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Court order to affect working capital of companies filing GST appeals
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SME Times News Bureau | 15 Oct, 2021
In what may affect the working capital of taxpayers looking at filing
appeals against GST claims, it had now been held that anyone seeking
remedy against indirect tax decision would have to make pre-deposit
amount in cash and not by debiting electronic credit ledger.
Recently,
the Division Bench of the Orissa High Court held that pre-deposit at
the time of filing an appeal under section 107(6) of the Central Goods
and Services Tax Act, 2017 (CGST Act) cannot be made by debiting the
Electronic Credit Ledger (ECRL). The payment of pre-deposit should be
made by debiting the Electronic Cash Ledger (ECL) in accordance with
section 49(3) of the CGST Act read with Rule 85(4) of the Central Goods
and Services Tax Rules, 2017 (CGST Rules).
What this order in
effect does is that it puts the burden on taxpayers to pay the
pre-deposit (ie 10 per cent of disputed tax) amount in cash by
transferring money from electronic cash ledger (ECL) for any tax dispute
raised by them. This would mean more cash outflows leaving little for
working capital needs.
In case that went to the Orissa High
Court, the revenue raised demands of GST along with interest on the
petitioners, who were engaged in execution of works contract. The
petitioner filed an appeal and made payment towards pre-deposit (i.e. 10
per cent of disputed tax) for filing an appeal, by utilising the
balance in the ECRL. The revenue dismissed the appeal and considered it
to be defective, emphasising that the liability of pre- deposit can be
discharged only by debiting ECL.
The petitioner's contention was
that any payment towards output tax can be made through ECRL. Since
pre-deposit can be construed as a percentage of output tax, it can be
paid by debiting ECRL.
Revenue department contended that the
CGST Act specifically provides that ECRL can be utilised towards payment
of output tax. However, pre-deposit required to be made cannot be
equated with output tax payable. Input tax credit can be utilised only
to discharge 'self-assessed output tax as per the return'.
The
High Court's accepted this contention and observed that the pre-deposit
cannot be equated with 'output tax' and that the restriction under
proviso to section 41(2) of the CGST Act, limits the usage of the credit
ledger for making pre-deposit. The High Court declined the petitioner's
contention to treat the provision under section 107(6) of the CGST Act
as a 'machinery provision'.
Accordingly, the decision of the Appellate Authority that pre-deposit cannot be made by debiting ECRL was upheld.
The
petitioner contended that they would make payment by debiting the ECL,
but they should be permitted to reverse the debit of ECRL. The High
Court observed that this was a separate cause of action for which the
petitioner should independently seek appropriate remedy. The Court held
that the making of pre-deposit is not contingent upon the reversal of
the debit entry in ECRL.
This is an important decision that
categorically holds that the pre-deposit of taxes for filing an appeal
has to be made necessarily by debit to ECL. This is contrary to the
understanding of the industry and the practice being followed by the
taxpayers for making pre-deposit in the GST regime. Under the erstwhile
indirect tax laws, payment of pre-deposit was permitted by debit to the
Cenvat credit account.
This decision is of great significance
since it affects the working capital of taxpayers preferring appeals,
more specifically in the case of taxpayers who have huge credit
accumulation.
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