Paying the pre-deposit from the electronic credit ledger
A question that cost taxpayers real cash for three years, and now has a workable answer.
The pre-deposit for an appeal, to the extent it represents tax, may be paid by utilising the balance in the electronic credit ledger, subject to the utilisation rules. Interest, penalty, fee and fine must be paid in cash. Circular 172/04/2022-GST clarified that any payment towards output tax, whether self assessed or payable as a consequence of proceedings, can be made by utilisation of the credit ledger. Earlier decisions taking a contrary view predate that clarification, and departments occasionally still rely on them.
How the position developed
The Orissa High Court in Jyoti Construction held that the pre-deposit could not be made from the credit ledger, reasoning that it was not an output tax liability.
Circular 172/04/2022-GST then clarified that the electronic credit ledger may be used for payment towards output tax, including tax payable as a consequence of any proceeding under the Act, and that it cannot be used for interest, penalty, fee or any other amount.
Following that clarification, the practice has settled: the tax component of a pre-deposit may be paid from credit, and everything else in cash.
Where an appellate authority refuses to accept a credit ledger pre-deposit, the circular should be produced. A beneficial circular binds the officers.
The mechanics
Pay through DRC-03, selecting the pre-deposit cause and the credit ledger as the mode for the tax component.
Pay interest and penalty portions in cash where they form part of the required deposit.
Annex the challan to the appeal memorandum, and keep the ledger extract showing the debit.
On success, claim the refund. A refund of a pre-deposit made from credit is ordinarily re credited, and the treatment should be checked at the time of the claim.
Where care is needed
Where the credit itself is the subject matter of the dispute, using it for the pre-deposit invites an objection. Consider paying in cash to keep the issues separate.
Where Rule 86A blocking is in force, the ledger may not be usable at all, and the blocking must be addressed first.
Where Rule 86B applies, the one percent cash requirement operates on output tax for the month and should not be confused with the pre-deposit.
Authorities relied on
Held that the pre-deposit could not be paid by debiting the electronic credit ledger; predates and is answered by the later circular clarifying that output tax as a consequence of proceedings may be paid from credit.
The electronic credit ledger may be used for payment of output tax, including tax payable as a consequence of proceedings; it cannot be used for interest, penalty, fee or other amounts.
What to do on Monday
Pay the tax component from credit and everything else in cash, and record both in DRC-03 as a pre-deposit.
Keep the ledger extract showing the debit with the appeal papers.
Produce the circular in writing if a deposit from credit is refused.
Use cash where the credit in question is the subject matter of the dispute.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Can penalty be paid from the credit ledger?
No. Penalty, interest, fee and fine must be paid in cash.
What if the appellate authority refuses to accept a credit ledger deposit?
Produce the circular in writing. A beneficial circular is binding on the officers.
Is the refund of such a pre-deposit paid in cash?
It is ordinarily re credited to the ledger. Verify the treatment when making the claim, and claim interest.
Should we use credit where the credit is itself disputed?
Prefer cash. Using disputed credit for the deposit creates an unnecessary second front.
Does blocking under Rule 86A prevent the deposit?
In practice yes, to the extent of the blocked amount. Address the blocking first or pay in cash to protect the appeal.
In this cluster
- GST appeals in 2026: the complete route from DRC-07 to the Supreme Court
- GSTAT appeals in 2026: limitation, pre deposit and the filing discipline that survives scrutiny
- Pre-deposit under Sections 107 and 112: the corrected arithmetic
- Penalty only demands and the pre-deposit for appeal
- Condonation of delay in GST appeals: what persuades, and what does not
- Drafting grounds of appeal in GST: the structure that wins
- GSTAT Procedure Rules, 2025: the practitioner's walkthrough
- Stay of recovery pending appeal: Section 107(7) and beyond
- Additional evidence before the appellate authority under Rule 112
- Departmental appeals and the review mechanism under Section 107(2)
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.