Karnataka High Court Allows GST Appeals with Pre-Deposit from Credit Ledger; Appeal Restored

The Hon’ble Karnataka High Court in Writ Petition No. 21409 of 2025 (T-RES), decided on August 14, 2025 [2025:KHC:31514], in the case of M/s. VK Building Services Private Limited v. The Additional Commissioner of GST, Appeals I, Bengaluru & Ors., held that payment of the mandatory pre-deposit under Section 107(6)(b) of the CGST Act through the Electronic Credit Ledger (ECL) is valid compliance. The Court quashed the order of the Appellate Authority which rejected the appeal on the ground that the deposit was not made in cash and restored the appeal to be heard on merits.

Facts of the Case

The Petitioner, M/s. VK Building Services Private Limited, approached the Hon’ble Karnataka High Court challenging an order dated December 11, 2023, whereby the Appellate Authority had rejected its appeal. The rejection was solely on the basis that the mandatory pre-deposit under Section 107(6)(b) of the Central Goods and Services Tax Act, 2017 (“CGST Act”) was discharged through electronic credit ledger rather than through cash.

The Petitioner submitted that an identical issue had already been considered by the Hon’ble Gujarat High Court in Yasho Industries Ltd. v. Union of India, (2025) 143 GSTR 553 (Guj), wherein the Court categorically held that pre-deposit made through electronic credit ledger is valid and the refusal by the Appellate Authority was unsustainable. The Petitioner relied upon the said judgment, wherein the Gujarat High Court, after analyzing the statutory provisions of Section 107(6)(b) read with Section 49(3) & (4) and Rule 86(2) of the CGST Rules, held that the utilisation of input tax credit (ITC) for making such pre-deposit is permissible.

The Gujarat High Court had also considered the CBIC Circular dated July 6, 2022, clarifying that utilisation of ITC through the electronic credit ledger can be made towards payment of “output tax,” including liabilities arising as a consequence of proceedings under the GST law. Relying upon this, the Gujarat High Court had quashed similar refusal orders.

The Hon’ble Supreme Court had further affirmed the judgment of the Gujarat High Court in Yasho Industries Ltd., while dismissing the Special Leave Petition (SLP) filed by the Union of India, thereby giving finality to the interpretation that ECL utilisation is valid for the purpose of pre-deposit.

Despite such settled legal position, the Respondent-Appellate Authority in the instant case rejected the Petitioner’s appeal on the sole ground that the pre-deposit was made from the electronic credit ledger rather than through electronic cash ledger. The Petitioner, being aggrieved by this rejection which effectively deprived them of the statutory appellate remedy, approached the Hon’ble Karnataka High Court through the present writ petition.

Issue

Whether the pre-deposit mandated under Section 107(6)(b) of the CGST Act can be validly discharged by utilisation of the balance available in the Electronic Credit Ledger, and whether the refusal of the Appellate Authority to accept such payment is sustainable in law.

Held by the Court

The Hon’ble Karnataka High Court in Writ Petition No. 21409 of 2025 [2025:KHC:31514] held that:

1. The Court observed that the issue stood covered by the judgment of the Hon’ble Gujarat High Court in Yasho Industries Ltd. v. Union of India, which had been affirmed by the Hon’ble Supreme Court. Therefore, there remained no ambiguity in law regarding the permissibility of using the Electronic Credit Ledger for discharging the mandatory pre-deposit.

   
   

2. The Court held that the Appellate Authority’s insistence on payment of pre-deposit through the cash ledger, despite a valid payment through the Electronic Credit Ledger, was unsustainable and contrary to the statutory scheme under the CGST Act and Rules, as well as the binding precedents of the Gujarat High Court and the Supreme Court.

   
   

3. The Court opined that Section 107(6)(b) merely requires “payment” of 10% of the disputed tax and does not mandate that such payment be necessarily made in cash. Further, Section 49(4) of the CGST Act clearly provides for utilisation of the Electronic Credit Ledger towards output tax liability, and such pre-deposit constitutes output tax arising from proceedings.

   
   

4. The Court relied upon the CBIC Circular dated July 6, 2022, which clarified that amounts available in the Electronic Credit Ledger can be utilised towards payment of output tax, including liabilities arising pursuant to proceedings.

   
   

5. Consequently, the Court quashed the order dated December 11, 2023 passed by the Appellate Authority rejecting the appeal. The appeal filed by the Petitioner in FORM GST APL-01 dated June 29, 2022 was restored, with a direction to the Appellate Authority to decide the matter on merits and take it to its logical conclusion.

Relevant Sections

• Section 107(6)(b), Central Goods and Services Tax Act, 2017

• Section 49(3) & (4), Central Goods and Services Tax Act, 2017

• Rule 86(2), Central Goods and Services Tax Rules, 2017

• CBIC Circular F. No. CBIC-20001/2/2022-GST dated July 6, 2022

Pari Materia / Cases Referred

1. Yasho Industries Ltd. v. Union of India – (2025) 143 GSTR 553 (Gujarat High Court), affirmed by Hon’ble Supreme Court in Union of India v. Yasho Industries Ltd., 2025 (5) TMI 1614 (SC), decided on May 2025.

2. Shiv Crackers v. Chief Commissioner of CGST & C.E. – (2025) 143 GSTR 545 (Gujarat High Court).

3. Oasis Realty v. Union of India – (2023) 120 GSTR 755 (Bombay High Court).

4. Jyoti Construction v. Deputy Commissioner of CT & GST – (2022) 96 GSTR 17 (Orissa High Court).

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