SC Allows ITC for 10% GST Appeal Pre-Deposit | Yasho Industries Case

  1. Citation: Union of India v. Yasho Industries Ltd.,SLP (Civil) Diary No. 17547 of 2025, Supreme Court of India, Decided on 19 May 2025.

  2. Bench:
    • Hon'ble Mrs. Justice B.V. Nagarathna
    • Hon'ble Mr. Justice Satish Chandra Sharma

  3. Flow of the courts :
    • Gujarat High Court Judgment: 17 October 2024
    • Supreme Court Hearing: 19 May 2025
    • Supreme Court Judgment Date: 19 May 2025

  4. Court: Supreme Court of India
    Abstract :
    In Union of India v. Yasho Industries Ltd, the Supreme Court upheld the Gujarat High Court’s decision allowing taxpayers to use the Electronic Credit Ledger (ITC) for the mandatory 10% pre-deposit while filing GST appeals under Section 107(6)(b) of the CGST Act. The Court dismissed the Union of India's Special Leave Petition, affirming that there is no legal bar under GST law against using ITC for such pre-deposits. This ruling provides significant relief to taxpayers, ensuring better cash flow management and reinforcing the principle of ease of doing business.

  5. Facts of the case:
    • Parties Involved
    • Petitioner: Union of India
    • Respondent: Yasho Industries Ltd., a public limited company engaged in manufacturing and exporting specialty chemicals.

  6. Background:
    • Yasho Industries reversed ₹3 crore of ITC "under protest" due to IGST refund restrictions.
    • SCN was issued for IGST refund, interest, and penalty.
    • On 20 September 2022, SCN was confirmed, and Yasho filed an appeal.
    • The company made a ₹3.36 crore pre-deposit using ECL via Form GST DRC-03.
    • Tax authorities rejected ECL-based pre-deposit, insisting on cash payment.

  7. Legal Proceedings:
    • Yasho Industries Ltd. challenged the department's directive before the Gujarat High Court, which ruled in favor of using ECL for the pre-deposit.
    • The Union of India filed a Special Leave Petition (SLP) against the Gujarat High Court’s decision.
    • On 19 May 2025, the Supreme Court dismissed the SLP, upholding the High Court’s ruling and allowing the use of ECL for the mandatory pre-deposit.

  8. Issues Involved:
    • Can 10% GST pre-deposit be made using ITC (ECL)?
    • Can tax authorities reject ECL-based pre-deposit and demand cash payment?
    • Is it valid to restrict ITC use for GST appeal pre-deposits?
    • 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?

  9. Arguments:
    - Petitioner (Union of India):
    • Statutory provision mandates 10% pre-deposit for appeals via the Electronic Cash Ledger only.
    • Allowing pre-deposit through the Electronic Credit Ledger (ITC) could lead to misuse and undermine revenue protection.

    - Respondent (Yasho Industries Ltd.):
    • ITC is a legitimate fund source and should be allowed for pre-deposit under the CGST Act.
    • The CGST Act and rules don’t explicitly prohibit ITC use for pre-deposit, and denying it would create undue hardship and hinder the right to appeal.
    • The High Court’s interpretation, allowing ECL for pre-deposit, aligns with the law’s objective of ease of doing business.

    Legal Provisions Involved:
    • Section 107(6)(b), CGST Act, 2017: Requires 10% pre-deposit of disputed tax for appeals.
    • Notification No. 54/2018-CT: Restricts IGST refunds on exports under Advance Authorization.
    • Rule 96(10), CGST Rules, 2017: Governs refund procedures and ITC adjustments.
    • Form GST DRC-03: Used for making pre-deposit payments under GST.
    • Section 49(4), Rule 86(2) ,Sec 107(6) allow ITC use only for output tax, while Section 107(6) requires a 10% pre-deposit for GST appeals without specifying the payment mode. In Union of India v. Yasho Industries Ltd., the Supreme Court held that ITC (via ECL) can be used for the pre-deposit, overriding Circular No. 172/04/2022.
    Circular No. 172/04/2022:
    This circular issued by the GST Department provides clarifications on procedural aspects of GST laws, including the use of ITC for payment of GST and pre-deposits in case of appeals. It further outlines the methodology for using ECL for mandatory pre-deposits, making the process more transparent.

  10. Judgment:
    • Supreme Court dismissed the Union of India’s Special Leave Petition.
    • It upheld the Gujarat High Court’s decision allowing ITC (ECL) for the 10% pre-deposit under Section 107(6)(b) of the CGST Act.
    • The Court ruled that pre-deposits can be made via ECL, not just the Electronic Cash Ledger.
    • The judgment clarified that restricting pre-deposits to cash payments is not supported by the CGST law, promoting ease of doing business and taxpayer rights.
    • The ruling is a landmark decision favoring ITC use for GST appeal pre-deposits.
    Cases in which this case was cited :
    • Shri K J Vishwanatha v. State of Karnataka, reported as 2025 (8) TMI 1537 Karnataka High Court
    • In this case, the Supreme Court's ruling in Union of India v. Yasho Industries Ltd. was cited to emphasize principles of administrative fairness and adherence to statutory procedures. The reference helped reinforce the need for compliance with legal standards in state actions.



  11. Analysis :
    • Supreme Court allowed using ITC via Electronic Credit Ledger (ECL) for the 10% GST appeal pre-deposit.
    • Eases cash flow for businesses, making the appellate process less burdensome.
    • Clarifies that Section 107(6)(b) does not require cash-only pre-deposits.
    • Prevents arbitrary rejection of ITC-based pre-deposits by tax authorities.
    • Balances government revenue protection with fair taxpayer rights.
    • Supports ease of doing business and simplifies procedures.
    • Sets a strong precedent for consistent application in future GST disputes.
    • Encourages efficient resolution of tax disputes, reducing litigation hurdles.
    • Promotes commercial practicality while preventing misuse.

    Conclusion:
    The Supreme Court’s decision in Union of India v. Yasho Industries Ltd. marks a significant step in enhancing taxpayer rights within the GST framework. By allowing the use of Input Tax Credit for the 10% appeal pre-deposit, the ruling addresses a major financial challenge for businesses, particularly those with cash flow constraints.The judgment clarifies ambiguities in the law, ensuring a more transparent and fair approach to GST dispute resolution.

    It strikes a balance between safeguarding government revenue and enabling taxpayers to exercise their right to appeal without undue financial hardship.This decision promotes ease of doing business, supports consistency in GST procedures, and sets a precedent for a more pragmatic and equitable GST regime in India.

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