Amount paid during investigation is adjustable towards pre-deposit for filing GST appeal.

Amount paid during investigation is adjustable towards the mandatory pre-deposit for filing an appeal.

Issue

1. Whether an amount of tax/ITC that has been duplicated in two separate show-cause notices and confirmed in corresponding orders can be considered a valid basis for demanding a separate pre-deposit for each appeal?
2. Can an amount voluntarily deposited by an assessee during the investigation stage be adjusted against the mandatory 10% pre-deposit required for filing a statutory appeal under Section 107 of the CGST Act?

Facts

The assessee was issued two separate show-cause notices, which culminated in two orders-in-original. The first order proposed a demand and recovery of Input Tax Credit (ITC) amounting to ₹2.83 crore. The second order proposed a similar demand for ₹60.73 lakh.

The assessee contended that the demand of ₹60.73 lakh, attributed to ITC availed from a supplier named Fortune Graphics, was erroneously included in both show-cause notices and, consequently, in both final orders. This led to a duplication of the demand.

Furthermore, during the course of the investigation, the assessee had already deposited a sum of ₹1.16 crore with the department. The assessee argued that this amount should be allowed to be adjusted against the statutory pre-deposit required to file appeals against the orders, as mandated by Section 107 of the CGST Act. The assessee sought permission from the High Court to file the appeals by making the necessary adjustments.

Decision

The High Court ruled in favour of the assessee on both counts, providing significant relief and clarifying the position on pre-deposit adjustments.

1. On Duplication of Demand: The Court examined the records and found merit in the assessee’s submission that the demand of ₹60.73 lakh was indeed duplicated in both orders-in-original. In view of this clear duplication, the Court directed that the assessee could file appeals against both orders, but the pre-deposit would be calculated only on the non-duplicated amount. Specifically, the assessee was required to pay the pre-deposit only for the appeal challenging the first order (related to the ₹2.83 crore demand), and no separate pre-deposit was required for the appeal against the second order, which contained the duplicated demand.
2. On Adjustment of Amount Paid: The Court explicitly held that the amount of ₹1.16 crore, which was deposited by the assessee during the investigation, could be adjusted towards the pre-deposit requirement for filing the appeal.

This decision allowed the assessee to proceed with the appeals without being burdened by a duplicated pre-deposit amount and by utilizing the sum already paid to the department.

Key Takeaways

• Amount Paid During Investigation is Adjustable: An amount paid by a taxpayer during an investigation, audit, or inquiry is not a final payment of tax but a deposit. The courts have consistently held that such amounts are available to the assessee and can be adjusted against the mandatory pre-deposit required under Section 107 of the CGST Act for filing an appeal.
• No Pre-deposit on Duplicated Demands: Tax authorities cannot demand a pre-deposit on a demand amount that has been erroneously duplicated across multiple orders. The right to appeal should not be hindered by such procedural errors. The pre-deposit is to be calculated on the actual, distinct disputed tax amount.
• Facilitating the Right to Appeal: The requirement of a pre-deposit is a condition for hearing an appeal, not a means to deny the statutory right of appeal. Courts will intervene under writ jurisdiction to rectify patent errors, such as duplicated demands, that place an unjust financial burden on the appellant.
• DRC-03 Payments: Payments made “voluntarily” via Form GST DRC-03 during an investigation are considered deposits and do not constitute an admission of liability. These amounts must be accounted for and can be used to fulfill pre-deposit conditions for future appeals arising from the same proceedings.