Facts of the Case

The petitioner, M/s Merushikhar Infra LLP, challenged the appellate order passed under Section 107(11) of the CGST Act whereby its GST appeal was rejected without examining the merits. The Appellate Authority held that the mandatory statutory pre-deposit prescribed under Section 107(6) had been made by utilising the balance available in the Electronic Credit Ledger, whereas according to the authority, such pre-deposit was required to be made only through a cash payment.

Consequently, the appeal was dismissed solely on the ground that the statutory pre-deposit was not made in cash, without adjudicating the substantive issues raised in the appeal.

Issues Involved

  1. Whether the mandatory pre-deposit required under Section 107(6) of the CGST Act can be paid by utilising the balance available in the Electronic Credit Ledger.
  2. Whether rejection of a GST appeal solely on the ground that the pre-deposit was not made in cash is legally sustainable.
  3. Whether the appellate authority was justified in refusing to examine the appeal on merits.

Petitioner’s Arguments

  • The petitioner contended that the statutory pre-deposit under Section 107(6) could validly be discharged through the balance lying in the Electronic Credit Ledger.
  • Reliance was placed upon the judgment of the Gujarat High Court in Yasho Industries Limited vs Union of India & Another, wherein it was held that utilisation of Electronic Credit Ledger for statutory pre-deposit is permissible.
  • It was further submitted that the Special Leave Petition filed by the Union of India against the Gujarat High Court judgment had already been dismissed by the Hon'ble Supreme Court, thereby strengthening the legal position.
  • Therefore, rejection of the appeal without considering its merits was arbitrary and contrary to law.

Respondent’s Arguments

  • The Revenue maintained that the statutory requirement under Section 107(6) required payment of the mandatory pre-deposit through cash.
  • It was argued that utilisation of the Electronic Credit Ledger did not satisfy the statutory requirement for filing an appeal.
  • On this basis, the appellate authority rejected the appeal without entering into the merits of the dispute.

Court Order / Findings

The Karnataka High Court observed that the precise legal issue had already been decided by the Gujarat High Court in Yasho Industries Limited vs Union of India & Another, wherein it was categorically held that the amount available in the Electronic Credit Ledger could be utilised towards the mandatory pre-deposit required under Section 107(6) of the CGST Act.

The Court further noted that the Union of India had challenged the Gujarat High Court judgment before the Hon'ble Supreme Court by filing Special Leave Petition (Civil) Diary No. 17547 of 2025, which stood dismissed.

In view of the prevailing legal position:

  • The impugned appellate order was set aside.
  • The matter was remanded to the Appellate Authority for fresh adjudication on merits.
  • The Appellate Authority was directed not to insist upon any fresh pre-deposit, as adjustment through the Electronic Credit Ledger would sufficiently satisfy the statutory requirement under Section 107(6).

Important Clarification

  • Mandatory GST pre-deposit under Section 107(6) can be discharged by utilising the balance available in the Electronic Credit Ledger.
  • GST appeals should not be rejected merely because the statutory pre-deposit was made through the Electronic Credit Ledger instead of cash.
  • Once the statutory requirement stands fulfilled through permissible adjustment, the appellate authority must decide the appeal on merits.
  • The Karnataka High Court has followed the Gujarat High Court's view, which has also remained undisturbed after dismissal of the Revenue's Special Leave Petition before the Supreme Court.

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785404995_2403compressed.pdf

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