Goods & Services Tax (GST) in IndiaTaxGST Pre-Deposit Allowed Through Electronic Credit Ledger

The Hon’ble Supreme Court, in the case of Union of India & Anr. v. M/S Yasho Industries Limited, Special Leave Petition (Civil) Diary No. 17547/2025, decided on 19.05.2025, upheld the view that payment of pre-deposit under Section 107(6)(b) of the Central Goods and Services Tax (hereinafter referred to as “CGST”) Act, 2017, can be validly made through the Electronic Credit Ledger.

FACTS

M/S Yasho Industries Limited (hereinafter referred to as “the Respondent”) is a public limited company engaged in the manufacture and export of specialty chemicals. A large portion of its revenue comes from exports, contributing to the country’s foreign exchange earnings.

The Respondent received a refund of the Integrated Goods and Service Tax (hereinafter referred to as “IGST”) paid on exports between February 28, 2018, and January 14, 2021, under Section 16(3)(b) of the IGST Act, 2017, as it existed before the Finance Act of 2021 amended it. Using legitimate Advance Authorization Licenses, it concurrently benefited from an exemption on imported raw materials under Notification No. 79/2017.

After Rule 96(10) of the CGST Rules, 2017, was introduced through Notification No. 54/2018, the Respondent was prohibited from obtaining import exemptions and IGST refunds. It contested this by submitting a writ petition to the Bombay High Court, which is still pending.

During the course of investigation, the Respondent reversed the Input Tax Credit (hereinafter referred to as “ITC”) of Rs. 3 crore “under protest” via Form GST DRC-03 twice on two different dates. A Show Cause Notice dated was issued, demanding repayment of refunded IGST, along with interest and penalty. After submitting a detailed reply and attending personal hearings, an order confirming the demand was passed.

The Respondent preferred an appeal before the Commissioner (Appeals), CGST, and made a pre-deposit of Rs. 3,36,82,000 through the Electronic Credit Ledger.

However, the Department (hereinafter referred to as “the Petitioner”) rejected the mode of payment and directed that the pre-deposit be made through the Electronic Cash Ledger.

Under Article 226 of the Indian Constitution, the Respondent challenged the aforementioned letter in a writ petition filed with the High Court of Gujarat. The Hon’ble Court overturned the Petitioner’s letter and ruled that the pre-deposit made using the Electronic Credit Ledger was legitimate.

Aggrieved by the decision, the Petitioner filed a Special Leave Petition before the Supreme Court.

ISSUES

1. Whether or not the pre-deposit required under Section 107(6)(b) Of the Central Goods and Services Tax Act, 2017, could be paid by utilizing the credit available in the Electronic Credit Ledger?

CONTENTIONS OF THE PARTIES

The Petitioners contended that the Respondent’s appeal before the Commissioner (Appeals) was not valid, as the statutory pre-deposit had not been paid in accordance with the law. The Respondent had debited Rs. 3,36,82,000/- from its Electronic Credit Ledger using Form GST DRC-03.

It was further argued that the term “paid” in Section 107(6)(b) of the CGST Act implies actual monetary payment. Therefore, according to the Petitioner, the pre-deposit had to be made exclusively through the Electronic Cash Ledger.

The Petitioner asserted that the use of ITC is governed by statutory restrictions and cannot be extended to satisfy pre-deposit conditions unless specifically allowed. Since the CGST Act does not explicitly permit use of the credit ledger for pre-deposit, such a mode of payment was deemed invalid.

It was further submitted that the letter issued by the Petitioner, was consistent with legal requirements. The Petitioner had merely sought compliance with the statutory scheme by asking the Respondent to pay the amount in cash.

On the contrary, the Respondent argued that the pre-deposit was legitimately made using the Electronic Credit Ledger. The sum had been correctly deducted using Form GST DRC-03, fully adhering to Section 107(6)(b) regulations.

The Respondent further submitted that the CGST framework, which recognizes the usage of the Electronic Credit Ledger for output tax payment, was said to be the sole reason why pre-deposit is used. Hence, restricting payment to the Cash Ledger would be contrary to the law’s purpose.

The Respondent relied on the earlier judgment of the High Court of Gujarat, where it was held that pre-deposit could be paid using the credit ledger, and the present case stood on identical facts.

In support of its stand, the Respondent also referred to Circular No. CBIC-20001/2/2022-GST, which clarified that payments arising from GST proceedings may be discharged using the Electronic Credit Ledger, subject to certain conditions.

The Respondent submitted that the Petitioners’ insistence on payment through the Electronic Cash Ledger was arbitrary and without legal foundation.

DECISION AND FINDINGS

The High Court of Gujarat carefully assessed whether the Respondent’s use of the Electronic Credit Ledger to pay the pre-deposit may be deemed legitimate for the purpose of appealing under Section 107(6)(b) of the CGST Act, 2017. The High Court of Gujarat pointed out that previous court rulings had already resolved the matter and that it was no longer an open legal dispute.

Referring to its own decision, the Court reiterated that the statutory scheme of the CGST Act does not specifically prohibit utilization of the Electronic Credit Ledger for the purpose of pre-deposit. The Court found that the words “has paid” used in Section 107(6)(b) could not be interpreted narrowly to mean only payment through the Electronic Cash Ledger. It held that since output tax can be paid through either ledger, there was no legal basis for excluding payments made through the credit ledger in compliance with the pre-deposit condition.

To reinforce its interpretation, the Court relied on the judgment of the Bombay High Court in Oasis Realty v. Union of India, (2023) 120 GSTR 755 (Bom), which had analyzed the provisions of the GST law in detail and concluded that pre-deposit payments could be made through the Electronic Credit Ledger. The Court adopted the same reasoning and found it directly applicable to the facts of the present case.

Further, the High Court of Gujarat considered the clarification issued by the Central Board of Indirect Taxes and Customs, which explicitly stated that output tax liabilities arising from proceedings under the GST regime could be paid using the Electronic Credit Ledger. Since pre-deposit under Section 107(6)(b) relates to output tax, the High Court of Gujarat held that such payment through the credit ledger was fully aligned with both statutory provisions and administrative guidance.

Based on this analysis, the Hon’ble Court concluded that the Respondent’s payment of Rs. 3,36,82,000/- through the Electronic Credit Ledger using Form GST DRC-03 was valid and compliant with the requirement of Section 107(6)(b). It found that the Petitioner’s demand for a fresh cash payment was arbitrary and unsupported by the legal framework. Consequently, the impugned letter issued by the Petitioner was quashed and set aside. The High Court of Gujarat directed the Petitioner to consider the Respondent’s appeal on merits by treating the pre-deposit as fulfilled.

Aggrieved by the decision, the Petitioners approached the Supreme Court by filing a Special Leave Petition. During the hearing, the Respondent pointed out that similar petitions filed by assesses had already been entertained by the Supreme Court and that the Petitioner could not rely on those cases to seek relief in its own petition. The Supreme Court took note of the fact that the High Court’s reasoning was in line with settled law and ultimately dismissed the SLP, holding that there was no merit in the challenge and that the judgment of the High Court of Gujarat did not warrant interference.

AMLEGALS REMARKS

This ruling upholds the idea that, under the GST framework, content should take precedence over form when it comes to procedural compliance. By acknowledging that pre-deposit payments made via the Electronic Credit Ledger are not illegal, the High Court of Gujarat correctly construed Section 107(6)(b) of the CGST Act, 2017, in a way that is both legally sound and practically feasible.

The Court’s reliance on the administrative circular issued by CBIC, along with settled judicial precedents, reflects a consistent effort to bring clarity where procedural ambiguities have created practical hurdles for taxpayers. The judgment confirms that ITC, once available and legally claimed, can be used not only for routine tax payments but also to meet statutory requirements like pre-deposit, provided such use does not violate any specific restriction under the Act or Rules.

This case sets a helpful precedent in aligning administrative practice with the intended flexibility of the GST framework and further encourages a fair reading of compliance obligations, one that does not defeat the right to appeal on mere technicalities. Going forward, this decision may guide other courts and tax authorities in dealing with similar disputes where the mode of payment, rather than the payment itself, becomes the point of contention.

–Team AMLEGALS assisted by Ms. Tanisha Khandelwal (Intern)

For any queries or feedback, feel free to reach out to laksha.bhavnani@amlegals.com or hiteashi.desai@amlegals.com