Petitioner's Rs.1.40 crore deposit under protest qualifies as Section 107(6) 10% pre-deposit; appeals remanded for reconsideration

The HC quashed the impugned orders and remanded the matters to the first appellate authority, finding the petitioner had deposited Rs.1.40 crores under protest which may be applied toward the 10% pre-deposit required by Section 107(6) of the GST Act. Because the deposit under protest was not shown to have been adjusted against any other demand, the appellate authority must accept that deposit as the pre-deposit and decide the appeals on merits by a reasoned, speaking order.

---

---

ISSUES PRESENTED AND CONSIDERED

1. Whether amounts deposited "under protest" prior to an assessment order can be taken into account as the mandatory pre-deposit (ten per cent of disputed tax) required under Section 107(6) of the GST Act for entertaining an appeal.

2. Whether amounts available in the electronic credit ledger can be utilized to make/prevent a shortfall in the mandatory pre-deposit required under Section 107(6) of the GST Act, having regard to Circular No. 172/04/2022-GST dated 06.07.2022.

3. Whether an appellate authority is justified in dismissing an appeal as not maintainable for want of proof of deposit of the mandatory pre-deposit when a taxpayer has previously paid amounts under protest and those amounts have not been shown to have been adjusted against any demand.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Treatment of payments "under protest" as the statutory pre-deposit under Section 107(6)

Legal framework: Section 107(6) of the GST Act mandates deposit of an amount equal to ten per cent of the remaining disputed tax as a condition precedent to the filing of an appeal (i.e., statutory pre-deposit requirement for entertainability).

Precedent Treatment: The Court relied on the apex-court authority interpreting an analogous statutory provision under the Maharashtra VAT regime, holding that payments made under protest prior to assessment can be taken into account when computing the mandatory pre-deposit; the earlier High Court refusals to do so were reversed on that authority.

Interpretation and reasoning: The statutory text requires deposit of "an amount equal to ten per cent of the amount of tax disputed" and proof of payment. There is no language excluding prior protest payments from being counted towards the required deposit. A taxing statute must be construed according to its plain and grammatical meaning; absent a statutory provision excluding protest payments, such payments cannot be disregarded. Where the pre-deposit threshold is met by combining prior protest payments with any further payments, the statutory condition is satisfied.

Ratio vs. Obiter: Ratio - payments made under protest, if not adjusted against any demand, can be treated as satisfying (in whole or part) the statutory pre-deposit obligation under Section 107(6). The Court applied and followed the binding principle from the apex-court authority.

Conclusion: The appellate authority erred in refusing to entertain the appeal on the ground that the mandatory ten per cent pre-deposit was not made when the taxpayer had already deposited sums under protest that, if unadjusted, could be credited towards the pre-deposit requirement.

Issue 2: Utilization of electronic credit ledger / effect of Circular No. 172/04/2022-GST dated 06.07.2022

Legal framework: The GST circular clarifies that payments towards output tax - whether self-assessed or payable consequent to proceedings under GST laws - can be made by utilization of the amount available in the electronic credit ledger of a registered person.

Precedent Treatment: A High Court has interpreted the circular to validate utilization of the electronic credit ledger for pre-deposit under the statutory provision and that interpretation was affirmed by the apex court. A bench of this Court subsequently followed that view and permitted utilization of electronic ledger amounts for Section 107(6).

Interpretation and reasoning: Circular No. 172/04/2022-GST expressly permits the use of electronic credit ledger balances for payment of tax liabilities arising under GST. The circular has been judicially accepted as permitting such utilization for purposes of satisfying statutory pre-deposit requirements, and there is no statutory inconsistency shown that would render the circular inapplicable. Where a taxpayer has utilized electronic credit ledger or deposited amounts under protest traceable to the electronic ledger, those payments are to be treated as valid for the pre-deposit obligation.

Ratio vs. Obiter: Ratio - amounts in the electronic credit ledger may be validly used to satisfy the pre-deposit requirement under Section 107(6) where the circular and subsequent judicial affirmations permit such utilization.

Conclusion: The authorities were required to accept pre-deposit payments made by utilization of the electronic credit ledger (or to treat amounts otherwise deposited under protest as available for adjustment) for the purpose of entertaining an appeal under Section 107(6).

Issue 3: Obligations of the appellate authority when prior protest payments exist and absence of evidence of adjustment

Legal framework: An appeal must be accompanied by proof of payment of the aggregate amounts mandated by Section 107(6). Where payments previously made by the taxpayer remain unadjusted against any demand, those payments are capable of being applied to the pre-deposit requirement.

Precedent Treatment: The apex-court authority (interpreting analogous provisions) required that prior protest payments be considered unless the statute expressly excludes them; where consideration shows statutory compliance upon taking such payments into account, an appeal must be restored to the appellate authority for adjudication on merits subject to verification of the requisite deposit.

Interpretation and reasoning: The appellate authority must verify whether amounts deposited under protest have been adjusted against any demand. If no adjustment has been effected, those amounts should be accepted as satisfying the pre-deposit (in whole or in part). Mechanical rejection of appeals as not maintainable, without quantifying and applying prior protest payments, conflicts with the plain statutory language and established judicial interpretation. The proper course is to accept the protest deposit as pre-deposit and proceed to decide the appeal on merits, subject to any shortfall being communicated and made good within a specified time.

Ratio vs. Obiter: Ratio - dismissal of an appeal as not maintainable for want of pre-deposit is unjustified where the taxpayer has made prior deposits under protest that remain unadjusted and would, when accounted for, meet the statutory pre-deposit requirement; appellate authorities must adjust such payments and, if a shortfall remains, afford the taxpayer an opportunity to cure it.

Conclusion: The appellate authority must accept unadjusted protest deposits as satisfying the pre-deposit obligation and proceed to decide appeals on merits; if any shortfall remains after adjustment, the authority should inform the appellant and permit deposit within a reasonable timeframe (15 days as directed in the judgment) before proceeding.

Overall Conclusion and Relief Directed

The impugned orders dismissing appeals as not maintainable for want of pre-deposit cannot be sustained where the taxpayer had deposited sums under protest that have not been adjusted against any demand and where utilization of electronic credit ledger amounts for pre-deposit is permitted by departmental circular and judicial precedent. The matters must be remanded to the first appellate authority to accept the protest deposit as pre-deposit (after verification), decide the appeals on merits by reasoned and speaking orders, and if any shortfall remains, afford the taxpayer a specified period to deposit the balance.

---