Appeal Restored As Deposit Under Protest Counts Toward Mandatory 10% Pre-Deposit; Order Set Aside, Matter Remanded

HC held that the appellate authority erred in dismissing the petitioner's appeal for non-compliance with the mandatory 10% pre-deposit requirement. It was found that the amount already deposited by the petitioner under protest should have been treated as satisfying the statutory pre-deposit condition for entertaining the appeal. Consequently, the impugned order dated 28.02.2024 was set aside. The matter was remanded to the appellate authority (1st respondent) for fresh consideration of the appeal on merits, in accordance with law. The petition was allowed by way of remand.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the amount of tax deposited under protest during the assessment/adjudication proceedings can be adjusted towards the mandatory 10% pre-deposit required for filing an appeal under Section 107(6) of the CGST Act.

1.2 Whether utilisation of the balance in the Electronic Credit Ledger towards the mandatory 10% pre-deposit under Section 107(6) of the CGST Act is legally permissible.

1.3 Whether the appellate authority was justified in dismissing the appeal on the ground of non-compliance with the mandatory pre-deposit requirement despite the above payments, and the consequential relief to be granted.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Adjustment of amount paid under protest during adjudication as mandatory pre-deposit under Section 107(6) of the CGST Act

Legal framework (as discussed)

2.1 The Court considered Section 74 of the CGST Act (under which adjudication proceedings were initiated) and Section 107(6) of the CGST Act, which mandates payment of 10% of the disputed tax as a pre-condition for filing an appeal.

2.2 The Court relied upon the decision of the Supreme Court in "VVF (India) Ltd. v. State of Maharashtra", interpreting Section 26(6A) of the Maharashtra Value Added Tax Act, 2002, which was held to be pari materia with Section 107(6) of the CGST Act.

Interpretation and reasoning

2.3 The Court noted that the petitioner had deposited Rs. 1,99,10,490/- under protest during the pendency of the adjudication proceedings, which exceeded 10% of the disputed tax.

2.4 Referring to the Supreme Court's reasoning in "VVF (India) Ltd.", the Court emphasised that:

(a) The statute requires deposit of a percentage of the tax "disputed by the appellant", and does not exclude amounts already paid under protest from being considered towards this requirement.

(b) In the absence of express statutory language excluding protest payments, such amounts cannot be ignored when determining compliance with the mandatory pre-deposit requirement.

(c) Taxing statutes must be construed strictly and literally; no additional conditions can be read into the provision by intendment or implication.

2.5 Applying the above principles, the Court held that the amount deposited under protest prior to adjudication is liable to be adjusted towards the mandatory 10% pre-deposit required for an appeal under Section 107(6) of the CGST Act.

2.6 The Court found that, since the said payment already exceeded 10% of the disputed demand, the statutory requirement of pre-deposit for maintaining the appeal stood satisfied.

Conclusions

2.7 The Court concluded that the appellate authority erred in holding that the amount of Rs. 1,99,10,490/- deposited under protest could not be treated as the mandatory pre-deposit under Section 107(6).

2.8 The rejection of the appeal for alleged non-compliance with the pre-deposit requirement was held to be unsustainable on this ground alone.

Issue 2: Permissibility of utilising Electronic Credit Ledger for mandatory pre-deposit under Section 107(6)

Legal framework (as discussed)

2.9 The Court examined the petitioner's further payment of Rs. 1,14,14,339/- on 02.02.2024 by debiting the Electronic Credit Ledger towards the 10% pre-deposit requirement under Section 107(6) of the CGST Act.

2.10 The Court relied upon a Co-ordinate Bench decision in "VK Building Services Pvt. Ltd. v. Additional Commissioner of GST, Bengaluru", which had in turn relied on a judgment of the High Court of Gujarat (Yasho Industries Limited v. Union of India) as affirmed by the Supreme Court.

Interpretation and reasoning

2.11 The Co-ordinate Bench had held that utilisation of the Electronic Credit Ledger for meeting the 10% pre-deposit requirement is permissible, and that such payment constitutes a valid pre-deposit.

2.12 The Supreme Court had dismissed the Department's special leave petition challenging the Gujarat High Court's view, thereby affirming that utilisation of Electronic Credit Ledger for such purposes is legally acceptable.

2.13 Following the Co-ordinate Bench and the binding affirmation by the Supreme Court, the Court held in the present matter that the petitioner's additional deposit of 10% through utilisation of the Electronic Credit Ledger is also a valid and permissible mode of satisfying the mandatory pre-deposit requirement.

Conclusions

2.14 The Court held that, even independently of the amount paid under protest during adjudication, the subsequent payment made by debiting the Electronic Credit Ledger constitutes a valid 10% pre-deposit under Section 107(6) of the CGST Act.

2.15 Consequently, on this ground also, the appellate authority's view that mandatory pre-deposit had not been made was held to be legally untenable.

Issue 3: Validity of dismissal of appeal for non-compliance with pre-deposit and consequential relief

Interpretation and reasoning

2.16 The Court found that the petitioner had, in substance:

(a) Deposited an amount exceeding 10% of the disputed tax under protest during adjudication proceedings; and

(b) Additionally, made a further payment towards pre-deposit from the Electronic Credit Ledger.

2.17 In view of the binding precedents and the statutory interpretation adopted, the Court held that the mandatory pre-deposit requirement under Section 107(6) stood duly complied with.

2.18 The appellate authority's refusal to treat these amounts as pre-deposit and consequent dismissal of the appeal on the ground of non-compliance was found to be an error of law.

Conclusions

2.19 The impugned order-in-appeal dismissing the petitioner's appeal for alleged non-payment of the mandatory 10% pre-deposit was quashed.

2.20 The matter was remitted to the appellate authority for fresh consideration of the appeal on merits, with a specific direction not to insist on any additional pre-deposit.

2.21 The appellate authority was directed to dispose of the appeal expeditiously, after affording sufficient and reasonable opportunity to the petitioner, in accordance with law.

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