GST update No 300 on whether pre-deposit can be made by utilising credit?

The question regarding making pre-deposit using electronic credit ledger has been a moot question and a controversial matter since the very inception of GST. There had been various judicial rulings in favour and against the motion. On similar parameters, one case was reported before Bombay High Court in the case of OASIS REALTY V/S UNION OF INDIA. The decision imparted in this case is the subject matter of discussion of our present update.
The petitioner filed a petition as to whether the pre-deposit amount can be paid through utilising electronic credit ledger. The petitioner referred to provisions of Section 49 and 107 of CGST Act, 2017. It was submitted that before filing an appeal, the assessee is required to make payment of admitted amount of tax, interest, fine, fee and penalty. This case will arise only when the part order is accepted and part is not accepted. Further, the assessee shall make payment of 10% of remaining amount of “tax” in dispute arising from the order against which appeal is preferred. Therefore, no payment of disputed interest, penalty, fine or fee is to be made. Further, it was submitted that there is a pre-condition to filing of appeal which states that unless the pre-deposit is paid, appeal cannot be filed. Provisions of Section 49 of CGST Act, 2017 were referred to and it was contended that as per the said section, amount available in the Electronic Cash Ledger may be used for making any payment towards tax, interest, penalty, fee or any other amount payable and amount available in the Electronic Credit Ledger may be used for making any payment towards output tax in the prescribed manner.The counsel of revenue argued that the amount available in credit ledger can be used for making payment of output tax and cannot be utilised for making payment of pre-deposit as under Section 107 of the Act. The amount of pre-deposit can be made only throughelectronic cash ledger. Reliance was placed on decision of Orissa High Court in the case of M/S JYOTI CONSTRUCTION V/S DEPUTY COMMISSIONER CT & GST. It was further argued that the Circular as referred to be the Court will not stand applicable in the case of reverse charge mechanism.
The Court referred to Section 107 of the Act wherein a pre-condition is provided i.e. “unless the appellant has paid (not deposited)” an amount of 10% of tax in dispute. Further, the credit available in electronic credit ledger can be used towards making payment of output tax only. Therefore, in the considered view the petitioner can use electronic credit ledger for making payment of pre-deposit amount. Further, the same can also be made by utilising the electronic cash ledger. It was further stated that any payment towards output tax, whether self-assessed in the return or payable as a consequence of any proceeding can be made by utilisation of the amount available in the Electronic Credit Ledger. Therefore, the pre-deposit amount can be paid through cash as well as credit ledger. The case referred to by the revenue was not considered since subsequently, CBIC issued clarification in the form of a Circular No. CBIC-20001/2/2022-GST dated 6th July 2022 wherein it clarified that any amount towards output tax can be paid by utilisation of the amount available in the Electronic Credit Ledger. Therefore, the impugned order was set aside and the appeal was restored stating that petitioner can debit the Electronic Credit Ledger towards pre-deposit amount.
The above favourable decision will prove to be beneficial for the trade and industry since now the assessees will not have to face tough situation explaining their point of view to the revenue department and further resulting into blocking of working capital. There had been various decisions against the motion as well such as held by Allahabad CESTAT in the case of JOHNSON MATTHEY CHEMICAL INDIA PVT. LTD. V/S ASSISTANT COMMISSIONER CGST wherein it was concluded that electronic credit ledger cannot be used by assessee to make payment of pre-deposit amount. The said decision was also discussed by us in our Update No. 269/2022. On the Contrary, favouring ruling is delivered by Allahabad High Court in the case of TULSI RAM AND COMPANY V/S COMMISSIONER. Although it is well settled that the rulings of High Courts have a binding effect on the decisions CESTAT and its subordinate authorities, yet a suitable clarification in this respect from the Government is anticipated at the earliest.

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GST update No 300 on whether pre-deposit can be made by utilising credit?

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