The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in the case of M/s. Johnson Matthey Chemical India Pvt. Ltd. Versus Assistant Commissioner CGST cited in Defect Dairy No. 701942022 dated 23.08.2022, has held that a mandatory deposit under section 35F of the Excise Act cannot be made by way of debit in the Electronic Credit Ledger maintained under the CGST Act.

The Bench of CESTAT in this case has observed that as per the provisions of section 41 of the CGST Act, credit lying in the electronic credit ledger can be utilised only for self-assessed output tax.

The appellant/assessee has appealed against the Order passed by the Commissioner (Appeals) by which the appeal was rejected on the ground that the appellant had not made the pre-deposit as per section 35F of the Central Excise Act, 1944.

The appellant submitted that the finding of the Commissioner (Appeals) was erroneous as the appellant had made a pre-deposit of 7.5% of the disputed amount as per section 35F of the Excise Act, by way of reversal of CGST credit, duly reflected in GSTR-3B. The Appellant was not put on notice of any defect, with respect to the pre-deposit, by the Commissioner (Appeals).

The appellant contended that section 35F of the Excise Act does not specify any method for payment of pre-deposit. Several courts have upheld the right to use the CENVAT credit balance to pay the mandatory pre-deposit. Thus, payment by credit is an accepted mode of payment for pre-deposit. As the old credit lying in balance has been transitioned to the GST regime and forms part of the GST credit pool, there should be no restriction on the utilisation of that credit.

The appellant stated that, as per the GST transition provisions of Section 142(7) of the CGST Act, the appeal should be disposed of in accordance with the provisions of the erstwhile laws. The payment of mandatory pre-deposit using the electronic credit ledger balance should be permitted in line with the position under the erstwhile regime. The Circular No. dated August 28, 2014, clarified that credit reversal is a proper mode for payment of the mandatory pre-deposit. Because it is a duty that the assessee has already suffered and can encash, the pre-deposit made by reversing CENVAT credit is valid as credit in the CENVAT account. Debit entry in ITC should, therefore, be treated as compliance by payment in cash.

The issue raised was whether the assessee is entitled to make the pre-deposit of duty, payable under the old Central Excise regime, as per the requirement of section 35F of the Excise Act, by debiting the Electronic Cash Ledger and Electronic Credit Ledger, under the CGST regime.

The department contended that the Commissioner (Appeals) has correctly held that no option of making pre-deposit by way of reversing CGST credit is provided under section 35 of the Excise Act. Section 174(2)(f) of the CGST Act, 2017 provides for the continuation of proceedings in previously repealed Central Excise Act cases as if the Act had not been repealed. The pre-deposit should be made under section 35F of the Excise Act and not under the CGST Act. The appellant already has central excise registration and there is no valid reason to make payment under the CGST Act. Though it was found from perusal of GSTR-3B for the month of August, 2021, that there was a reversal of CGST credit, the purpose of the reversal was not mentioned anywhere, which made the reversal doubtful. If the appeal is allowed, reversal of ITC may be impossible because there is no provision for refund of ITC under section 54(3) of the CGST Act, except for zero-rated supplies and ITC accumulated as a result of an inverted duty structure. 

The court granted four weeks' time to the appellant to make the mandatory pre-deposit so as to remove the defect.