Facts of the Case

The petitioner, M/s Friends Mobile, a proprietorship represented by Md. Quadir Khan, based in Phulwari, Patna, Bihar, had filed a statutory appeal under Section 107 of the GST Act, 2017, paying the mandatory 10% pre-deposit of the disputed tax amount from its Electronic Credit Ledger rather than the Electronic Cash Ledger. The Appellate Authority, by order dated 10.01.2023, rejected the appeal on the ground that the 10% pre-deposit had to be paid from the Electronic Cash Ledger, a position that a Division Bench of the Patna High Court had accepted in M/s Flipkart Internet Pvt. Ltd. v. State of Bihar, decided on 19.09.2023. However, the specific observations in paragraphs 77 and 78 of the Flipkart judgment dealing with this very issue were stayed by the Supreme Court on 04.12.2023 in Special Leave to Appeal (C) No. 25437 of 2023. The petitioner challenged the Appellate Authority's rejection before the Patna High Court.

Issues Involved

  1. Whether the mandatory 10% pre-deposit for an appeal under Section 107 of the GST Act can be paid from the Electronic Credit Ledger.
  2. What effect the Supreme Court's stay of paragraphs 77-78 of the Flipkart Internet judgment had on the Appellate Authority's reliance on that ruling.

Petitioner's Arguments

  • The 10% pre-deposit had already been paid from the Electronic Credit Ledger, and this should suffice to make the appeal maintainable on its own terms.
  • The Supreme Court had specifically stayed the very paragraphs of the Flipkart judgment on which the Appellate Authority relied to reject the appeal, undermining the basis for rejection and warranting reconsideration of the appeal on merits.
  • Rejecting the appeal outright, rather than merely calling for the balance to be paid in cash if required, caused disproportionate prejudice given the pendency of the very question before the Supreme Court.

Respondent's Arguments

  • The State relied on the binding Division Bench ruling in Flipkart Internet, which, after examining the statutory scheme governing Sections 41, 49 and 107 of the GST Act, held that the 10% pre-deposit must be paid from the Electronic Cash Ledger and not the Electronic Credit Ledger.
  • Until the Supreme Court finally decided the pending special leave petition, the Division Bench ruling remained the operative law binding the Appellate Authority and the State.

Court Order/Findings

  • The Bench noted it remained bound by the coordinate Division Bench ruling in Flipkart Internet as a matter of judicial discipline and was not differing from it.
  • However, since the Supreme Court had stayed paragraphs 77-78 of that judgment, the very paragraphs dealing with this issue, and since Notification No. 53/2023 dated 02.11.2023, permitting delayed appeals with a 12.5% pre-deposit, itself indicated the GST Council understood that only a fraction of even that enhanced pre-deposit needed to come specifically from the cash ledger, the Court held that pending the Supreme Court's final decision, the appeal should be considered on merits.
  • The order in appeal dated 10.01.2023 was set aside, with a direction that the Commissioner, Commercial Taxes, Patna issue necessary directions for consideration of similarly affected appeals while the matter remains pending before the Supreme Court.
  • Since the petitioner had already remitted the 10% pre-deposit from the Electronic Credit Ledger, there was to be no further insistence on payment from the Electronic Cash Ledger, and the Appellate Authority was directed to hear the appeal on merits.

Important Clarification

Even where a coordinate Division Bench has held that the mandatory pre-deposit for a Section 107 appeal must come from the Electronic Cash Ledger, a Supreme Court stay of that very finding is a valid and sufficient basis for a subsequent Bench to direct that appeals already supported by credit-ledger payment be heard on merits pending the Apex Court's final ruling, without the subsequent Bench formally overruling the coordinate Bench.

Sections Involved

  • Section 107, CGST Act, 2017 - appeal to the Appellate Authority and the mandatory pre-deposit requirement.
  • Section 49, CGST Act, 2017 - payment of tax through the Electronic Cash and Electronic Credit Ledgers.
  • Rule 87, CGST Rules, 2017 - Electronic Cash Ledger.

Decision – In Favour of

In favour of the Assessee. The Patna High Court set aside the rejection of the appeal and directed that it be heard on merits without insisting on payment of the pre-deposit from the Electronic Cash Ledger, given the Supreme Court's stay of the contrary Division Bench finding.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Judicature at Patna
  • Case No.: Civil Writ Jurisdiction Case No.6457 of 2023
  • CNR: Not available
  • Coram: Chief Justice K. Vinod Chandran and Justice Rajiv Roy
  • Decision Date: 6 December 2023
  • Disposal Nature: Allowed

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