Delhi High Court Allows Use Of Transitional CENVAT Credit For Mandatory Pre-Deposit Before CESTAT

The Delhi High Court, in a 'rare' scenario where an appeal was sought to be admitted before the CESTAT on the strength of pre-deposit made using through DRC-03, has clarified that pre-deposit was partial component of the demand just as tax, interest and penalty. In a recent judgment dated December 22, 2025, the Delhi High Court dealt with whether CENVAT credit transitioned into the GST regime as on July 01, 2017 could be utilised for the purpose of making pre-deposit or not. A Division Bench comprising of Justice Prathiba M. Singh and Justice Shail Jain, on a plain reading of Section 35F of the Finance Act, 1994 together with transitional provision Section 140 of the CGST Act, 2017 and Rule 142 (3) of the CGST Rules, 2017. On the nature of pre-deposit, it was clarified that pre-deposit cannot be treated as a separate species of deposit. To reinforce its interpretation, the Delhi High Court relied on the decision of the Gujarat High Court in Yasho Industries as well the CESTAT Mumbai decision in Saphire Cables & Services. “27. Rule 142 of the CGST Rules is clear that payments can be made through DRC-03 of any tax, interest or penalty. Pre-deposit is nothing but an advance deposit of the demanded amount, which in this case would be tax, interest or penalty. 28. Under such circumstances, the Petitioner, being the Army Welfare Board, which is a society set up with the objective of providing affordable dwelling units to serving and retired army personnels and widows, in any event, ought to be permitted to utilise the CENVAT credit for the purpose of pre-deposit” A service tax demand to the tune of Rs.84,95,49,572 was raised against the Petitioner, Army Welfare Housing Organization (AWHO) a society set up for providing facility of availing housing units. AWHO filed an appeal against the service tax demand before the Customs Excise and Service Tax Appellate Tribunal (CESTAT) which came to be dismissed on the ground that the proper pre-deposit was not made. Petitioner had sought to use the credit in DRC-03 for the purpose of pre-deposit, which was not permitted by CESTAT, hence, the appeal of the Petitioner stood rejected. Pre-deposit is mandated under Section 35F of the Central Excise Act and Section 85 of the Finance Act. Advocate Yogendra Aldak submitted that it was settled position that prior to the coming into effect of the GST regime, CENVAT credit could be used for the purpose of pre-deposit. In support thereof, a circular issued by CESTAT dated 28th August 2014 was relied upon by him to state that this benefit was sought to be stopped after the transition to the GST regime. Senior Standing Counsel Shubham Tyagi relied on the Circular No. CBIC-240137/14/2022-SERVICE TAX SECTION-CBIC dated October 28, 2022. Notably, the CBIC Circular was issued pursuant to the Sodexo India decision by the Bombay High Court wherein the High Court reckoned that during the initial transition phase of GST confusion persisted as to whether Form DRC-03 was a valid mode for payment of pre-deposit. Pursuant to the Sodexo India, the CBIC issued an Instruction No. October 28, 2022 regarding pre-deposit payment method for cases pertaining to Central Excise and Service Tax. The Instruction stated that Form GST DRC -03 was not a prescribed mode for payment of pre-deposit for appeals under erstwhile Central Excise and Finance regimes. The Delhi High Court perused the Electronic Credit Ledger and noted that CENVAT Credit of Rs.17,40,16,737 was transitioned to the GST regime by Petitioner. Further, referring to the Sodexo India decision, the Delhi High Court re-iterated that 'Pre-deposit was an advance payment of demanded tax. Therefore, upon introduction of GST there was no rationale on the basis of which it could be held that DRC-03 payment cannot be utilized for the purpose of making pre-deposit. Against the stance that mandatory pre-deposit for filing appeal could not be made via Form DRC-03, the Delhi High Court referred to decision by the Gujarat High Court in Yasho Industries where amount lying in Electronic Credit Ledger was allowed to be used against payment of pre-deposit for filing an appeal under GST. On May 19, 2025, the Supreme Court in Special Leave Petition (Civil) Diary No. 17547/2025, upheld the view that payment of pre-deposit under Section 107(6)(b) of the CGST Act, 2017, could be validly made through the Electronic Credit Ledger. Thus, considering that AWHO was a Charitable Organization having 'No profit, No loss organisation' the Delhi High Court permitted AWHO's Haryana registration to make payment of pre-deposit through electronic credit ledger for filing appeal before the CESTAT. Case Name: Army Welfare Housing Organisation vs. Union of India & Ors. For Petitioner: Advocates V. Lakshmikumaran, L. Badri Narayanan, Charanya Lakshmikumaran, Yogendra Aldak, Kunal Kapoor For Respondents: SSC...

Delhi High Court Allows Use Of Transitional CENVAT Credit For Mandatory Pre-Deposit Before CESTAT

Parul Bose

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