2019 (9) TMI 788 - SC - VAT / Sales Tax

Compliance with the pre-deposit - Section 62(5) of the Punjab Value Added Tax Act, 2005 - power of State to enact Section 62(5) of the PVAT Act - inherent powers to grant interim protection against imposition of such a condition for hearing of appeals on merits - Whether the State is empowered to enact Section 62(5) of the PVAT Act? - HELD THAT - In The Anant Mills Co. Ltd. v. State of Gujarat and Others 1975 (1) TMI 62 - SUPREME COURT , a Bench of four Judges of this Court considered inter alia, challenge to the validity of Section 406 of the Bombay Provincial Municipal Corporations Act, 1949 as amended by Gujarat Act No.5 of 1970. As per the relevant provision, no appeal against the ratable value or tax would be entertained unless the amount claimed was deposited with the Commissioner. The proviso to said Section however empowered the Judge considering the appeal to relieve the appellant from the rigour of pre-deposit if in the opinion of the Judge it would cause undue hardship to the appellant. Whether the condition of 25% pre-deposit for hearing first appeal is onerous, harsh, unreasonable and, therefore, violative of Article 14 of the Constitution of India? - HELD THAT - The decision of the Constitution Bench of this Court in Seth Nand Lal 1980 (5) TMI 101 - SUPREME COURT did consider whether the requirement of pre-deposit would cause undue hardship. However considering that the liability in question and consequential requirement of pre-deposit was a meagre rate of the annual land-tax payable, the fetter imposed on the right of appeal/revision, even in the absence of a provision conferring the discretion on the appellant/revisional authority to relax or waive the condition was not found to be onerous or unreasonable. Thus, Section 62(5) of the PVAT Act is legal and valid and the condition of 25% of pre-deposit not to be onerous, harsh, unreasonable and violative of Article 14 of the Constitution of India. Whether the first appellate authority in its right to hear appeal has inherent powers to grant interim protection against imposition of such a condition for hearing of appeals on merits? - HELD THAT - If the inherent power the existence of which is specifically acknowledged by provisions such as Section 151 of the CPC and Section 482 of the Cr.P.C. is to be read with the limitation that exercise of such power cannot be undertaken for doing that which is specifically prohibited, same limitation must be read into the scope and width of implied power of an appellate authority under a statute. Appeal dismissed.

Issues Involved:
1. Validity of Section 62(5) of the Punjab Value Added Tax Act, 2005 (PVAT Act)
2. Whether the condition of 25% pre-deposit for hearing first appeal is onerous, harsh, unreasonable, and violative of Article 14 of the Constitution of India
3. Whether the first appellate authority has inherent powers to grant interim protection against the imposition of such a condition for hearing appeals on merits

Detailed Analysis:

1. Validity of Section 62(5) of the PVAT Act
The Supreme Court examined the validity of Section 62(5) of the PVAT Act, which mandates a pre-deposit of 25% of the additional demand for an appeal to be entertained. The High Court had earlier upheld the validity of this provision, concluding that the State is empowered to enact such a provision and that it is legal and valid. The Supreme Court affirmed this view, referencing several precedents that upheld similar statutory provisions requiring pre-deposits for appeals.

2. Condition of 25% Pre-deposit
The High Court and the Supreme Court both addressed whether the 25% pre-deposit requirement was onerous, harsh, or unreasonable. The High Court had concluded that the condition is not violative of Article 14 of the Constitution of India. The Supreme Court supported this conclusion by citing various judgments, including The Anant Mills Co. Ltd. v. State of Gujarat and Seth Nand Lal v. State of Haryana, which established that the legislature can impose conditions on the right to appeal, provided they are not excessively onerous. The Court noted that such conditions are meant to prevent frivolous appeals and ensure the speedy recovery of taxes.

3. Inherent Powers of the First Appellate Authority
The High Court had held that the first appellate authority possesses inherent powers to grant interim protection or injunction against the pre-deposit condition. This conclusion was based on the principle that statutory powers include all reasonable means necessary to make such powers effective, as seen in Income Tax Officer v. M. K. Mohammed Kunhi.

However, the Supreme Court disagreed with this interpretation. It emphasized that while incidental or implied powers might exist, they cannot override explicit statutory provisions. The Court cited Matajog Dubey v. H. C. Bhari and other cases to support the principle that inherent powers cannot be used to contravene express statutory mandates. The Supreme Court thus set aside the High Court's conclusion on this issue, stating that allowing the appellate authority to waive the pre-deposit requirement would render the statutory provision nugatory.

Conclusion:
The Supreme Court upheld the validity of Section 62(5) of the PVAT Act and affirmed that the 25% pre-deposit requirement is not unreasonable or violative of Article 14. However, it reversed the High Court's decision regarding the inherent powers of the appellate authority, concluding that such powers cannot be used to bypass the statutory pre-deposit requirement. The appeals by the assesses were dismissed, and those by the State were allowed.

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