2024 (6) TMI 344 - AT - Central Excise

Requirement of mandatory pre-deposit under Section 35F of the Central Excise Act, 1944 - appellant have made the pre-deposit by way of input tax credit through GST Electronic Credit Ledger - Applicability of Amended Section 41 of CGST Act, 2017. Mandatory pre-deposit - HELD THAT - From the Circular No. CBIC-20010/16/2023-GST dated 24.11.2023 it is found that the controversy stands settled that payments made through DRC-03 under CGST regime is not a valid mode of payment for making pre-deposits under Section 35F of CEA and Section 83 of FA and in the event the same have been so deposited, the appellants can claim refund of the said amount. Referring to the decision of the Supreme Court in COMMR. OF C. EX., BANGALORE VERSUS MYSORE ELECTRICALS INDUSTRIES LTD. 2006 (11) TMI 202 - SUPREME COURT , wherein it has been held that the beneficial circular has to be applied retrospectively while oppressive circular has to be applied prospectively and since the said circular has been issued after the filing of the appeals, the enforcement of the same can only have prospective effect and therefore, the pre-deposit made by the appellants from electronic credit ledger are in compliance to Section 35F of CEA - that decision of the Bombay Bench in SAPPHIRE CABLES SERVICES PVT. LTD. VERSUS COMMISSIONER OF CGST CENTRAL EXCISE, BELAPUR 2023 (9) TMI 1482 - CESTAT MUMBAI is not applicable as the circular was held to be inapplicable since it was issued after the filing of the appeal and hence, has to operate prospectively. Applicability of Amended Section 41 of CGST Act, 2017 - HELD THAT - There are no merit in the submissions made by the learned counsel for the appellant that the amended provisions of Section 41 of the CGST, where the phrase that credit shall be utilized only for self-assessed output tax is no longer existing and therefore, there is no restriction on the utilization of the credit. The scheme for utilization of the credit for making pre-deposits under Section 35F of CEA has to be understood in the light of the Circular dated 28.10.2022 which has also been accepted by the Mumbai Bench in SODEXO INDIA SERVICES PVT. LTD. VERSUS THE UNION OF INDIA AND ORS. 2022 (10) TMI 264 - BOMBAY HIGH COURT . In view of the decisions referred and also the circulars issued by the CBIC, specifically clarifying on the issue of pre-deposit payment method for the cases pertaining to the Central Excise Act and the Service Tax, the deposit made by the appellants towards pre-deposit under Section 35F of CEA by way of ECL cannot be accepted and the appellant is directed to cure the defects by making the pre-deposit in accordance with law within a period of 4 weeks from the date of the order. Appeal dismissed.

Summary

Issues Involved:
1. Validity of pre-deposit made through GST Electronic Credit Ledger (ECL) under Section 35F of the Central Excise Act, 1944 (CEA).
2. Applicability of amended Section 41 of the CGST Act, 2017 and Section 49 of the CGST Act, 2017.
3. Relevance of various High Court and Tribunal decisions on the issue.

Detailed Analysis:

1. Validity of Pre-Deposit Through GST ECL:
The primary issue revolves around whether the pre-deposit mandated under Section 35F of the CEA can be made using the GST Electronic Credit Ledger (ECL). The appellant argued that they had made the pre-deposit via input tax credit through the GST ECL, citing amendments in Section 41 of the CGST Act, 2017, which no longer restricts the use of credit solely for self-assessed output tax. They also referenced Section 49 of the CGST Act, which allows the credit to be used for any payment towards output tax.

The Revenue countered this by referencing decisions from the Tribunal and CBIC Circulars dated 28.10.2022 and 24.11.2023, which stated that pre-deposits made through DRC-03 credit ledger are not valid under Section 35F of the CEA.

2. Applicability of Amended Section 41 and Section 49 of the CGST Act:
The appellant's counsel highlighted that the amended Section 41 of the CGST Act, effective from 01.10.2022, removed the restriction that credit could only be used for self-assessed output tax. They argued that this amendment, along with Section 49(4), aligns with the erstwhile provisions of Rule 3(4) of the Cenvat Credit Rules, 2004, which allowed credit utilization for any duty on the final product or service tax on any output service.

However, the Tribunal noted that the CBIC Circular dated 28.10.2022 explicitly clarified that payments through DRC-03 under the CGST regime are not valid for pre-deposits under Section 35F of the CEA and Section 83 of the Finance Act, 1994. This circular was issued following the Bombay High Court's direction in the case of M/s. Sodexo India Services Pvt. Ltd., which found that there was no proper legal provision to accept pre-deposits through DRC-03.

3. Relevance of High Court and Tribunal Decisions:
The appellant relied on several High Court decisions, including M/s. Oasis Reality (Bombay High Court), M/s. Tulsi Ram and Company (Allahabad High Court), and M/s. Larsen & Toubro Ltd. (Madras High Court), which allowed the use of the electronic credit ledger for making pre-deposits. However, the Tribunal distinguished these cases, noting that they pertained to the GST regime and not the Central Excise Act.

The Tribunal also referenced its own decisions, such as M/s. Johnson Matthey Chemical India Pvt. Ltd. and M/s. Army Welfare Housing Organizations, which upheld that pre-deposits under Section 35F of the CEA cannot be made through the electronic credit ledger.

The Tribunal further noted the decision in M/s. Saphire Cables & Services Pvt. Ltd., where the Mumbai Bench allowed pre-deposit through DRC-03. However, the Tribunal clarified that this decision was not applicable in the present case as the circular in question was issued after the filing of the appeal, making it prospective in effect.

Conclusion:
The Tribunal concluded that the pre-deposit made through the GST ECL is not valid under Section 35F of the CEA, in line with the CBIC Circulars and relevant judicial decisions. The appellant was directed to make the pre-deposit in accordance with the law within four weeks from the date of the order.