Bombay HC directs CBIC to issue Instructions on manner of pre-deposit for appeals under earlier regime

This Tax Alert summarizes recent ruling[1] of the Division Bench of Bombay High Court (HC). In the writ petition, the issue involved was whether pre-deposit for appeals under section 85 of the Finance Act,1994, read with section 35 of the Central Excise Act, 1944 (earlier regime), can be paid using GST DRC-03.

Petitioner had preferred an appeal before the Commissioner (Appeals) and made a pre-deposit in cash through DRC-03. Commissioner (Appeals) dismissed the appeal on the ground that the pre deposit made was improper. Hence, Petitioner filed a writ petition before the HC. 

Revenue contended that the law and the circulars issued do not permit pre-deposit in the manner made by the Petitioner. Further, it was argued that the proceedings under the earlier regime and the Central Goods and Services Tax (CGST) Act are separate. Hence, payment methods under CGST law can be used only for GST payments.

HC noted that the taxpayers are following divergent practices in making pre-deposit, i.e., through service tax challans in a few cases and DRC-03 in other cases. Central Board of Indirect Taxes and Customs (CBIC) has already taken up the issue of “non-acceptance of pre-deposit paid through GST DRC-03 for appeals under Service tax law” with the Principal Chief Commissioner, Mumbai CGST & Central Excise Zone for issuance of instructions. Thus, HC observed that the earlier regime lacked a proper legal provision for accepting pre-deposits through DRC-03, causing confusion. 

Accordingly, HC, while quashing the orders passed by the Commissioner (Appeals) , directed CBIC to resolve the confusion through suitable clarifications or instructions as considering wide ramifications.

Comments

• While the issuance of instructions would help in resolving ambiguity, practically in many cases, appellate authorities have accepted pre-deposits made through DRC-03 without disputing it. 
  
• Refusal to accept pre-deposit through DRC-03 results in preventing a taxpayer from utilizing the input tax credit for such payment. 
  
• It is pertinent to note that there are divergent Tribunal rulings on the issue whether GST ITC can be used for payment of pre-deposit under earlier regime. Accordingly, CBIC, while issuing instruction can also consider clarifying whether GST credits can be used for such pre-deposits, taking into account recent Bombay High Court and Allahabad High Court rulings. 
  
• Though Revenue contended that GST forms can be used only for payment under GST laws, Circular No. 58/32/2018 - GST dated 4 September 2018 allowed arrears of excise duty and service tax to be paid through GST DRC-03.

[1] 2022-VIL-686-BOM-CE