SC Backs Taxpayer: ITC Can Be Used for 10% GST Appeal Payment

The Assessee, an exporter of specialized chemicals, filed a writ petition before the High Court challenging a letter dated 25.04.2023 issued by the CGST department, which directed the company to make the mandatory 10% pre-deposit for appeal under Section 107(6)(b) of the CGST Act through the Electronic Cash Ledger instead of the Electronic Credit Ledger (ECL) which the company had already used.

While appealing a demand order, the company reversed ITC and used its ECL to pay Rs. 3.36 crore through Form GST DRC-03. Aggrieved by the department’s refusal to accept this payment method, it approached the High Court.

Main Contention: Whether it is to use the Electronic Credit Ledger rather than the Electronic Cash Ledger to pay the 10% pre-deposit required to file a GST appeal under Section 107(6)(b) of the CGST Act?

HC’s Held: The Court held that the 10% pre-deposit payment made via the Electronic Credit Ledger is legitimate and complies with Section 107(6)(b) of the CGST Act. The Court clarified that output tax liabilities, whether resulting from returns or proceedings, can be discharged using ITC in the ECL, citing the Bombay High Court’s decision in Oasis Realty and the CBIC Circular dated 06.07.2022. According to the Court, the department’s demand for cash payment was capricious and unsupported by any laws or circulars. The impugned letter dated 25.04.2023 was quashed, and the department was directed to proceed with the appeal on merits.

SC’s Decision: The State contested the High Court’s ruling through a SLP. The Supreme Court, however, rejected the SLP, pointing out that the comparable cases the department had cited were ones in which notices had been sent to assessees rather than the department itself. Further, the Court took note of the deletion of Rule 96(10) in 2024 and found no merit in the challenge. Accordingly, it declined to interfere with the High Court’s well-reasoned order and dismissed the petition, thereby affirming the permissibility of using the ECL for pre-deposit payments under Section 107(6)(b).