In Jyoti Construction v. Deputy Commissioner of CT & GST, Jajpur, the Hon’ble High Court of Orissa has pronounced its order dated 07th October, 2021 that Electronic Credit Ledger (“ECRL”) cannot be used to give the pre-deposit for the purpose of filing an appeal under GST and the payment for the same must be done through Electronic Cash Ledger (“ECL”).

In the beginning of aforesaid case, the Additional Commissioner of Sales Tax (Appeal), Central Zone, Odisha, vide its order dated 28th April, 2021, has rejected the appeal filed by the taxable person (petitioner in the aforesaid case) under Section 107 (1) of the Odisha Goods and Services Tax Act, 2017 (OGST Act) and hold that the appeals filed are defective since the Petitioner had made payment of the pre-deposit being 10% of the disputed amount under the IGST, CGST and SGST by debiting its ECRL and did not pay it from ECL and furnished the proof of payment of the mandatory pre-deposit and that this was in contravention of Section 49(3) of the OGST Act read with Rule 85 (4) of the OGST Rules, 2017. The said order dated 28th April 2021 was challenged in the aforesaid matter.

The contentions of the petitioner were that under Section 49(4) of the OGST Act, the amount available in the ECRL 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 ECL maintained under Rule 87 and the electronic ledger liability register (ELR) shall be credited accordingly.

Electronic Credit Ledger cannot be used in respect of payment of pre-deposit for the purpose of filing appeal under GST Law

It is submitted by Petitioner that on a collective reading of the above Rules, the pre-deposit could be made by debiting the ECRL. Petitioner referred to the definition of “Output Tax” under Section 2 (82) of the OGST Act which means “tax chargeable under this Act on taxable supply of goods or services or both” made by the taxable person or his agent but excludes tax payable on reverse charge basis. On this basis, it is contended that since what in effect be the Petitioner was paying was a percentage of the output tax as defined under Section 2(82) of the OGST Act, the amount could well be paid by debiting the ECRL.

On the other hand, the Department referred to Section 49(3) of the OGST Act which requires payment to be made from the ECL and Section 49(4) which refers to the ECRL. It is submitted 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 input tax credit (ITC) can be utilized. It can be utilized for payment of “self-assessed output tax as per the return”. It is pointed out that self-assessment is defined under Section 59 of the OGST Act i.e. when the tax payer files a return under Section 39 of the OGST Act and the Form GSTR-3B, the taxpayer is deemed to be self-assessed. In no other cases, can ITC be utilized to discharge any liability. The Department has also referred to Rule 85(3) of the OGST Rules which states that “subject to the provision of Section 49 payment of every liability by a registered person as per his return shall be made by debiting the electronic credit ledger maintained as per Rule 86”.

The Hon’ble Court mentioned 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 the department, the proviso to Section 41(2) of the OGST Act limits the usage to which the 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. Further, this Court is unable to find any error having been committed by the appellate authority in rejecting the Petitioner’s contention that the ECRL could be debited for the purposes of making the payment of pre-deposit.

Remark:  Please read the article published on tax guru dated 28th August, 2021 “Mandatory pre-deposit for filing appeal under GST law” in the light of the aforesaid decision.

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the author whatsoever and the content is to be used strictly for informational and educational purposes. While due care has been taken in preparing this article, certain mistakes and omissions may creep in. the author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

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