The payment of the compulsory pre-deposit of 10% of the disputed amount of tax while filing an appeal under the tax regime has always been a much-debated issue. The manner in which the pre-deposit is to be paid has been adjudicated upon differently by various courts and adjudicating forums. While some decisions support the view that the payment of the pre-deposit could be paid by way of debiting the tax payer's Electronic Credit Ledger (ECRL), some decisions lay down that such pre-deposit cannot be made by way of debiting the assess' ECRL.
In a recent decision, the Orissa High Court (HC) in the matter of M/s. Jyoti Construction v. Deputy Commissioner of CT & GST, Barbil Circle, Jajpur & Anr. [Writ Petition (C) Nos. 23508, 23511, 23513 23514 and 23521 of 2021], has held that for the purposes of filing an appeal under Section 107 of the Orissa Goods and Services Tax Act, 2017 (OGST Act), the mandatory pre-deposit of 10% of the disputed amount of tax can be paid by way of debiting the appellant's Electronic Cash Ledger (ECL) and not the ECRL.
While passing the judgment the HC has considered the judgments passed in the matters 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] wherein it was held that the concept of ITC (Input Tax Credit) is in itself a concession and it has to be utilised as per the provisions in the GST statute and not otherwise.
Drawing a parallel from the aforesaid judgments and relying upon Section 41(2) of the OGST Act, which limits the usage to which ECRL could be utilised, it was held that there exists a difference between an amount which is refundable and an amount which is liable to be paid as output tax. Since the nature of the pre-deposit is not an ‘output tax' in terms of Section 2(82) of the OGST Act, a debit of the ECRL could not be permitted for paying the pre-deposit amount while filing an appeal under Section 107 of the OGST Act. It was observed that when the tax amount is to be refunded to the tax payer, ECRL could be utilised for making pre-deposits, but not when the same is in the form of payment of pre-deposit for appeals to be filed under Section 107 of the OGST Act.
Here it is pertinent to understand that in terms of Section 107(7), on payment of the mandatory 10% pre-deposit amount, the recovery of the balance 90% of the disputed tax amount is deemed to be stayed. Now, if the nature of the balance 90% amount, the recovery of which is deemed to be stayed is that of a tax then why the mandatory pre-deposit of 10% is not a tax, is a point to be pondered upon. Also, in the event of losing the appeal, the appellant is required to pay the balance 90% tax amount only with interest.
Another point to be considered here is that it is only in the case of successful outcome of the appeal that the appellant is entitled to claim the refund of the said pre-deposit amount. It is only for the purpose of refund in this situation the pre-deposit amount is not subject to time limit aspect that is applicable to claiming of refund of tax paid in the normal course. This exception does not alter the nature of the amount of tax. The amount so paid remains a tax.
Further, considerable judicial guidance in the form of precedence in the pre-GST era is available on this point, wherein various High Courts and Tribunals have taken similar view to support the payment of pre-deposit amounts using Cenvat credit.
This decision of the Orissa HC will now create a confusion in the minds of appellants and their respective authorities as to whether the pre-deposit can be paid using the ECRL or not. Moreover, the instant decision of the HC will also raise a big question mark in relation to the appeals that have already been filed by way of paying the pre-deposit amount by debiting the ECRL under the provisions of Section 107(6) of the OGST Act.
While Section 107 of the CGST Act and the pari-materia State GST Acts are silent on such bar of payment of pre-deposit by debiting the ECRL, a timely clarification from the government is required on this point to help the assesses. Alternatively, the assesses will have to approach their respective High Courts to provide relief in light of the pre-GST era precedents.
Till such time, the assesses will likely have a tough time in explaining this point to their respective authorities and considerable amount of valuable working capital may get locked up in litigation.
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