A right of appeal is a statutory right or in a way can be said that a creature of statute. The said right is governed by the terms of the statute creating it. It is not an inherent right and can’t be availed until and unless it is provided in the statute itself. Its nature, character and extend will have to be determined and controlled by the relevant provisions creating the right. It is a settled law that in a taxing statute, one has to look merely at what is clearly said. There is no room for intendment. There is no equity about tax. The Court cannot read into a taxing provision any words which are not there or exclude words which are there. One such condition flows from the principle that an appellant must first deposit the specified amount of 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 the financial burden of payment of entire demand. To balance these factors, tax laws mandate some “pre-deposit” so as to discourage frivolous appeals and also safeguard the bona fide interests of both the taxpayers and the revenue.
The necessary provisions regarding filing an appeal to Appellate Authority has been provided under CHAPTER XVIII- APPEALS AND REVISION [SECTION 107 TO 121] of the Central Goods and Services Tax Act, 2017 (‘CGST Act, 2017’) supplemented with CHAPTER XIII- APPEALS AND REVISION [RULE 108 TO 116] of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules, 2017’). Pursuant to the provisions of Section 107(6) of the CGST Act, when the appeal before appellate authority is made by the registered person then such appeal can be made only after the appellant has paid the tax, interest, fine, fee and penalty in the order, which has been admitted by him in full. The appellant is also required to pay 10% of the remaining amount of tax in dispute (maximum Rs. 25 crore) arising from the order, in relation to which appeal has been filed. This can be clearly understood from the following example.
Let’s say: Mr. X is a taxpayer assessed u/s. 74 of the CGST Act & a summary of demand in FORM GST DRC-07 was served with a demand of Rs.50 lakhs (Rs. 20 lakh-TAX, Rs. 10 lakh-INTEREST and Rs. 20 lakh-PENALTY). Mr. X agrees to demand of Rs. 30 lakhs (Rs. 12 lakh-TAX, Rs. 6 lakh-INTEREST and Rs. 12 lakh-PENALTY). However, for the remaining Rs. 20 lakhs, he files an appeal before the first appellate authority. As mandated by the law, Mr. X must deposit Rs. 30 lakhs (Rs. 12 lakh-TAX, Rs. 6 lakh-INTEREST and Rs. 12 lakh-PENALTY) in full, if paid after 30 days of issue of the order & Rs. 80,000/- i.e., 10% of disputed amount of tax (or Rs.25 crores, whichever is less). In the instant case, the disputed amount is Rs. 20 lakhs (Rs. 8 lakh-TAX, Rs. 4 lakh-INTEREST and Rs. 8 lakh-PENALTY) but the disputed tax is Rs. 8 lakh. So, 10% of Rs. 8 lakh comes to Rs. 80,000/-. There is no deed to pre-deposit any percentage of disputed interest, fine, fee and penalty arising from impugned order. Therefore, total pre-deposit to be made by Mr. X is Rs. 30,80,000/-. On payment of such pre-deposit, the recovery proceedings for the balance amount of Rs. 19,20,000/- lakh will get stayed.
Judgment of Hon’ble High Court of Orissa on Payment of Pre-deposit:
Order Dated 07.10.2021
The petitioner was a partnership firm engaged in the business of execution of works contract including civil, electrical and mechanical. The Additional Commissioner of State Tax (Appeal), Central Zone, Cuttack, Odisha rejected the appeal filed by the petitioner holding that the appeals filed were defective. He was of the view that the petitioner had made payment of the pre-deposit being 10% of the disputed amount under the IGST, CGST and SGST by debiting its electronic credit ledger. It did not pay it from the electronic cash ledger and this was in contravention of Section 49(3) of GST Act, 2017. The petitioner filed writ petition against the same.
The Brief fact of the case is as follows:-
1. In terms of Section 107 (6) of the OGST Act, the Petitioner was required to make payment equivalent to 10% of the disputed amount of tax arising from the order against which the appeal is filed. This payment was required to be made by the Petitioner by debiting its Electronic Cash Ledger (ECL) as provided under Section 49(3) read with Rule 85 (4) of the Odisha GST Rules. According to the Department, this liability of pre-deposit could be discharged only by debiting the ECL. However, it was noticed that the Petitioner sought to make payment of the pre-deposit by debiting the Electronic Credit Ledger (ECRL). Considering this to be defective and liable for rejection of the appeal, a show cause notice (SCN) was issued on 25thJanuary 2021 and 17th February, 2021.
2. The contentions of the Petitioner before the appellate authority, which are also the contentions before this Court, as articulated by Mr. Roy, learned counsel, is 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 (i.e. the cash ledger) maintained under Rule 87 and the electronic ledger liability register (ELR) shall be credited accordingly.
3. It is submitted by Mr. Roy that on a collective reading of the above Rules, the pre-deposit could be made by debiting the ECRL. Mr. Roy refers 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.
4. On the other hand, Mr. S. Mishra, learned ASC for the Department refers 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. He also refers 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”.
5. The appellate authority has, in the impugned order, referred to the decision in Shukhdev Singh v. Bhagatram Sardar Singh AIR 1975 SC 1331, which mandates that “If Statute provides a thing to be done in a particular manner, then it has to be done only in that manner.” Mr. Mishra, learned ASC in addition refers to the decision of the Supreme Court of India in M/s. Jayam & Co. v. State of Tamil Nadu (2016) 15 SCC 125 which held that the ITC itself is a concession and has to be utilized as per the provisions in the GST statute and not otherwise.
6. Roy, learned counsel for the Petitioner, on the other hand refers to the decision of Supreme Court of India in K. Synthetics Ltd. v. Commercial Taxes Officer 94 (1994) STC 422 where certain observations were made in the context of payment of interest. It was held that the provisions that permit the levy and collection of interest, even if construed as forming part of the machinery provision, “is substantive law for the simple reason that in the absence of contract or usage, interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount.
7. On the strength of the above observations, it is contended by Mr. Roy that Section 107 (6) of the OGST Act was merely a machinery provision and that it must be interpreted purposively to subserve the purpose of collecting the pre-deposit amount which could be done even by debiting the ECRL. He refers to the dissenting view of Justice P.N. Bhagwati (as the learned Chief Justice of India then was) in Associated Cement Company Limited v. Commercial Tax Officer, Kota (1981) 4 SCC 578 that a provision made in a statute for charging interest on delayed payment of tax must be construed as a substantive law and not a procedural provision.
Hon’ble High Court Held
8. The Court does not find the above decision to be helpful to the Petitioner. 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 Mr. Mishra, learned ASC, 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. It is not therefore possible to accept the plea Section 107 (6) of the OGST Act is merely a “machinery provision”.
9. The reliance by Mr. Roy, learned counsel for the Petitioner on the judgment of the Gujarat High Court in Vinayak Trexim v. State of Gujarat [2020] 79 GSTR 118 (Guj) is also not helpful to him. There a sum of Rs.20,00,000/- was to be refunded to the Assessee and it was directed by the High Court that this amount could be used for the purposes of pre-deposit. It is not possible in the present case to equate the output tax payable to the amount of pre-deposit required to be made. There is world of difference between an amount which is refundable and an amount which is liable to be paid as output tax. Here there is no amount refundable to the Petitioner which could be utilized for making of payment of the pre-deposit.
10. The 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.
From the above judgment of Hon’ble High Court of Orissa it can be inferred that output Tax as defined under section 2(82) of GST Act could not be equated to pre-deposit required to be made in terms of section 107(6) of the Act ibid.. During the court proceeding the language used in sub-section (3) & (4) of Section 49 of the Act ibid is interpreted. The said sub-sections are reproduced below for reference:-
3) 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 or the rules made thereunder in such manner and subject to such conditions and within such time as may be prescribed.
(4) The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time as may be prescribed.
[Emphasis supplied]
As per provision u/s. 49(3) of CGST Act, amount available in ECL can be used for making any payment whereas the provision u/s. 49(4) of the Act ibid. restricts the amount available in ECRL for making any payment other than payment towards output tax. Hence, the registered person is required to make payment equivalent to 10% of the disputed amount of tax arising from the order against which the appeal was filed. The credit ledger cannot be debited for making payment of pre-deposit at the time of filing of the appeal.
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