GST Advisory

Can Electronic Credit Ledger be used for the payment of pre-deposit under GST?

The payment of the mandatory pre-deposit of 10% of the disputed amount of tax when filing an appeal under the GST tax system has long been a controversial matter. The way in which the pre-deposit is to be paid has been decided differently by various courts and adjudicating forums. While some rulings support the idea that the pre-deposit can be paid by debiting the taxpayer’s Electronic Credit Ledger (ECRL), others state that such a pre-deposit cannot be paid by debiting the assessee’s Electronic Credit Ledger.

Payment of pre-deposit using Electronic Credit Ledger

In a recently decided case law, the Orissa High Court (HC) in the matter of M/S Jyoti Construction versus. Deputy Commissioner of CT & GST, Barbil Circle, Jaipur Range [Writ Petition Nos. (C) 23508, 23511, 23513, 23514, & 23521 of 2021 dated 7 October 2021], has decided that for the purpose of submitting an appeal under Section 107 of the Odisha Goods and Services Tax Act, 2017 (OGST Act), the compulsory payment of pre-deposit of 10% of the disputed amount of tax can be paid by way of debiting the taxpayer’s Electronic Cash Ledger (ECL) and not through the Electronic Credit Ledger.

While handling the given case, the High Court has taken into account the decisions in the cases of Sukhdev Singh v. Bhagatram Sardar Singh [AIR 1975 SC 1331] and M/s. Jayam & Co. v. State of Tamil Nadu [(2016) 15 SCC 125], where it was retained that the concept of ITC (Input Tax Credit) is in and of itself a concession that must be used in accordance with the GST statute and not otherwise.

Drawing a comparison from the preceding decisions and relying on Section 41(2) of the Odisha Goods and Services Tax Act, which restricts the purposes for which ECRL can be used, it was determined that there is a distinction between an amount that is refundable and an amount that must be paid as output tax. Because the pre-deposit is not an ‘output tax’ under Section 2(82) of the OGST Act, a debit of the Electronic Credit Ledger could not be allowed for paying the pre-deposit amount when submitting an appeal under Section 107 of the OGST Act. The court held that the pre-deposit money for an appeal under the GST law needs to be paid through the cash ledger only.

Facts of the case: Payment of pre-deposit using Electronic Credit Ledger

The petitioner is a partnership firm that specializes in the execution of construction and works contracts, including civil, electrical, and mechanical work. The Deputy Commissioner of CT & GST, Jaipur, had made a claim of demand for IGST^[1], CGST, and OGST plus interest. The petitioner filed an electronic appeal with the appellate authority in response to the demand order so raised. According to Section 107(6) of the OGST Act, the petitioner was obligated to pre-deposit 10% of the disputed tax deriving from the decision against which the appeal was lodged. Further, according to Section 49(3) read with Rule 85(4) of the OGST Rules, the petitioner was obligated to make this payment of pre-deposit money by debiting its electronic cash ledger. The petitioner, on the other hand, attempted to make the pre-deposit payment by debiting the electronic credit ledger.

The assessee (petitioner) argued before the appellate authority and the Hon’ble High Court that under Section 49(4) of the OGST Act, the amount that is available in the electronic credit ledger may be utilized to make “any payment towards output tax” under either the OGST Act or the IGST Act “in such manner, subject to such conditions, and within such time as may be prescribed.”

The petitioner’s lawyer resorted to the definition of “Output Tax” in Section 2(82) of the OGST Act, which states that it is “tax chargeable under this Act on supply of goods or services or both” provided by the taxable person or his agent but excludes tax payable on a reverse charge basis. On this basis, it was argued on their part that because what the petitioner was effectively paying was a proportion of the output tax as described in Section 2(82) of the OGST Act, the amount could easily be paid by debiting the electronic credit ledger.

Observations and decisions of the Court

The Court observed that it is not reasonable to accept the argument of the assessee that “Output Tax” as provided in Section 2(82) of the OGST Act may be equivalent to the pre-deposit needed to be made under Section 107(6) of the OGST Act.

The provisions contained in Section 41(2) of the OGST Act limit the use of the electronic credit ledger. It cannot be utilized for the payment of a pre-deposit at the time of filing an appeal under Section 107(6) of the OGST Act. Hence, it is not acceptable to accept the argument of the petitioner that Section 107(6) of the OGST Act is only a machinery provision. As a result, the pre-deposit for an appeal under GST shall be paid solely through the cash ledger of the assessee.

The Court said that it is unable to locate any mistake having been committed by the appellate authority in rejecting the contention of the petitioner that the Electronic Credit Ledger could be debited or utilized for the purpose of making the payment of pre-deposit under GST.

Conclusion

In the instant case, it was decided that the Electronic Credit Ledger (i.e., ECRL) could not be utilized to make the payment of the pre-deposit for the purpose of filing an appeal under the GST Act. The payment of the same has to be done by a taxpayer through the Electronic Cash Ledger (i.e., ECL).

Read our article:GST Council brings stricter rules for provisional ITC claims: Section 16(2)(aa)