Pre-deposit For CGST/SGST Appeal Allowed Exclusively From Electronic Cash Ledger, Not Electronic Credit Ledger: Patna High Court

The division bench comprising Justices Madhuresh Prasad and Chakradhari Sharan Singh observed, "This court is also of the unambiguous conclusion that the pre-deposit (10 percent) for maintaining appeal under Section 107 (6)(b) of the CGST/BGST Act can be done by utilizing amounts in the ECL only. The conclusions are based on the provisions contained in Section 49(3) of the CGST/BGST Act read with Rule 85 (4) of the CGST/BGST Rules."

The above ruling came in 3 writ petitions filed by M/s Flipkart Internet Pvt. Ltd, M/s Sanyog Construction Private Limited and Summit Digital Infrastructure Limited, which were considered together, as they involve common questions of law and identical issues.

The three writ petitioners, while availing the remedy of appeal under Section 107 of the Central Goods and Services Tax (CGST) Act/Bihar Goods and Services Tax (BGST) Act, had resorted to debiting of their respective electronic credit ledger (ECRL) for an amount equal to 10 percent of the remaining amount of tax in dispute arising from the assessment order in relation to which the appeal has been filed.

Notably, Such sum is required to be deposited, failing which appeal would not be maintainable in terms of sub-Section 6 (b) of Section 107 of the CGST/BGST Act.

The Appellate Authority had rejected the appeal as being defective for non-payment of the pre-deposit. According to the Appellate Authority, the 10 percent pre-deposit could only be paid by utilizing the cash ledger as per Section 49(3) of the CGST/BGST Act read with Rule 85(4) of the Central Goods and Services Tax Rules/Bihar Goods and Services Tax Rules (CGST/BGST Rules), 2017.

Since the petitioners had not paid the sum equal to 10 percent of the amount of tax in dispute under Section 107(6) of the CGST/BGST Act by utilizing cash ledger, the Appellate Authority had held that the mandatory requirement of predeposit was not complied with for maintaining the appeal under Section 107(6) of the CGST/BGST Act.

There was one additional fact in the case of M/s Sanyog Construction Pvt Ltd, whereby the appeal was also held to be barred by limitation specified under Section 107 of the CGST/BGST Act, which provides three months period for filing of appeal.

As per SubSection (4) of Section 107 of the CGST/BGST Act, if the Appellate Authority is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within this period, it may be allowed to present the appeal within a further period of one month.

Upon careful examination of the arguments put forth by the counsels representing the parties, the court determined that the central question in the three writ proceedings revolved around whether an assessee could assert compliance with the pre-deposit requirement of 10 percent of the remaining disputed tax amount, as per the order under appeal, by debiting the Electronic Credit Ledger (ECRL) for the purpose of maintaining an appeal under Section 107(6) of the CGST/BGST Act.

The Court considered a submission on behalf of the petitioners, asserting the validity of making the pre-deposit (10 percent) through debiting ECRL, as per the Circular issued by the Central Board of Indirect Taxes and Customs (CBIT&C) on 06.07.2022.

This position was reiterated and fully endorsed by the State Government in its circular dated 14.09.2022. The Court examined this argument in light of the relevant portions of the clarifications provided in the aforementioned circulars.

Specifically, the Court referred to the pertinent clarifications under issue No. 6, 7, and 8 of the circular dated 06.07.2022, addressing the "Utilisation of amounts available in electronic credit ledger and the electronic cash ledger for payment of tax and other liabilities."

These issues revolved around the use of funds in the electronic credit ledger for various purposes, including settling output tax, interest, penalty, fees, and liabilities under GST laws.

Issue 6 clarified that the electronic credit ledger could be used to pay output tax under the CGST Act or the IGST Act, following prescribed rules. However, it explicitly stated that the electronic credit ledger couldn't cover taxes payable under reverse charge mechanisms.

Issue 7 emphasized that the electronic credit ledger was exclusively meant for settling output tax and couldn't be utilized for other liabilities such as interest, penalty, fees, or any other amount payable under GST laws.

Issue 8 clarified that the electronic cash ledger could be used to settle various liabilities under GST laws, including tax, interest, penalty, fees, or any other amount.

The court carefully scrutinized Section 49(3) and Section 49(4) of the CGST/BGST Act, along with Rule 85(4) and Rule 86 of the CGST/BGST Rules. It concluded that Section 49(4) specifically restricted the use of amounts in the electronic credit ledger for settling output tax under the CGST/BGST or the IGST.

The court highlighted the difference between Section 49(3) and Section 49(4), noting that while Section 49(3) was illustrative, Section 49(4) provided an exhaustive list of payments allowed from the electronic credit ledger.

The court also examined the Appeal Form under Section 107 of the Act, emphasizing its two distinct components – payment of the admitted amount and pre-deposit. It clarified that the electronic credit ledger could be used for the admitted amount, but for pre-deposit, the option for payment was provided through the Electronic Cash Ledger.

In its final remarks, the court rejected the writ petitions, supporting the Appellate Authority's conclusion that pre-deposit (10 percent) under Section 107(6)(b) of the CGST/BGST Act could only be made by utilizing amounts in the Electronic Cash Ledger.

The court's decision was based on a strict interpretation of statutory provisions, emphasizing that when a statute prescribes a specific method, all other methods are explicitly excluded.

Case Title: M/s Flipkart Internet Pvt vs The State of Bihar and Ors

LL Citation: 2024 LiveLaw (Pat) 2

Case No.: Civil Writ Jurisdiction Case No.1848 of 2023