Appeal dismissed for invalid pre-deposit attempt using GST Electronic Credit Ledger under Section 35F

CESTAT New Delhi dismissed the appeal regarding mandatory pre-deposit under Section 35F of Central Excise Act, 1944. The appellant attempted to make pre-deposit through GST Electronic Credit Ledger, but the tribunal held this invalid based on CBIC Circular dated 24.11.2023. The tribunal distinguished the case from Supreme Court precedent in Mysore Electricals Industries, ruling that beneficial circulars apply prospectively when issued after appeal filing. The amended Section 41 of CGST Act, 2017 did not permit credit utilization for pre-deposits. The appellant was directed to cure defects by making proper pre-deposit within four weeks.

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Issues Involved:
1. Validity of pre-deposit made through GST Electronic Credit Ledger (ECL) under Section 35F of the Central Excise Act, 1944 (CEA).
2. Applicability of amended Section 41 of the CGST Act, 2017 and Section 49 of the CGST Act, 2017.
3. Relevance of various High Court and Tribunal decisions on the issue.

Detailed Analysis:

1. Validity of Pre-Deposit Through GST ECL:
The primary issue revolves around whether the pre-deposit mandated under Section 35F of the CEA can be made using the GST Electronic Credit Ledger (ECL). The appellant argued that they had made the pre-deposit via input tax credit through the GST ECL, citing amendments in Section 41 of the CGST Act, 2017, which no longer restricts the use of credit solely for self-assessed output tax. They also referenced Section 49 of the CGST Act, which allows the credit to be used for any payment towards output tax.

The Revenue countered this by referencing decisions from the Tribunal and CBIC Circulars dated 28.10.2022 and 24.11.2023, which stated that pre-deposits made through DRC-03 credit ledger are not valid under Section 35F of the CEA.

2. Applicability of Amended Section 41 and Section 49 of the CGST Act:
The appellant's counsel highlighted that the amended Section 41 of the CGST Act, effective from 01.10.2022, removed the restriction that credit could only be used for self-assessed output tax. They argued that this amendment, along with Section 49(4), aligns with the erstwhile provisions of Rule 3(4) of the Cenvat Credit Rules, 2004, which allowed credit utilization for any duty on the final product or service tax on any output service.

However, the Tribunal noted that the CBIC Circular dated 28.10.2022 explicitly clarified that payments through DRC-03 under the CGST regime are not valid for pre-deposits under Section 35F of the CEA and Section 83 of the Finance Act, 1994. This circular was issued following the Bombay High Court's direction in the case of M/s. Sodexo India Services Pvt. Ltd., which found that there was no proper legal provision to accept pre-deposits through DRC-03.

3. Relevance of High Court and Tribunal Decisions:
The appellant relied on several High Court decisions, including M/s. Oasis Reality (Bombay High Court), M/s. Tulsi Ram and Company (Allahabad High Court), and M/s. Larsen & Toubro Ltd. (Madras High Court), which allowed the use of the electronic credit ledger for making pre-deposits. However, the Tribunal distinguished these cases, noting that they pertained to the GST regime and not the Central Excise Act.

The Tribunal also referenced its own decisions, such as M/s. Johnson Matthey Chemical India Pvt. Ltd. and M/s. Army Welfare Housing Organizations, which upheld that pre-deposits under Section 35F of the CEA cannot be made through the electronic credit ledger.

The Tribunal further noted the decision in M/s. Saphire Cables & Services Pvt. Ltd., where the Mumbai Bench allowed pre-deposit through DRC-03. However, the Tribunal clarified that this decision was not applicable in the present case as the circular in question was issued after the filing of the appeal, making it prospective in effect.

Conclusion:
The Tribunal concluded that the pre-deposit made through the GST ECL is not valid under Section 35F of the CEA, in line with the CBIC Circulars and relevant judicial decisions. The appellant was directed to make the pre-deposit in accordance with the law within four weeks from the date of the order.

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