CBIC issues instruction relating to pre-deposit for disputes under Central Excise and Service tax

This Tax Alert summarizes a recent Instruction[1] issued by the Central Board of Indirect Taxes and Customs (CBIC) prescribing pre-deposit payment methods for disputed cases under Central Excise and Service Tax (earlier regime).

CBIC noticed instances of rejection of appeals by the Commissioner (Appeals) for non-compliance with the pre-deposit requirement as mandated under earlier regime. Pre-deposits in such cases were made through GST DRC-03. Earlier, Bombay HC had also directed CBIC to issue Instructions in this regard[2].

CBIC has clarified the following:

• GST DRC-03 is prescribed for payment of tax, interest, penalty, or any other amount under provisions of the Central Goods and Services Tax (CGST) Act 2017, read with rules made thereunder. Goods and Services Tax (GST) law further provides for use of Form GST APL-01 for filing an appeal with pre-deposit option through electronic cash/credit ledger. Therefore, GST DRC-03 is not a prescribed mode for pre-deposit under GST.
  
• In terms of transitional provisions under Section 142 (6)(b), 142 (7)(a), and 142(8)(a) of the CGST Act, CENVAT credit, tax, interest, fine, or penalty recoverable under earlier regime, shall be recovered as arrears of tax under CGST. Pre-deposit is a requirement for exercising the right to appeal and is neither in the nature of duty nor can be treated as arrears under earlier regime. Hence, it is not covered under transitional provisions. Consequently, GST DRC-03 is not a valid mode for making pre-deposits under the earlier regime. Taxpayers should therefore use only CBIC-GST Integrated portal[3] for making such pre-deposits.

Comments

• CBIC has distinguished pre-deposits from payment of tax and arrears. However, there are contrary rulings under erstwhile as well as GST regime for treatment of pre-deposit as duty payment.
• Non-acceptance of pre-deposit made through GST DRC-03 prevents utilization of Input tax credits and is likely to have a significant impact on working capital. 
• While the clarification aims to resolve procedural ambiguity, one may need to evaluate its impact on pending appeals where pre-deposits were already made through GST DRC-03. .

[1] CBIC-240137/14/2022-Service Tax Section-CBEC dated 28 October 2022
[2] 2022-VIL-686-BOM-CE Refer our tax alert dated 14 October 2022 titled “Bombay HC directs CBIC to issue Instructions on manner of pre-deposit for appeals under earlier regime”
[3] https://cbic-gst.gov.in as referred in Circular No. 1070/3/2019-CX dated 24 June 2019