Electronic Credit Ledger (ECL) could not be debited for purposes of making payment of pre-deposit of tax.

Act: Central Goods and Services Act, 2017

Facts of the case:

  1. The Petitioner is a partnership firm engaged in the business of execution of works contract including civil, electrical and mechanical.
  2. In the instant case, a demand was raised by the Deputy Commissioner of CT & GST, Barbil Circle, Jajpur, Odisha which resulted in an extra demand for IGST, CGST and OGST inclusive of interest. An appeal was
    filed in Form-GST APL-01 before the appellate authority electronically.
  3. In terms of Section 107 (6) of the OGST Act, the Petitioner was required to make payment equivalent to 10% of the disputed amount of tax arising from the order against which the appeal is filed. This payment was required to be made by the Petitioner by debiting its ECL as provided under section 49(3) read with Rule 85 (4) of the OGST Rules.
  4. However, it was noticed that the Petitioner sought to make payment of the pre-deposit by debiting the ECRL( Electronic Credit Ledger). Considering this to be defective and liable for rejection of the appeal, a show cause notice (SCN) was issued on 25th January 2021 and 17th February, 2021.
  5. The contentions of the learned counsel for Petitioner before the appellate authority is that under section 49 (4) of the OGST Act, the amount available in the ECRL could be used for making "any payment towards output tax" under the OGST Act or the IGST Act "in such manner and subject to such conditions and
    within such time as may be prescribed".
  6. It is submitted by Learned Counsel that on a collective reading of the above Provisions, the pre-deposit could be made by debiting the ECRL.
  7. The learned counsel for the Department refers to the proviso to Section 41 (2) of the OGST Act which sets out the purposes for which the input tax credit (ITC) can be utilized. It can be utilized for payment of "self-assessed output tax as per the return".
    In no other cases, ITC be utilized to discharge any liability.
    He also refers to Rule 85 (3) of the OGST Rules which states that "subject to the provision of Section 49 payment of every liability by a registered person as per his return shall be made by debiting the electronic credit ledger maintained as per Rule 86".
  8. It is contended by the learned counsel for the petitioner that Section 107 (6) of the OGST Act was merely a machinery provision and that it must be interpreted purposively to sub-serve the purpose of collecting the pre-deposit amount which could be done even by debiting the ECRL.
  9. The Honorable Court held that it is not possible to accept the plea of the Petitioner that "Output Tax", as defined under section 2(82) of the OGST Act could be equated to the pre-deposit required to be made in terms of Section 107 (6) of the OGST Act.
  10. Further, the court added that as rightly pointed out by the learned counsel for the department, , the proviso to Section 41 (2) of the OGST Act limits the usage to which the ECRL could be utilised. It cannot be debited for making payment of pre-deposit at the time of filing of the appeal in terms of Section 107 (6) of the OGST Act. It is not therefore possible to accept the plea.
  11. It is then contended by the learned counsel for the Petitioner that the Petitioner should be permitted to reverse the debit of the ECRL for paying the pre-deposit and thereafter the Petitioner will make payment by debiting the ECL.
  12. As far as the above contention is concerned, the Court is of the view that the prayer of the Petitioner that the debiting of the ECRL made by it should be reversed is a separate cause of action for which the Petitioner should independently seek appropriate remedies in accordance with law.

The High Court of Odisha held the case as follows:
i) The Court is unable to find any error having been committed by the appellate authority in rejecting the Petitioner's contention that the ECRL could be debited for the purposes of making the payment of pre-deposit.
ii) The making of the pre-deposit by the Petitioner is not contingent upon the above reversal of the debit entry in the ECRL.