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Goods and Services Tax Act, 2017 (GST Act) has been enacted to introduce a citizen friendly tax structure in India and to curb the hardships faced by the taxpayers in dealing with different tax authorities under the then existing tax law. GST Act broadly constitutes of tax-related obligations and procedural obligations. The Act aptly covers the dissatisfaction of a taxpayer against the order passed by the Adjudicating Authority designated with such power under the law. Any person aggrieved by any decision or order passed under the Central Goods & Services Tax Act or the State Goods and Services Tax Act or the union Territory Goods and Service Tax by an Adjudicating Authority may file an appeal to the Appellate Authority in FORM GST APL – 01 within 3 months from the date on which the said decision or order is communicated to such person.[1]

However, the right to appeal, being a statutory right, is governed by the fetters placed by the statute on its exercise. If a statute provides a thing to be done in a particular manner, then it has to be done only in that manner.[2] This article deals with the mechanism of pre-deposit for filing an appeal against the order of Adjudicating Authority passed under the GST Act.

Concept of pre-deposit:

The law puts certain limitations placed on the right to file an appeal in order to discourage frivolous appeals and also safeguard the genuine interests of both the taxpayers as well as the revenue. One of the limitations placed by the legislation is the mandate of “pre-deposit”. Section 107(6) of the CGST Act, 2017 imposes an obligation on the appellate to pre-deposit –

(a) full amount of tax, interest, fine, fee and penalty, that has been admitted by him, and

(b) a sum equal to 10% of the remaining amount of tax in dispute arising from the order of the Adjudicating Authority.

This pre-deposit ensures that the recovery proceedings in respect of the remaining amount under dispute shall be deemed to be stayed.[3] However, the moot point that arises herein is whether the pre-deposit can be paid using electronics credit ledger.

Utilization of the amount available in the Electronic Credit Ledger of an assessee:

Section 49(4) of the CGST Act provides that the amount available in the electronic credit ledger may be used for making any payment towards “output tax” under the said Act or under the Integrated Goods and Services Tax Act (IGST Act). Here, the expression “output tax” has been defined under Section 2(82) of the CGST Act as the tax chargeable under the Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis.

The bare perusal of the above stated provisions reflect that electronic credit ledger can be utilized in payment of pre-deposit ONLY IF pre-deposit comes under the ambit of “output tax”.

Further, Rule 85(3) of the CGST Rules, 2017, Subject to the provisions of section 49, section 49A and section 49B, 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 or the electronic cash ledger maintained as per rule 87 and electronic liability register shall be credited accordingly.

The amount deducted under section 51, or the amount collected under section 52, or the amount payable on reverse charge basis, or the amount payable under section 10, any amount payable towards interest, penalty, fee or any other amount under the Act shall be paid by debiting the electronic cash ledger maintained as per rule 87 and the electronic liability register shall be credited accordingly.

Use of Electronic Credit Ledger in making Pre-Deposit under Section 107(6) of GST Act

It is pertinent to note that in a recent judgment passed by the Hon’ble Odisha High Court in the matter of M/S. Jyoti Construction vs Deputy Commissioner of CT & GST, Barbil Circle, Jaipur & Anr., W.P. (C) Nos. 23508, 23511, 23513, 23514 and 23521 of 2021, it has been held that Section 107 (6) of the GST Act is not merely a “machinery provision”. Since, Section 41 of the GST Act limits the usage of the credit available in the Electronic Credit Ledger to the payment of self-assessed output tax, 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.

Recent Amendment:

As per the old provision under Section 41 of the CGST Act, the credit could be utilized only for payment of self-assessed output tax as per the return. However, the newly substituted Section 41 of the Act, the restriction on the availment of the credit has been done away with. In addition to this, there is no other provision under the CGST Act or Rules which restrains an assessee from making payment of the pre-deposit from the electronic credit ledger.

In light of the stated amendment introduced by the Finance Act, 2022, it is explicit that there is no bar in utilizing the credit available in the Electronic Credit Ledger for making pre-deposit for filing an appeal under the GST Act.

[1] The Central Goods and Services Act, 2017, Section 107(1) r/w The Central Goods and Services Rules, Rule 108(1).

[2] Shukhdev Singh vs. Bhagatram Sardar Singh, AIR 1975 SC 1331.

[3] The Central Goods and Services Act, 2017, Section 107(7).

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April 2024