Patna HC: An ECL Can Be Used to Make a Pre-deposit for an Appeal Under the GST Act, Not an Electronic Credit Ledger

In a recent decision, the Patna High Court declared that the pre-deposit for upholding an appeal following Section 107(6)(b) of the CGST/SGST Act can only be made using funds from the Electronic Cash Ledger, not the Electronic Credit Ledger.

The division panel, consisting of Justices Madhuresh Prasad and Chakradhari Sharan Singh, concluded that the pre-deposit (10 percent) required to uphold an appeal as per Section 107(6)(b) of the CGST/BGST Act can be fulfilled solely by carrying out payments in the Electronic Cash Ledger (ECL).

These conclusions are based on the requirements stipulated in Section 49(3) of the CGST/BGST Act, along with Rule 85(4) of the CGST/BGST Rules.

This ruling was made in response to three writ petitions filed by M/s Flipkart Internet Pvt. Ltd, M/s Sanyog Construction Private Limited, and Summit Digital Infrastructure Limited. These petitions were considered collectively due to their common legal questions and equivalent issues.

The three petitioners, while utilizing the appeal remedy under Section 107 of the Central Goods and Services Tax (CGST) Act/Bihar Goods and Services Tax (BGST) Act, had debited their respective Electronic Credit Ledgers (ECRL) by an amount equivalent to 10 percent of the outstanding disputed tax amount mentioned in the assessment order related to the appeal.

It is important to note that failure to deposit this sum would render the appeal non-maintainable, as per Sub-Section 6(b) of Section 107 of the CGST/BGST Act. The Appellate Authority rejected the appeal for not fulfilling the pre-deposit requirement.

As per the Appellate Authority, the applicable pre-deposit that could be made using funds from the cash ledger is only 10%, as specified in Section 49(3) of the CGST/BGST Act and Rule 85(4) of the Central Goods and Services Tax Rules/Bihar Goods and Services Tax Rules (CGST/BGST Rules), 2017.

As the petitioners did not pay the 10 percent sum of the disputed tax amount under Section 107(6) of the CGST/BGST Act using the cash ledger, the Appellate Authority concluded that the required pre-deposit necessity needed to be fulfilled to maintain the appeal.

In the case of M/s Sanyog Construction Pvt Ltd, there was an additional factor where the appeal was also deemed time-barred under Section 107 of the CGST/BGST Act, which allows three months for filing an appeal.

As per Sub-Section (4) of Section 107 of the CGST/BGST Act, if the Appellate Authority is convinced that the appellant had a sufficient reason for not submitting the appeal within the specified period, it may allow the appeal to be presented within an additional one-month period.

The Court took into account a submission made by the petitioners, which argued for the validity of fulfilling the pre-deposit (10 %) by debiting the Electronic Credit Ledger (ECRL), as stated in the Circular published by the Central Board of Indirect Taxes and Customs (CBIT&C) on 06.07.2022.

The State Government also supported this position in its circular dated 14.09.2022. The Court reviewed this statement by considering pertinent portions of the arguments stated in the given circulars.

Particularly, the Court mentioned the relevant clarifications found in issues No. 6, 7, and 8 of the circular dated 06.07.2022. These clarifications addressed the utilization of funds in the electronic credit ledger and electronic cash ledger for the payment of taxes and other liabilities.

The issues discussed the use of funds in the electronic credit ledger for different purposes, including the settlement of output tax, penalty, fees, interest, and liabilities under GST regulations.

Issue 6 explained that the electronic credit ledger could be utilized to pay output tax under the CGST Act or the IGST Act, under the stipulated regulations.

However, it is clearly stated that the electronic credit ledger could not be used for taxes payable according to reverse charge mechanisms.

Issue 7 highlighted the exclusive designation of the electronic credit ledger for settling the output tax, prohibiting its utilization for other liabilities such as interest, penalty, fees, or any other amount payable under GST laws.

On the other hand, 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 thoroughly examined 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.