CESTAT

[By Dhwanil Tandon] The author is a student of Gujarat National Law University, Gandhinagar.   Introduction  Section 35F of the Central Excise Act, 1944 mandates that the Tribunal or the Commissioner (Appeals), as applicable, shall not entertain any appeal under the act unless the required pre-deposit is made, terming its absence as a defect. With the introduction of the Goods and Services Tax (GST) on 01.07.2017, incorporating all indirect taxes including Central Excise, transitional provisions were enacted to utilize credits available during the transition from the erstwhile indirect taxes’ regime to GST. Section 41 of the Central Goods and Services Tax Act, 2017, stipulates that every registered person, subject to prescribed conditions and restrictions, is entitled to avail the credit of eligible input tax, as self-assessed in their return, credited to their Electronic Credit Ledger (ECL). The reversal of input tax credit for supplies where the supplier defaulted on tax payments, along with applicable interest, is mandated by the said person in the manner prescribed. Furthermore, GST laws necessitate pre-deposit before filing appeals to appellate authorities. The issue at hand pertains to whether pre-deposit for filing appeals under the erstwhile Central Excise Act, 1944, can be accomplished by reversing the ECL in the GST regime, drawing insights from established case laws.  Statutory Regime of Pre-deposit under Service Tax  Section 35F of the Central Excise Act, 1944, stands as a pivotal provision providing for the procedural requisites preceding the filing of an appeal. Under the ambit of the amended Section 35F, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) is vested with the authority to enforce a mandatory pre-deposit, fixed at either 7.5% or 10% of the duty demand, pertaining to all appeals that were pending as of the seminal date of 06.08.2014.   It is noteworthy that subsequent to the amendment, the CESTAT’s discretion to assess and accommodate instances of financial hardship, thereby tailoring the pre-deposit amount commensurate with the appellant’s circumstances, has been unequivocally rescinded. However, amidst this procedural rigor, a recourse to the judiciary for such hardship remains, notably the Delhi High Court’s jurisdiction conferred under Article 226 of the Constitution.   This judicial authority, while sparingly exercised, retains the prerogative to intercede in matters concerning pre-deposit, albeit with a stringent caveat that such intervention should be relegated to rare and compelling instances, wherein a cogent justification unequivocally substantiates the necessity for such leniency. Thus, amidst the statutory rigidity of Section 35F and its amendments, the judicial echelons stand as custodians of equity and redressal, ensuring that the scales of justice weigh judiciously in matters of fiscal exigency and legal recourse.  Pre-GST Position  The statutory provision encapsulated within Section 35F of the Excise Act does not specify any method for making pre-deposit while filing appeals under the act. According to the circular issued by the CESTAT on 28th August 2014, subsequent to the amendment in the same year, it was stipulated that appeals could be registered under certain conditions. Among these conditions, it was specified that a mandatory pre-deposit could be made from the Central Value Added Tax (CENVAT) account, and supporting evidence must be furnished. In the case of Cadila Health Care Pvt. Ltd. v. Union of India, the Gujarat High Court delivered a significant directive regarding pre-deposits under Section 35F of the Excise Act. The court ruled that pre-deposits made by utilizing CENVAT credit should be duly accepted. It elucidated that the credit available in an assessee’s CENVAT account represents a duty already borne, which can be utilized for specified purposes, subject to the conditions prescribed under the Rules. The High Court underscored the absence of any prohibitive provisions within the Rules, affirming the legitimacy of availing CENVAT credit for the purpose of pre-deposits.  Post-GST Discussion  Under Section 49(4) of the CGST Act 2017, it is stipulated that the ECL is eligible for settling payments related to output tax liabilities governed by the Act or the Integrated Goods and Services Tax Act. This provision underscores that the utilization of the ECL is contingent upon prescribed conditions, restrictions, and timelines. Notably, the term ‘may’ within Section 49(4) suggests that the usage of the ECL is not exclusively confined to the settlement of output tax liabilities.  While the CGST Rules 2017 may offer interpretations that appear to limit the scope of Section 49(4) of the CGST Act 2017, it is imperative to recognize that the CGST Rules, as subordinate legislation, cannot supersede the statutory provisions laid down in the CGST Act. Rule 85(3) emphasizes that the payment of any liability by a registered individual, as per their return, must be carried out by debiting either the electronic credit ledger maintained in accordance with Rule 86 or the electronic cash ledger as per Rule 87. This rule is subject to the provisions outlined in Section 49, Section 49A, and Section 49B. Additionally, Rule 86(2) specifies that the ECL should be debited to the extent necessary for discharging any liability as per the provisions of Section 49, Section 49A, or Section 49B of the CGST Act. Circular No. 172/04/2022-GST issued on 06.07.2022 delineates that the balance available within the ECL can be utilized for settling any payment of output tax arising from proceedings initiated under the provisions of the GST Law.Top of Form  There exists a divergence in judicial opinions regarding the permissibility of utilizing the Electronic Credit Ledger (ECL) as a pre-deposit for filing appeals within the new GST regime. In the case of Jyoti Construction v. Dy. Commissioner of CT & GST, the Orissa High Court rendered a decision deeming appeals defective due to the pre-deposit of 10% of disputed IGST, CGST, and CGST payments being made through the ECL, rather than the electronic cash ledger. The High Court justified its stance by referencing Section 107(6) of the OGST Act, which mandates payments to be debited from the electronic cash ledger in accordance with Section 49(3) read with Rule 85(4) of the OGST Act. Moreover, it argued that ‘output tax’ cannot be equated to the pre-deposit required under