Transitioned CENVAT Credit Valid For Service Tax Appeal Pre-Deposit: Karnataka High Court
The Karnataka High Court on 4 August held that CENVAT credit transitioned to the Goods and Services Tax (GST) regime can be used to meet the mandatory pre-deposit requirement for a service tax appeal.
A Division Bench of Justices S.G. Pandit and K. Manmadha Rao set aside the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) order rejecting a pre-deposit of Rs.79,77,301 made by debiting the Electronic Credit Ledger through Form GSTR-3B. The judges held:
"The mandatory pre-deposit under Section 35F of the Central Excise Act, 1944, as applicable to service tax appeals, can validly be discharged by utilisation of CENVAT credit transitioned under Section 140 of the CGST Act, 2017, and reflected in the Electronic Credit Ledger."
Shakti Enterprises, a proprietorship concern engaged in sorting, blending, processing and packing tea for Hindustan Unilever Limited filed the writ petition.
Under the erstwhile service tax regime, Shakti Enterprises had accumulated CENVAT credit on packing materials. After GST came into force on 1 July 2017, the unutilised credit was transitioned under Section 140 of the Central Goods and Services Tax Act, 2017 and reflected in its Electronic Credit Ledger. Following an investigation, the Department issued a show cause notice alleging irregular availment of CENVAT credit and suppression of taxable value.
The Principal Commissioner confirmed the demand by an order dated 27 December 2023. Shakti Enterprises challenged the order before the CESTAT and deposited Rs.79,77,301 by debiting its Electronic Credit Ledger through Form GSTR-3B. The CESTAT Registry objected to this mode of payment. By an order dated 12 December 2025, the Tribunal held that the pre-deposit in the legacy service tax matter had to be made in cash through the designated Central Board of Indirect Taxes and Customs (CBIC) portal.
The High Court disagreed with the Tribunal. It observed that Section 35F of the Central Excise Act, 1944, which applies to service tax appeals, does not prescribe that the mandatory pre-deposit must be made only through cash payment.
It held that CENVAT credit validly transitioned under Section 140 of the CGST Act remains a vested right and can be utilised to make the statutory pre-deposit. It also held that administrative instructions issued by the CBIC cannot override statutory provisions or restrict a mode of payment recognised under law. It observed:
"Section 140 of the CGST Act, 2017, was enacted with the specific object of protecting the vested rights of taxpayers in the unutilised CENVAT credit. The transition of credit into the Electronic Credit Ledger did not create a new credit, it merely preserved the existing credit in a different form..."
Relying on earlier decisions of the Supreme Court and the Delhi High Court, the Bench held that payment of the pre-deposit through the Electronic Credit Ledger constitutes valid compliance with Section 35F.
It further held that once the amount is debited from the Electronic Credit Ledger and credited to the Government, the statutory requirement stands satisfied. It observed that denying the right to utilise lawfully available transitioned credit would impose an unreasonable burden and effectively impair the statutory right of appeal. The judges noted:
"It is declared that the pre-deposit of Rs.79,77,301/- made by the petitioner by debiting the Electronic Credit Ledger through Form GSTR-3B constitutes valid compliance of Section 35F of the Central Excise Act, 1944, as made applicable to service tax matters."
Accordingly, the High Court allowed the writ petition, quashed the CESTAT's order dated 12 December 2025 and directed the Tribunal to treat the Rs.79.77 lakh pre-deposit as valid and decide Shakti Enterprises' appeal on merits in accordance with law.
For Petitioner: Prashanth S., Advocate
For Respondent: Shishira Amarnath, Advocate