ITC in ECRL can be Utilised for making GST Appeal Pre-deposit u/s 107: Madras HC Clarifies in Ford India Ruling [Read Order]

The Madras High Court, in the Ford India’s case, clarified that Input Tax Credit ( ITC ) credited in the Electronic Credit Ledger ( ECRL ) can be utilised for the mandatory pre-deposit for GST Appeal Filing under Section 107 of the Tamil Nadu Goods and Services Tax ( TNGST ) Act, 2017.

It was clarified that the pre-deposit amount, required under Section 107(6) of the TNGST Act, can be paid using the ECRL, akin to payments made towards tax, interest, penalty, fees, or other liabilities.

Drafting GST Replies Simplified for Professionals - Enroll Now

A Single bench of Mohammed Shaffiq observed that “as contended by the petitioners that the only restrictions on the usage of Electronic Credit Ledger for payment of pre-deposit is in respect of tax payable under reverse charge mechanism, as the same is outside the ambit of Section 2(82) of TNGST Act.  In the present case, there was no remark under reverse charge mechanism on the petitioners in these proceedings.”

The petitioner, Ford India Private Limited, engaged in the manufacturing and supply of passenger cars and components had duly filed GST returns and discharged tax liabilities under the GST provisions. However, a notice was issued in March 2023 alleging a tax liability discrepancy between the petitioner’s GSTR-1 and GSTR-3B returns for 2017-18.

Drafting GST Replies Simplified for Professionals - Enroll Now

Following a show-cause notice in May 2023, the authorities confirmed a tax demand of ₹32.88 lakhs, along with interest and penalties, through an Order-in-Original dated July 2023.

The petitioner had duly filed GST returns and discharged tax liabilities under the GST provisions. However, a notice was issued in March 2023 alleging a tax liability discrepancy between the petitioner’s GSTR-1 and GSTR-3B returns for 2017-18. Following a show-cause notice in May 2023, the authorities confirmed a tax demand of ₹32.88 lakhs, along with interest and penalties.

Aggrieved, Ford India filed an appeal under Section 107 of the Tamil Nadu Goods and Services Tax (TNGST) Act. As required, the company deposited 10% of the disputed tax amount as pre-deposit, opting to debit the ECRL. However, the appellate authority issued a deficiency memo, directing the petitioner to pay the pre-deposit via the Electronic Cash Ledger (ECL). Challenging this decision, Ford India approached the High Court.

Drafting GST Replies Simplified for Professionals - Enroll Now

The petitioner argued that Section 49(4) of the TNGST Act explicitly allows the utilisation of the ECRL for payment of output tax, including tax liabilities arising from proceedings.

Furthermore, Circular No. 172/04/2022 issued by the Central Board of Indirect Taxes and Customs (CBIC) clarified that ITC in the ECRL can be used for pre-deposits, except in cases involving reverse charge liabilities, which were not applicable in this case.

The respondents contended that the ECRL is intended solely for output tax payments, and pre-deposit amounts must be paid through the ECL, as pre-deposit does not qualify as output tax. They relied on previous rulings, including the Orissa High Court's judgment in Jyoti Construction v. Deputy Commissioner of Central Tax & GST.

Drafting GST Replies Simplified for Professionals - Enroll Now

The High Court referred to Section 49(4) of the TNGST Act, emphasizing that the provision uses the word "may" rather than "shall," indicating discretion in utilizing the ECRL.

It clarified that if the term "shall" had been used, the ECRL could only be used for paying output tax. Under Section 107(6) of the Act, the mandatory 10% pre-deposit for disputed tax is treated as a discharging liability for output tax. If the appeal fails, the pre-deposit made through the ECRL would still be considered output tax.

Additionally, Rule 86(2) of the TNGST Rules supports the use of the ECRL for discharging liabilities as per Sections 49, 49A, or 49B. The Court noted the words of the CBIC circular that “4.Accordingly, it is clarified that any payment towards output tax, whether self-assessed in the return or payable as a consequence of any proceeding instituted under the provisions of GST Laws, can be made by utilization of the amount available in the electronic credit ledger of a registered person.”

Drafting GST Replies Simplified for Professionals - Enroll Now

Reading the words of the circular stated above, the bench interpreted that input tax credit can be utilized not only for payment of self-assessed output tax but also for tax payable as a result of proceedings under GST laws. The CBIC circular further clarified that the 10% pre-deposit required under Section 107(6) of the TNGST Act can be discharged through the ECRL.

Further, the court observed that the statutory appeal form APL-01 includes a mechanism to pay the pre-deposit using the ECRL. Additionally, a circular dated 02.11.2023 issued by the CBIC prescribed a special procedure for filing appeals beyond the time limit under Section 107 of the TNGST Act.

Drafting GST Replies Simplified for Professionals - Enroll Now

This procedure mandates that out of the 12.5% mandatory deposit, 20% (i.e., 2.5%) must be paid via the Electronic Cash Ledger, confirming that the remaining 10% pre-deposit under Section 107(6) can be paid through the ECRL.

Considering all above-mentioned reasons, the court concluded that the pre-deposit can be made through Electronic Credit Ledger and the impugned orders were quashed. It was again made clear that the pre-deposit can be made by filing an appeal under Section 107 of TNGST Act by utilising the Electronic Credit Ledger.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates