Supreme Court Restores Appeals; Pre-Deposit via Electronic Credit Ledger (ECL) Allowed Pending Final Decision

Validity of Payment Mode: Whether the mandatory pre-deposit of 10% of the disputed tax liability required for filing an appeal under Section 107(6) of the CGST Act can be paid by debiting the Electronic Credit Ledger (ECL) (i.e., using Input Tax Credit), or if it must be paid only in cash via the Electronic Cash Ledger.
Definition of “Output Tax”: Whether the disputed tax demand retains the character of “output tax” (eligible for payment via ECL under Section 49(4)) or becomes a distinct “statutory debt/pre-deposit” payable only in cash.

The Petitioners: Flipkart Internet Pvt. Ltd., Summit Digital, and Shiv Crackers.
The Dispute: The petitioners filed statutory appeals against GST demand orders. To fulfill the mandatory condition of Section 107(6), they paid the 10% pre-deposit using the balance available in their Electronic Credit Ledger (ECL).
The Rejection: The Appellate Authorities rejected the appeals as “defective,” citing the Patna High Court ruling (in the earlier round of Flipkart Internet). The authorities held that pre-deposit is not “output tax” but a statutory obligation that must be discharged only through the Electronic Cash Ledger.
Coercive Recovery: In some cases, the department proceeded to recover the remaining demand (beyond the 10%) since the appeal was treated as invalid.
Legal Conflict: The assessees cited the Bombay High Court judgment in Oasis Realty and the Gujarat High Court judgment in Yasho Industries (upheld by SC in May 2025), which allowed ECL usage. The Revenue relied on the restrictive interpretation of Section 49(4).

The Supreme Court granted significant relief to the assessees via an interim order, while scheduling the matter for a final hearing on the legal question.
Restoration of Appeals: The Court set aside the orders rejecting the appeals and directed that the appeals be restored to the file of the Appellate Authority. The pre-deposit made through the ECL was treated as sufficient for the purpose of admitting the appeal for now.
Refund of Excess Recovery: The Court granted the assessees liberty to file applications for the refund of any amount recovered by the Revenue in excess of the mandatory 10% pre-deposit. This effectively reverses any coercive action taken due to the rejection of the appeals.
Legal Question Sub-Judice: While protecting the taxpayers, the Court acknowledged the conflicting interpretations of “output tax” and the financial implications. It directed detailed pleadings to settle the law finally in the upcoming hearings.

ECL for Pre-Deposit is Valid (for now): This order is a massive relief for taxpayers facing cash flow crunches. It signals that Appellate Authorities cannot summarily reject appeals solely because the pre-deposit was made via ECL.
“Output Tax” Debate:
- Revenue’s View: Pre-deposit is a distinct statutory obligation, not “self-assessed output tax,” hence Section 49(4) (allowing ECL use) doesn’t apply.
- Assessee’s View: The dispute is about tax liability. Any payment reducing this liability (even a pre-deposit) is a payment towards “output tax” and can be made using ITC, as confirmed in Oasis Realty.
Refund of Coerced Recoveries: Taxpayers who faced bank attachments or forced recoveries because their appeals were rejected on this technicality can now claim that money back, provided the 10% requirement is met via ECL.
Conflicting High Court Views: The Supreme Court is set to resolve the divergence between the Patna High Court (Cash only) and the Bombay/Gujarat High Courts (ECL allowed), bringing uniformity to GST litigation procedure.