Yasho Industries Limited Vs Union of India & Anr. (Gujarat High Court)
The Gujarat High Court has ruled that a company can fulfill its pre-deposit requirement for an appeal under the Goods and Services Tax (GST) Act by utilizing funds from its Electronic Credit Ledger (ECL), rather than being compelled to use the Electronic Cash Ledger (ECL). The decision came in the case of Yasho Industries Limited versus the Union of India & Anr., quashing a directive from tax authorities that mandated payment through the cash ledger.
Yasho Industries Limited, a manufacturer and exporter of specialized chemicals, had approached the High Court challenging a letter dated April 25, 2023, issued by the respondent, which insisted on the pre-deposit for their appeal being paid via the Electronic Cash Ledger. The company had already paid INR 3,36,82,000 towards the pre-deposit, as required under Section 107(6)(b) of the Central Goods and Services Tax (CGST) Act, using its Electronic Credit Ledger.
Background of the Dispute:
The dispute originated from Yasho Industries’ historical practice of availing refunds of Integrated Goods and Services Tax (IGST) paid on exports, in line with Section 16(3)(b) of the IGST Act, and simultaneously enjoying IGST exemption on imported raw materials used in export manufacturing under Notification No. 79/2017-Cus.
However, with the introduction of Rule 96(10) of the CGST Rules, 2017, read with Notification No. 54/2018-CT dated October 9, 2018, the company was precluded from claiming rebate benefits under Section 16(3)(b) of the IGST Act if imported goods enjoyed exemptions under Notification No. 79/2017.
Aggrieved by this change, Yasho Industries had previously filed a writ petition before the Bombay High Court, which is currently pending. Under protest, the company had also reversed input tax credit amounting to INR 3 Crore.
Subsequently, tax authorities initiated an investigation, leading to a show cause notice on March 16, 2022, demanding the refunded IGST along with interest and penalty. Despite the company’s detailed reply on May 23, 2022, arguing that the matter was revenue neutral and that reversal of IGST exemption had occurred without contravention of Rule 96(10) of CGST Rules, the show cause notice was confirmed via an order dated September 20, 2022.
Yasho Industries then filed an appeal before the Commissioner (Appeals) and, in compliance with Section 107(6)(b) of the CGST Act, deposited the pre-deposit amount of INR 3,36,82,000 by utilizing funds from its Electronic Credit Ledger on December 26, 2022. Despite this, the tax authorities issued the impugned letter on April 25, 2023, instructing the company to pay the pre-deposit through the Electronic Cash Ledger.
Judicial Precedent and Court’s Ruling:
The Gujarat High Court, in its present ruling, cited its own previous decision dated November 30, 2023, in Special Civil Application No. 22979 of 2022. This earlier judgment, which was extensively reproduced in the current order, had addressed the same question: whether the pre-deposit for an appeal under Section 107(6) of the CGST Act could be made using the Electronic Credit Ledger.
The High Court referred to the Bombay High Court’s decision in Oasis Realty Vs. The Union of India , WRIT PETITION (ST) NO. 23507 OF 2022 Dated: 16th SEPTEMBER, 2022 and a clarification issued by the Central Board of Indirect Taxes and Customs (CBIC) in a circular dated July 6, 2022 (F. No.CBIC-20001/2/2022-GST).
The Oasis Realty case, as highlighted by the Gujarat High Court, had concluded that Section 107(6)(b) requires a “payment” of 10% of the disputed tax, and not specifically a “deposit” through cash. It held that the Input Tax Credit (ITC) available in the Electronic Credit Ledger could be utilized for paying Integrated Tax, Central Tax, State Tax, or Union Territory Tax. The Bombay High Court emphasized that any payment towards output tax, whether self-assessed or as a consequence of any proceeding under the GST laws, can be made using the amount in the Electronic Credit Ledger.
Crucially, the CBIC circular from July 6, 2022, further solidified this position. The circular clarified that “any payment towards output tax, whether self-assessed in the return or payable as a consequence of any proceeding instituted under the provisions of GST Laws, can be made by utilization of the amount available in the electronic credit ledger of a registered person.” It explicitly differentiated this from payments for interest, penalties, fees, or other amounts, which cannot be made from the ECL. Conversely, the circular affirmed that the Electronic Cash Ledger can be used for any payment, including tax, interest, penalty, or fees.
Based on these precedents and clarifications, the Gujarat High Court concluded that the payment of pre-deposit could indeed be made by utilizing the Electronic Credit Ledger. Consequently, the court quashed and set aside the impugned letter dated April 25, 2023, issued by respondent No. 2, which had directed Yasho Industries to pay the pre-deposit through the Electronic Cash Ledger.
The court directed that the appeal filed by Yasho Industries before the Commissioner (Appeals) should now be heard on its merits, considering the payment from the Electronic Credit Ledger as sufficient compliance with Section 107(6)(b) of the CGST Act. The petition was disposed of accordingly.
Read SC Judgment: GST Pre-Deposit Via Credit Ledger allowed: SC Upholds Gujarat HC Ruling
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
