[Opinion] Is justice becoming expensive under GST – Part II?

Jigar Doshi & Sagar Shah – [2022] 143 taxmann.com 259 (Article)

In the first part of this sequel, which was published approx. a year back [2021] 132 taxmann.com 98 (Article), we discussed the implications of the ruling pronounced by the Orissa HC in the case Jyoti Construction v. Deputy Commissioner of CT & GST [2021 131 taxmann.com 104/54 GSTL 279. The respective HC in this case had held the following:

• Output tax cannot be equated with pre deposit. Section 41(2) of the Act limits the usage of ECLR and the same cannot be used to make payment of pre-deposit.
• On the petitioner’s reliance on the case of the Gujarat HC in Vinayak Trexim v. State of Gujarat [2020] 79 GSTR 118, the HC opined that amount to be refunded to the assessee can be used to set-off pre-deposit. However, the same cannot be compared to the present case as refund is different than output tax.
• The HC thus upheld the Revenue’s rejection of appeal on account of pre-deposit not being allowed to be debited from ECLR.

Albeit, only one year has passed since this order of Orissa HC, it seems that the wind has changed. It was anticipated that multiple HCs will follow the suit, and a humongous cloud of litigation would emerge. However, the High Court of Bombay, recently in the case of Oasis Realty v. Union of India [2022] 143 taxmann.com 5 held the contrary and passed the judgment in favour of the petitioner to hold that the petitioner can utilise the amount of ITC available in the Electronic Credit Ledger to pay the 10% of the tax in dispute under section 107 (6)(b).

The Bombay High Court relied upon Circular issued by CBIC in this regard viz Circular No. 172/04/2022- GST dated 6 July 2022 (the circular). Point no. (iv) in the said circular has been re-iterated below for easy reference:

‘Q. Whether the amount available in the electronic credit ledger can be used for making payment of any tax under the GST Laws?

Ans. In terms of sub – section (4) of section 49 of CGST Act, the amount available in the electronic credit ledger may be used for making any payment towards output tax under the CGST Act or the IGST Act, subject to the provisions relating to the order of utilisation of input tax credit as laid down in section 49B of the CGST Act read with rule 88A of the CGST Rules.

2. Sub-rule (2) of rule 86 of the CGST Rules provides for debiting of the electronic credit ledger to the extent of discharge of any liability in accordance with the provisions of section 49 or section 49A or section 49B of the CGST Act.

3. Further, output tax in relation to a taxable person (i.e., a person who is registered or liable to be registered under section 22 or section 24 of the CGST Act) is defined in clause (82) of section 2 of the CGST Act as the tax chargeable on taxable supply of goods or services or both but excludes tax payable on reverse charge mechanism.

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.

5. It is further reiterated that as output tax does not include tax payable under reverse charge mechanism, implying thereby that the electronic credit ledger cannot be used for making payment of any tax which is payable under reverse charge mechanism.’

Basis the above clarification, not only the Bombay HC, but the Allahabad HC has also in the case of M/s Tulsi Ram & Co. v. Commissioner [2022] 143 taxmann.com 6 held that the appellate authority should not insist the appellant to pay pre-deposit by way of cash ledger.

While the courts have decided to interpret the above circular liberally, the tax expert’s reaction was not similar. Most tax fraternity was indecisive as the circular did not mention the specific term ‘pre-deposit’ in the clarification making it difficult for them to digest whether the revenue would allow payment of pre-deposit by way of debiting ECLR or not. This interpretation of the tax fraternity is basis a conjoint reading of section 107(6), section 49(4) and section 41 of the CGST Act.

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