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Payment of Predeposit from ITC-is Allowed

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Brief summary of the case

Court: IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
Number: WRIT PETITION (ST) NO. 23507 OF 2022
Petitioner: Oasis Realty
Respondents: UOI
Date of decision: 16.09.2022
Judges: Honourable Per K.R.Shriram,J.

Facts

  1. Section 107 of CGST Act, 2017 requires mandatory pre-deposit of a sum equal to 10% of the amount of Tax in dispute before filing of appeal.
  2. According to Revenue, the appellant can pay pre deposit amount only from the Electronic Cash Ledger.
  3. The petitioner, wanted to comply with the requirements by paying from Electronic Credit Ledger. However, the request was rejected.

Petitioner’s Argument

  1. Clause (b) of Sub-section (6) of Section 107 provides a precondition, “unless the appellant has paid” (not deposited) a sum equal to 10% of remaining amount of Tax in dispute.
  2. Sub-section (3) of Section 49 provides the amount of ITC available in the Electronic cash Ledger can be utilised towards payment of Integrated Tax or Central Tax or State Tax or Union Territory Tax.
  3. Sub-section (4) of Section 49 provides the amount available in the Electronic Credit Ledger may be used for making any payment towards output tax under the MGST Act or IGST Act subject to certain restrictions or conditions that may be prescribed.

Respondent Argument

  1. Sub-section (4) of Section 49 restricts the usage of the amount available in the Electronic Credit Ledger only for payment of output tax and pre deposit is not an output tax.
  2. Respondent relied upon an order of the High Court of Orissa at Cuttack in M/s Jyoti Construction Vs. Deputy Commissioner of CT & GST to submit that the amount in the credit ledger cannot be used to pay the 10% required to be paid under Sub-section (6) of Section 107 of the MGST Act.

Court observation

  1. The expression used in Sub-section (6) of Section 107 is, “unless the Appellant has paid”. It is a precondition to filing an Appeal. The expression used is “paid” and not “deposited”. This would be material while considering the provisions of Sub-section (3), Subsection (4) and Sub-section (5) of Section 49.
  2. Sub-section (1) of Section 49 provides for a party to deposit its tax, interest, penalty, fee or any other amount and how such deposit has to be made. It also says that if such a deposit is made it shall be credited to the Electronic Cash Ledger of the said party
  3. Sub-section (3) and Sub-section (4) of Section 49 provide how to use the amounts lying in the Electronic Cash Ledger and Electronic Credit Ledger, respectively.
    • Sub-section (3) provides that the amount available in the Electronic Cash Ledger may be used for making any payment towards tax, interest, penalty, fee or any other amount payable under the provisions of this Act or rules made thereunder.
    •  Sub-section (4) provides that the amount available in the Electronic Credit Ledger may be used for making any payment towards output tax under MGST Act or under Integrated Goods and Services Tax (IGST) Act.

Judgement

  1. Since in the Petitions before us the amounts payable is towards output tax, we hold that Petitioners may utilise the amount available in the Electronic Credit Ledger to pay the 10% of Tax in dispute as prescribed under Sub-section (6) of Section 107 of MGST Act.
  2. The Appeal is restored to file on the undertaking of Petitioner that it shall debit the Electronic Credit Ledger within one week of this order getting uploaded towards this 10% payable under Section 107(6)(b), if not already debited, is accepted.
  3. The impugned Order-in-Appeal is quashed and set aside.

Our observation

Cash can be deposited [S 49(1)] and tax is required to be paid [S 49(3)/(4)]. Section 107 uses the word paid and therefore pre deposit can be made from ITC. Also, Court did not rely on Orissa High Court Judgement since CBIC had issued a circular which said any tax can be paid through ITC. Disputed tax is also a tax. A nice judgement and maybe it is now well settled also that disputed tax can be paid through ITC.

Facts

  1. Section 107 of CGST Act, 2017 requires mandatory pre-deposit of a sum equal to 10% of the amount of Tax in dispute before filing of appeal.
  2. According to Revenue, the appellant can pay pre deposit amount only from the Electronic Cash Ledger.
  3. The petitioner, wanted to comply with the requirements by paying from Electronic Credit Ledger. However, the request was rejected.

Petitioner’s Argument

  1. Clause (b) of Sub-section (6) of Section 107 provides a precondition, “unless the appellant has paid” (not deposited) a sum equal to 10% of remaining amount of Tax in dispute.
  2. Sub-section (3) of Section 49 provides the amount of ITC available in the Electronic cash Ledger can be utilised towards payment of Integrated Tax or Central Tax or State Tax or Union Territory Tax.
  3. Sub-section (4) of Section 49 provides the amount available in the Electronic Credit Ledger may be used for making any payment towards output tax under the MGST Act or IGST Act subject to certain restrictions or conditions that may be prescribed.

Respondent Argument

  1. Sub-section (4) of Section 49 restricts the usage of the amount available in the Electronic Credit Ledger only for payment of output tax and pre deposit is not an output tax.
  2. Respondent relied upon an order of the High Court of Orissa at Cuttack in M/s Jyoti Construction Vs. Deputy Commissioner of CT & GST to submit that the amount in the credit ledger cannot be used to pay the 10% required to be paid under Sub-section (6) of Section 107 of the MGST Act.

Court observation

  1. The expression used in Sub-section (6) of Section 107 is, “unless the Appellant has paid”. It is a precondition to filing an Appeal. The expression used is “paid” and not “deposited”. This would be material while considering the provisions of Sub-section (3), Subsection (4) and Sub-section (5) of Section 49.
  2. Sub-section (1) of Section 49 provides for a party to deposit its tax, interest, penalty, fee or any other amount and how such deposit has to be made. It also says that if such a deposit is made it shall be credited to the Electronic Cash Ledger of the said party
  3. Sub-section (3) and Sub-section (4) of Section 49 provide how to use the amounts lying in the Electronic Cash Ledger and Electronic Credit Ledger, respectively.
    • Sub-section (3) provides that the amount available in the Electronic Cash Ledger may be used for making any payment towards tax, interest, penalty, fee or any other amount payable under the provisions of this Act or rules made thereunder.
    •  Sub-section (4) provides that the amount available in the Electronic Credit Ledger may be used for making any payment towards output tax under MGST Act or under Integrated Goods and Services Tax (IGST) Act.

Judgement

  1. Since in the Petitions before us the amounts payable is towards output tax, we hold that Petitioners may utilise the amount available in the Electronic Credit Ledger to pay the 10% of Tax in dispute as prescribed under Sub-section (6) of Section 107 of MGST Act.
  2. The Appeal is restored to file on the undertaking of Petitioner that it shall debit the Electronic Credit Ledger within one week of this order getting uploaded towards this 10% payable under Section 107(6)(b), if not already debited, is accepted.
  3. The impugned Order-in-Appeal is quashed and set aside.

Our observation

Cash can be deposited [S 49(1)] and tax is required to be paid [S 49(3)/(4)]. Section 107 uses the word paid and therefore pre deposit can be made from ITC. Also, Court did not rely on Orissa High Court Judgement since CBIC had issued a circular which said any tax can be paid through ITC. Disputed tax is also a tax. A nice judgement and maybe it is now well settled also that disputed tax can be paid through ITC.

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