GST Council Recommends Amendment to Rule 142: Simplifying Pre-Deposit Mechanism for Filing Appeals

53rd GST Council meeting recommended an amendment to Rule 142 of the Central Goods and Services Tax (CGST) Rules. This amendment introduces a mechanism for adjusting amounts paid towards a demand through Form GST DRC-03 against the pre-deposit amount required for filing an appeal.

Background: The Appeals Process Under GST

Under GST, appellants must pay 100% of admitted tax and a percentage of disputed tax as pre-deposit when filing appeals. This is typically done at the time of filing of Form GST APL-01 on the GST portal. Issues arise when taxpayers make payments during audits or face technical problems with APL-01 hence making them resort to Form GST DRC-03. Earlier the CBIC has clarified in CBIC-240137/14/2022-Service Tax Section-CBIC, dated 28.10.2022 that pre-deposits are neither duty nor arrears, and that DRC-03 is not a valid form for making pre-deposits. Later, vide CBIC-240137/14/2022-Service Tax Section-CBEC dated 18.04.2023 it was clarified that aforementioned restriction was exclusively intended for the cases of appeals belonging to the Central Excise/Service Tax only and not for appeals under GST. The Courts have also been addressing cases where appeals were rejected due to payment of pre-deposit made through Form GST DRC-03 in the case of technical error on the portal (Manjunatha Oil Mill v. Assistant Commissioner (ST) (FAC) [2024] 159 taxmann.com 514). These situations underscored the need for clearer guidelines and flexibility in the appeal process to address genuine technical challenges.

Rule 142 and Form GST DRC-03: Current Framework

Rule 142 of the CGST Rules outlines the process for issuing demand notices and recovering dues from taxpayers. Form GST DRC-03 is used by taxpayers to voluntarily make payments towards tax, interest, penalty, and other amounts before or after the issuance of a show-cause notice. There is no provision for adjusting amounts paid through Form GST DRC-03 against the pre-deposit required for filing an appeal. This often leads to duplication of payments and financial strain on taxpayers.

The Amendment: A New Adjustment Mechanism

The recommended amendment to Rule 142 and the issuance of a circular aim to address this issue by prescribing a mechanism for such adjustments. Accordingly, vide the Circular No. 224/18/2024 - GST dated 11.07.2024, a new mechanism is provided. Notification No. 12/2024- CT dated 10.07.2024, vide which sub-rule (2B) of Rule 142 and Form GST DRC-03A have been inserted to the CGST Rules, provides mechanism for cases where an assessee to pay tax, interest and penalty under relevant provisions (Section 52, 73, 74, 76, 122, 123, 124, 125, 127,  129, 130 of CGST Act) inadvertently through Form GST DRC-03 under sub-rule (2) of Rule 142.

Such assessee will have to file an application in Form GST DRC-03A, electronically on the GST portal, and the amount so paid and intimated through the Form GST DRC-03 will be adjusted as if the said payment was made towards the said demand on the date of such intimation through Form GST DRC-03. The amount so paid shall also be liable to be adjusted towards the amount required to be paid as pre-deposit under Section 107 and Section 112 of the CGST Act, if and when the taxpayer files an appeal against the said demand, before the appellate authority or the appellate tribunal, and the remaining amount of confirmed demand as per the order of the adjudicating authority or the appellate authority, as the case may be, will stand stayed as per Section 107 (6) and Section 112 (9) of CGST Act.

As the abovementioned functionality for filing of an application in Form GST DRC-03A, is currently unavailable on the GST portal, the assesses will have to intimate the proper officer about the same, and on such intimation, the proper officer shall not pursue any recovery till the time the said functionality of Form GST DRC-03A is made available on the GST portal.

Once the functionality of Form GST DRC-03A is made available on the GST portal, the assessee will have to file the application in Form GST DRC-03A, on the portal at the earliest, and on doing so, the amount paid vide Form GST DRC-03 will be adjusted against the pre-deposit under section 107 or section 112 of the CGST Act.

Benefits of the Amendment

1. Financial Relief for Taxpayers: This change prevents the need for double payments for the same tax demand, easing the financial burden on businesses.
2. Encouragement for Genuine Appeals: The simplified process encourages taxpayers to pursue genuine appeals without the deterrent of additional financial strain.
3. Administrative Efficiency: For tax authorities, the amendment reduces redundancy and simplifies the process of tracking and managing payments.
4. Legal Clarity: The circular providing detailed guidelines on the adjustment mechanism will help eliminate ambiguities and ensure consistent application of the rules.
5. Under protest payment to arrest the interest meter: The mechanism also benefits where taxpayer voluntary paid the demand in full or in part under protest during the investigation stage to stop the interest meter. Through this new mechanism, such aggrieved taxpayers will now be able to seek by adjusting their voluntary under-protest payments against the mandatory pre-deposit while challenging the demand in appeal.

Conclusion

The recommendation to amend Rule 142 of the CGST Rules and introduce a mechanism for adjusting payments made through Form GST DRC-03 against pre-deposit amounts for appeals is a progressive step towards refining the GST framework. The amendment specifically addresses and provides a mechanism for adjusting amounts paid through Form GST DRC-03 against the pre-deposit required for filing an appeal. Therefore, taxpayers who have not utilized Form GST DRC-03 to make such payments will not benefit from this adjustment mechanism. They will need to follow the standard procedures and use the prescribed forms, such as Form GST APL-01, for making pre-deposits.