PAYMENT OF PRE-DEPOSIT FOR FILING APPEAL BY DEBITING ELECTRONIC CREDIT LEDGER – POSSIBLE?

[Mr. M. GOVINDARAJAN]

Pre-deposit

Section 107 of the Central Goods and Services Tax Act, (‘Act’ for short) provides for filing the appeal before the First Appellate Authority against any decision or order passed within 3 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 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 Rs.20 crores in relation to which the appeal has been filed.

Issue

The issue to be discussed in this article is as to whether the pre-deposit can be paid by debiting the electronic credit ledger with reference to the recent decided case law.

Case law

In M/S. FORD INDIA PRIVATE LIMITED, REP. BY ITS AUTHORIZED SIGNATORY, SRINIVASAN KADIRVELU VERSUS THE OFFICE OF THE JOINT COMMISSIONER (ST) , THE DEPUTY COMMISSIONER (S.T.) -III, CHENNAI - 2024 (11) TMI 1333 - MADRAS HIGH COURT, the petitioner is manufacturing and supplying passenger cars, parts, components and engines.  The petitioner is paying the tax regularly and also in filing the required returns.  On 24.03.2023 the Department issued a show cause notice to the petitioner demanding the differential duty between GSTR - 1 and GSTR – 3B.  The petitioner filed a reply with the department.  Again on 30.05.2023 the petitioner was issued with a show cause notice.

The Adjudicating Authority confirmed the demand as shown in the show cause notice, vide their order dated 24.10.2023.  Being aggrieved against the order of the Adjudicating Authority, the petitioner filed an appeal before the First Appellate Authority.  For the purposes of 10% pre deposit to the tune of Rs.32.88 lakhs, the petitioner debited the Electronic Credit Ledger.  The First Appellate Authority issued a Deficiency Memo dated 27.11.2023, directing the petitioner to make the payment of pre-deposit only by way of debiting the Electronic Cash Ledger within 7 days from the date of receipt of the Deficiency Memo.

The petitioner filed the present writ petition challenging the deficit memo.  The petitioner submitted the following before the High Court-

• Section 107(6)(b) of Tamil Nadu Goods and Services Tax Act, 2017 (‘TNGST Act’ for short) mandates payment of a sum equal to 10% of the remaining amount of tax in dispute as pre-deposit, while filing an appeal under Section 107 of TNGST Act.
• Rule 86(2) of the TNGST Rules, 2017 allows debiting of Electronic Credit Ledger for discharge of liability in accordance with Section 49 of TNGST Act.
• Any payment towards output tax, whether self-assessed in the Return or payable as a consequence of any proceedings instituted under TNGST Act, can be made by utilization of the amount available in the Electronic Credit Ledger.
• The Electronic Credit Ledger can be utilized for payment of 10% of tax in dispute as pre-deposit under Section 107(6)(b) of TNGST Act as per the Circular No.172/04/2022-GST, dated 06.07.2022.
• The statutory appeal form in APL-01 provides for the mechanism to pay the pre-deposit using the Electronic Credit Ledger as well, which is evident from Sl.No.15(b) therein.

The petitioner cited many precedents in this regard.  In view of the above, the petitioner prayed the Court to quash the impugned order. 

The Department submitted the following before the High Court-

• As per Section 107(6) of TNGST Act, 10% of the tax liable amount has to be paid for filing an appeal by the petitioners as pre-deposit.

• The pre-deposit is not the tax amount.
• The pre-deposit is to be paid only through Electronic Cash Ledger but not through the Electronic Credit Ledger.
• The Electronic Credit Ledger should only be used for the payment of output tax and cannot be misconstrued and the payment of pre-deposit for filing an appeal should only be made from the Electronic Cash Ledger.
• The pre-deposit is not equal the payable tax.
• The Electronic Credit Ledger can be used only for making payments towards tax, interest, penalty, fees or any other amounts and not the tax in dispute.

Hence, the Department opposed these Writ Petitions and prayed for the dismissal of the same.

The High Court considered the submissions of the appellant and the Department.  The High Court analysed the provisions of Section 107(6), Section 49(4), 49A and 49B of the TNGST Act.  The High Court observed that a reading of the above Section would show that the amount available in the Electronic Credit Ledger may be used for making any payment towards output tax.  The word used in the above provision is 'may' and it is not 'shall'.  In the event if the word 'shall' is used, the amount available in the Electronic Credit Ledger shall be utilized only for the purpose of payment of output tax.  Further, in terms of Section 107(6) of TNGST Act, if 10% of the disputed tax has to be paid, it means that the deposit is made only towards discharging liability of output tax.  Rule 86(2) of TNGST Rules provides that Electronic Credit Ledger shall be debited to the extent of discharge any liability in accordance with the provisions of Section 49 or 49A or Section 49B.

The High Court also analysed the Circular dated 06.07.2022, issued by the Department shows that input tax credit can be utilized not only for payment of the self-assessed output tax but also payable as a consequence of the proceeding instituted under the provisions of GST Laws.  This circular also clarifies the position that to discharge the liability of 10% of the output tax liability in terms of Section 107(6) of TNGST Act, the amount can be remitted through Electronic Credit Ledger.  Only restriction to utilize the Electronic Credit Ledger for pre-deposit is only for the tax payable on reverse charge basis.

The High Court also observed that the statutory appeal form APL-01 provides for the mechanism to pay pre-deposit by utilizing Electronic Credit Ledger as well.  Therefore, the High Court came to  the conclusion that the pre-deposit can be made through Electronic Credit Ledger.  The High Court allowed the appeal by setting aside the impugned order.

It is made clear that the pre-deposit can be made by filing appeal under Section 107 of TNGST Act by utilizing the Electronic Credit Ledger.