thus, from the above it can be concluded that the circulars very clearly state 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.    

Conclusion:

The Judgement of Hon’ble High Court of Orissa is contrary to the understanding of the industry and the practice being followed by the taxpayer’s for making pre-deposit in the GST regime. Under the erstwhile indirect tax laws, payment of pre-deposit was permitted by debit to the CENVAT credit account.

Pursuant to section 49(4) of the CGST Act, the amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act. It is evident from the Form GST APL 01 prescribed in rule 108 of CGST Rules, 2017-Part B, that the amount of the tax can be paid by debiting the electronic credit ledger. Therefore, it can be said that the pre-deposit made at the time of filing of appeal is a payment towards the output tax liability and can be paid by debiting Electronic Credit Ledger (ECLR). In simple words, the Department increase the output tax liability payable by the taxpayer and accordingly may be paid through debiting the Electronic Credit Ledger (ECLR).

In the light of aforesaid facts and with due respect, the author is of the opinion that Hon’ble HC of Orissa has not considered the circulars issued by the CBIC which allowed payment of pre-deposit through Electronic Credit Ledger, hence need to be reviewed again. No doubt that interest and penalty are to be paid from the electronic credit ledger as those are not payment of taxes.