Many times, we must have seen that the departments insist taxpayers upon payment of tax liabilities in cash that were identified during scrutiny, search, audits, or investigation. Such liabilities are deposited through Form DRC-03 and the related rule to it allows the payment in cash and debit of GST credit both. Further section 49 of the GST Act allows paying the liability by debit of GST credit. If the departments have any doubt about the legitimacy of GST credit availed by taxpayers for reasons like the non-existence of vendors or non-payment of tax by them, they can put restrictions on the use of GST credit to that extent. That should not impact the admissibility of genuine credit lying with taxpayers under the electronic credit ledger.
In a recent case before the Honorable High Court of Delhi the respondent had appealed for denial of bail to the petitioner just because the petitioner paid the bail amount partly by cash and partly by debiting GST credit. The petitioner had availed Rs. 260 crores of GST credit out of which department could claim only Rs. 27.05 crores as fraudulently claimed. Since the petitioner had sufficient eligible credit lying in the electronic credit ledger and the GST Act and rules also allow for making payment by debiting GST credit, the Court observed that there was no non-compliance with any of the bail conditions.Source: High Court of Delhi W.P. (CRL) 1267/2021