The Supreme Court on Monday ruled that taxpayers could use their electronic credit ledger (ECrL), a digital record of tax credits earned from purchases, to make advance deposits needed in the case of disputes on goods and services tax (GST).
The dispute began when Yasho Industries, a Mumbai-based specialty chemicals manufacturer, was asked to pay ₹3.36 crore “only in cash” (via ECL) as a pre-deposit in an appeal despite having enough credits in its ECrL. The Gujarat High Court in October upheld the company’s position, citing a 2022 government circular.
The apex court Bench, comprising Justice B V Nagarathna and Justice Satish Chandra Sharma, rejected the Revenue’s special leave petition (SLP), upholding the Gujarat High Court’s decision in Yasho Industries Ltd vs Union of India.
The Supreme Court today, in a matter between the Revenue Department and Yasho Industries, who are global manufacturers and suppliers of specialty and fine chemicals, dismissed the Special Leave Petition (SLP) filed by the Revenue Department, affirming that Section 107(6) of the CGST Act does not restrict the mode of pre-deposit payment to cash alone.
Mumbai-based Yasho manufactures performance chemicals for industries as diverse as rubber and latex, food and flavours, perfumery, lubricants and other specialty applications since 1993.
What was the case about?
The controversy centred on whether the 10% pre-deposit required to admit an appeal under Section 107(6) of the CGST Act could be paid using the ITC available in the ECL or whether it must be strictly paid in cash through the Electronic Cash Ledger. The Gujarat High Court had ruled in favor of the assessee, and with the Supreme Court’s dismissal of the revenue’s challenge, the legal position is now settled in favor of taxpayers.
During the arguments before the apex court, Yasho Industries’ counsel, Abhishek A Rastogi, argued on the basis that key provisions such as Section 49(4) of the CGST Act allow the use of ECL for making “any payment towards output tax.”
Rule 86(2) of the CGST Rules, supports debiting the ECL for discharging liabilities in accordance with Section 49. Circular No. 172/04/2022-GST, while restrictive in paragraph 7, does not classify pre-deposit as a penalty or interest, keeping it outside the bar.
After hearing the matter, the Supreme Court, during the oral hearing and in its final pronouncement, noted that the pre-deposit is merely a procedural requirement for filing an appeal, the funds in the ECL are already in the custody of the government and utilising them does not impact revenue collection.