Finally, Credit Where It’s Due

May 23, 2025 • Estimated Reading Time: 8 minutes

Welcome to another Friday, chief!

In today’s edition — The Supreme Court just gave businesses a tax-time treat, meaning no more dipping into cash flow to make pre-deposits for GST appeals; use input tax credit instead. Meanwhile in Bhopal, a ₹1 GST overcharge on a bottle of water turned into an ₹8,000 headache. 

SC Allows Use of ITC for GST Appeals

Vishwas Ved

Here’s some welcome news for businesses dealing with India’s tax system: the country’s top court has just made it easier as well as cheaper to challenge GST demands.

In a landmark decision, the Supreme Court ruled that companies can now use their input tax credit (ITC) to cover the pre-deposit required to file GST appeals.

Until now, businesses had to deposit cash even when they had plenty of tax credit from past purchases. 

This business-friendly move not only frees up cash, it also brings clarity to all disputes related to GST.

What’s This All About?

Under the existing GST rules, if a business challenges a tax demand, it can file an appeal but only after depositing a certain percentage of the disputed amount upfront. The deposit is aimed at discouraging frivolous appeals.

The problem with this system was that the rules stipulate that the deposit needs to come from their ‘cash ledger’ — money directly from the pocket — rather than their ‘credit ledger’ that records the input tax credit i.e. the GST already paid on purchases.

This mandatory deposit made it hard for businesses, especially small and medium enterprises (SMEs), to challenge GST demands without affecting their cash flow.

What Changed It

This issue hit a tipping point when tax authorities asked Yasho Industries, a Mumbai-based specialty chemicals company, to deposit ₹3.36 crore to dispute a tax demand, even though the company had enough ITC to cover it.

The company first challenged the tax demand in the Gujarat High Court, arguing that a 2022 circular from the Central Board of Indirect Taxes and Customs (CBIC) should allow them to use ITC for the pre-deposit. The court sided with the company, ruling that mandatory appeal deposits are a form of tax liability.

But there was a loophole in the circular: it only mentioned ITC being used for ‘output tax liabilities’ (i.e., tax on sales), not explicitly for appeal deposits. 

The Revenue Department held onto it and pushed back, insisting that pre-deposits were only procedural and had to be paid in cash.

The matter eventually reached the Supreme Court, which has now settled it for good. A bench ruled in favour of Yasho Industries, saying that pre-deposits qualify as tax obligations, and therefore ITC can be used to pay them.

Final Words

The ruling has not only given relief to Yasho Industries, but also cleared many years of confusion around whether input tax credit can be used for pre-deposits as well.

The court’s ruling has ensured that businesses, especially SMEs, do not get financially burdened when a tax demand comes their way.

At the same time, the court has also made refunds easier because if, for instance, the business facing tax demand wins the appeal, there’s no delay in reclaiming funds.

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Water Bottle Takes Eatery to Court Over ₹1

Welcome to a courtroom drama, featuring… a pricey bottle of water.

It all started in 2021 when a restaurant in Madhya Pradesh charged ₹1 as GST on a bottle of water, only to find itself in hot water. That’s right — just ₹1.

Nearly four years later, Bhopal’s Consumer Forum has ordered the restaurant to pay up ₹8,000 for charging GST on the bottle that costs ₹20.

Here’s the full story:

One fine day in 2021, the petitioner, Aishwarya, the hero the world didn’t know it needed, had eaten with her companions at the restaurant.

When the bill arrived, she discovered she had been charged ₹29 for the bottle that had ‘MRP ₹20’ printed on it. She objected to the additional charges, but the restaurant insisted the billing was legal. 

Not one to let water go under the bridge, Aishwarya dragged the restaurant to the consumer forum. The restaurant argued that it charged a GST of ₹1 and the extra charge of ₹8 was for “services” such as air conditioning and chairs.

The court was unconvinced, ruling that GST was included in the MRP. The forum not only ordered a refund of ₹1, but also slapped the restaurant with a penalty of ₹5,000 for mental agony and ₹3,000 for legal expenses.

Moral of the story?

In India, you can get away with poor service and stale food, but overcharge a customer even by ₹1, and you could be looking at four years in court and a penalty about eight thousand times the crime.

1500

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Missed last week's update? Patna High Court rejects a travel agency’s fire excuse, ordering ₹25.25 lakh in service tax despite lost records, citing suppression of facts. Meanwhile, Assam CM Himanta Biswa Sarma rechristened GST from “Gabbar Singh Tax” to “God-Sent Tax,” claiming it helped buy Rafales and S-400s. From courtrooms to political battlefields, taxes are no longer just about revenue; they’re part of the national story now.

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