• Dated 05^th June, 2025

The Supreme Court upheld the Gujarat High Court ruling that pre-deposit through the Electronic Credit Ledger is valid under GST, dismissing the Department’s SLP

Brief Facts:

Yasho Industries Ltd a public limited company engaged in manufacturing and exporting specialized chemicals, found it inextricably embroiled in a contentious dispute. This imbroglio concerned demands for refunded Integrated Goods and Services Tax (IGST). This demand arose after the petitioner was precluded from availing certain GST benefits due to the introduction of new rules, despite having previously reversed an input tax credit of Rs. 3 Crore "under protest". The respondents confirmed this demand via an order dated September 20, 2022. Aggrieved by the confirmed demand, Yasho Industries Ltd preferred an appeal before the Commissioner (Appeals) and assiduously fulfilled the pre-deposit requirement via Electronic Credit Ledger (ECL) in Form GST DRC-03, as statutorily mandated by Section 107(6)(b) of the Central Goods and Services Tax (CGST) Act, 2017. However, the revenue authorities subsequently issued a peremptory directive, instructing the appellant to remit the pre-deposit exclusively via the Electronic Cash Ledger.

Assessee's Contention:

The appellant vehemently contended that the payment made through the Electronic Credit Ledger was indubitably valid and constituted unimpeachable compliance with the statutory pre-deposit stipulation under Section 107(6)(b) of the CGST Act. They asserted that this precise issue had been definitively settled by venerable judicial precedents, particularly citing the Gujarat High Court's ruling in Shiv Crackers v. Chief Commissioner. Consequently, the appellant earnestly sought the quashing and setting aside of the impugned letter from the revenue, which arbitrarily mandated payment through the Electronic Cash Ledger, and concurrently requested that their substantive appeal be heard on its intrinsic merits. Despite this, the department refused to consider the credit ledger payment as valid, which led the company to challenge the demand before the Hon'ble Gujarat High Court

Department's Contention:

The respondent's unequivocal position, explicitly inferred from their direct administrative action, was that the pre-deposit amount stipulated under Section 107(6)(b) of the CGST Act should be disbursed solely through the Electronic Cash Ledger. This resolute stance was concretized by their impugned letter dated April 25, 2023, which unreservedly instructed the petitioner to process the payment through the Electronic Cash Ledger.

Decision:

The Gujarat High Court rendered a decisive and erudite judgment in favor of Yasho Industries Ltd. The court held that the amount meticulously paid by the petitioner as pre-deposit, drawing from their Electronic Credit Ledger, was indeed valid and constituted sufficient compliance with Section 107(6)(b) of the CGST Act. Accordingly, the High Court quashed and set aside the impugned letter issued by the respondent, which had arbitrarily directed the petitioner to remit the pre-deposit through the Electronic Cash Ledger. The High Court's reasoning was firmly predicated on established judicial precedents, notably referencing the Bombay High Court's decision in Oasis Realty, which authoritatively established that 10% of the tax in dispute could legitimately be paid utilizing the Electronic Credit Ledger. Furthermore, the Gujarat High Court underscored the profound significance of CBIC Circular No. 172/04/2022-GST, which explicitly clarified that any payment towards output tax, whether self-assessed or arising from any proceeding under GST Laws, could be permissibly discharged through the utilization of the Electronic Credit Ledger.

What the Supreme Court Held:

The Supreme Court of India delivered a definitive and authoritative verdict by dismissing the Special Leave Petition (SLP) filed by the Union of India and CGST authorities against the Gujarat High Court's ruling. This dismissal, notably rendered on merits, unequivocally affirmed the Gujarat High Court's sagacious interpretation that the payment of pre-deposit via the Electronic Credit Ledger is valid and constitutes sufficient compliance under Section 107(6)(b) of the CGST Act, 2017. The Supreme Court's pronouncement thereby reinforced the High Court's astute rationale that the CGST Act does not impose any unyielding restriction mandating that pre-deposit must be paid solely through the cash ledger, thus validating the judicious application of Section 49(4) of the CGST Act and the guiding principles delineated in CBIC Circular No. 172/04/2022-GST.

BTA's Comment:

The recent judicial ruling brings much-needed clarity by confirming that 10% pre-deposit required for filing GST appeals under Section 107(6)(b) of the CGST Act can be made using the balance available in the Electronic Credit Ledger (ECL), rather than being restricted to the Electronic Cash Ledger. This significantly benefits businesses by preserving cash flow, as it eliminates the need to block fresh funds and allows the use of accumulated input tax credit. It also enhances liquidity management, giving businesses greater flexibility without straining day-to-day operations. Moreover, it reduces the immediate financial burden, particularly in cases involving large disputed tax amounts. By reinforcing the authority of CBIC circulars and existing judicial precedents, the ruling promotes consistency in tax administration and ensures appeals focus on substantive issues rather than procedural technicalities.

Case Ref-UNION OF INDIA vs YASHO INDUSTRIES LTD (2025) 30 Centax 352 (S.C.)

Author: Aindrila Ghosh

Edited by: Shaily Gupta