2020 (3) TMI 304 - HC - VAT and Sales Tax

Maintainability of appeal - Failure in complying with the requirement of pre-deposit - It is the case of the writ-applicant that the GSPC used to receive the total consideration of the sales made from the Hazira block, and the tax liability under the Act, 1969, as well as the VAT Act, used to be discharged by the GSPC on the total sale consideration - whether the order of pre-deposit to the tune of ₹ 10 lakh is reasonable or sustainable in law? - HELD THAT - Section 73(4) of the VAT Act, 2003 would make it clear that no appeal against an order of assessment shall ordinarily be entertained by an Appellate Authority if such an appeal is not accompanied by satisfactory proof of the payment of tax in respect of which an appeal is preferred. However, the proviso to clause 4 makes the picture further clear. It confers discretion upon the Appellate Authority in appropriate cases to entertain the appeal without the payment of tax with penalty or in an appropriate cases on proof of the payment of the smaller sum as the Appellate Authority may consider reasonable. It is very much necessary to clarify that, before the Appellate Authority or the Tribunal passes an order of pre-deposit, it is obliged to consider a prima facie case, which the appellant may be in a position to highlight. If a strong prima facie case is made out, then in such circumstances, there should not be any difficulty in entertaining the appeal even without insisting for the payment of tax with penalty or even a smaller sum. In the case on hand, we do not find any discussion as regards the prima facie case which has been put up by the writ-applicant. Straightway the order is passed for the purpose of pre-deposit. Such an approach may lead to injustice if a meritorious appeal is dismissed only on the ground of non-payment of the pre-deposit amount. Therefore, in appropriate cases, the First Appellate Authority is expected to exercise its discretion judiciously and it should not insist for pre-deposit, if otherwise the appellant is able to make out a strong prima facie case in his favour. The issue of granting stay pending appeal is governed principally by the two circulars issued by the CBDT. The first circular was issued way back on 2nd February 1993 being instructions no.1914. The circular contained guidelines for staying the demand pending appeal. It was stated that the demand would be stayed if there are valid reasons for doing so and mere filing of appeal against the order of assessment would not be sufficient reason to stay the recovery of demand. The instructions issued under the office memorandum dated 29th February 2016 are not in supersession of the instructions no.1914 dated 2nd February 1993 but are in partial modification thereof - This circular thus lays down 15% of the disputed demand to be deposited for stay, by way of a general condition. The circular does not prohibit or envisage that there can be no deviation from this standard formula. In other words, it is inbuilt in the circular itself to either decrease or even increase the percentage of the disputed tax demand to be deposited for an assessee to enjoy stay pending appeal. The circular provides the guidelines to enable the Assessing Officers and Commissioners to exercise such discretionary powers more uniformly. Application allowed.

Summary

Issues Involved:
1. Validity of the pre-deposit requirement for appeal under the Gujarat Value Added Tax Act, 2003.
2. The discretion of the Appellate Authority in waiving or modifying the pre-deposit requirement.
3. The impact of the pre-deposit requirement on the right to appeal.

Issue-Wise Detailed Analysis:

1. Validity of the pre-deposit requirement for appeal under the Gujarat Value Added Tax Act, 2003:
The writ-applicant, a Public Ltd. Company, challenged the order of the Gujarat Value Added Tax Tribunal which dismissed its appeal due to non-payment of a pre-deposit of ?10 lakh. The Tribunal's order was based on the writ-applicant's failure to comply with the pre-deposit requirement as stipulated by the First Appellate Authority. The Tribunal referenced the Gujarat High Court decision in the case of M/S. Tudor India Ltd., emphasizing its limited role in deciding the amount of pre-deposit and remanding the matter back to the First Appellate Authority.

2. The discretion of the Appellate Authority in waiving or modifying the pre-deposit requirement:
Section 73(4) of the VAT Act, 2003, allows the Appellate Authority discretion to entertain an appeal without the payment of tax with penalty or on proof of payment of a smaller sum if considered reasonable. The court noted that the Appellate Authority must consider the prima facie case presented by the appellant before passing an order of pre-deposit. The court found that the Tribunal did not discuss the prima facie case of the writ-applicant and directly ordered the pre-deposit, which could lead to injustice if a meritorious appeal is dismissed solely on this ground.

3. The impact of the pre-deposit requirement on the right to appeal:
The court highlighted that the pre-deposit requirement should not render the right to appeal illusory or nugatory. Citing the Supreme Court's decision in Hindustan Steels Limited Rourkela vs. A K Roy, the court emphasized that the Tribunal must exercise its discretion judicially, considering the circumstances of each case. The court referred to the Bombay High Court decision in Bhupendra Murji Shah v. Deputy Commissioner of Income Tax, which underscored that the right to appeal should not be frustrated by the enforcement of a demand during its pendency. The court concluded that the writ-applicant's appeal should be heard on merits without insisting on the pre-deposit, as the pre-deposit order was not sustainable in law.

Conclusion:
The court quashed the orders of the Tribunal and the Appellate Authority, restoring the appeal before the First Appellate Authority to be heard on merits. The court made the rule absolute, ensuring that the writ-applicant's right to appeal was protected without the undue burden of the pre-deposit requirement.