PRE-DEPOSIT & STAY OF DEMAND

[Dr. Sanjiv Agarwal]

Pre-deposit of Demand and Stay [Section 107(6), (7)]

As mentioned earlier, 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 adjudged dues before his further appeal can be heard. However, often an appellant may succeed in his appeal, and hence it would (in retrospect) be unfair to saddle him with this financial burden. To balance these factors, tax laws mandate some “pre-deposit” so as to discourage frivolous appeals and also safeguard the bonafide interests of both the taxpayers and the revenue.

The CGST Act, 2017 require an appellant before AA to pre-deposit full amount of tax, interest, fine, fee and penalty, as is admitted by him, arising from the impugned order and a sum equal to 10% of the remaining amount of tax in dispute arising from the impugned order.

In so far as appeals to the Tribunal is concerned, no appeal can be filed before the Tribunal unless the appellant has deposited 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 20% of the remaining amount of tax in dispute, in addition to the amount deposited before the AA, arising from the said order, in relation to which appeal has been filed.

If the pre-deposit made by the appellant before the AA or Tribunal is required to be refunded consequent to any order of the AA or of the Tribunal, as the case may be, interest at the rate specified in section 56 shall be payable from the date of payment of the amount (and not from the date of order of AA or of the Tribunal) till the date of refund of such amount.

Mandatory pre-deposit is stipulated in section 107(6) of CGST Act, 2017. Accordingly, no appeal shall be filed unless the appellant has deposited –

     (a)   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

     (b)   a sum equal to ten percent of the remaining amount of tax in dispute arising from the said order, in relation to which the appeal has been filed.

This is a similar provision as that of mandatory pre-deposit under section 35F of the Central Excise Act, 1944.

Where no amount has been admitted, the deposit shall be just 10 percent of the total amount in dispute. Thus, amount of deposit shall be as follows –

• Where amount is admitted – full amount as admitted
• Where amount is admitted in part–full for admitted part and ten percent of the disputed tax amount for which appeal has been filed.
• Where entire amount of tax is disputed – ten percent of the amount of tax in dispute for which appeal is filed.

‘Amount in dispute’ shall include the following amounts:

 (a) amount of tax determined

 (b) amount of fee or fine levied or penalty imposed.

Amendment made by Finance Act, 2021

The Finance Act, 2021 had inserted a proviso in sub-section (6) of section 107 so as to provide that no appeal shall be filed against an order passed or made under section 129(3) of the CGST Act, 2017 unless an amount equal to twenty five percent (25%)  of the penalty levied in the order has been paid by the appellant. Thus, where the order is for penalty alone, 25 percent of that amount shall be necessary to deposit as a pre-deposit while filing the appeal under section 107.

If may be noted that section 129 of the CGST Act, 2017 deals with detention, seizure and release of goods and conveyance in transit.

In terms of section 107(7) of the CGST Act, 2017, where the appellant has paid the amount under sub-section (6), the recovery proceedings for the balance amount shall be deemed to be stayed.

According to sub-section 7 on payment of pre-deposit as stipulated in sub-section 6, the recovery proceedings for the balance amount shall be deemed to be stayed till the disposal of the appeal, meaning thereby that Department will not be able to recover the demand appealed against during the period, the appeal remains pending. If the appeal is decided in favour, the pre-deposit will become refundable. On the other hand, if the appeal is decided against the assessee, pre-deposit shall be appropriated against the due demand.