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2020 (10) TMI 315 - HC - VAT and Sales TaxRequirement of pre-deposit - Is it necessary to consider the merit of the matter while making interim order - direction to deposit 10% of the disputed tax demand and interest along with 5% of disputed penalty involved in the appeal pending before it, for the year 2008-09 - Legality of the interim (impugned) order passed by the Tribunal, having regard to the wording of section 76(4) of the Act and the law governing the stay of recovery of tax during the pendency of appeals. HELD THAT - The first proviso to Section 76(4), gives discretion to the Tribunal to entertain an appeal against an assessment order, without payment of whole or part of the amount in dispute, on the furnishing of security by the Appellant. First and foremost, we must give due regard to the fact that the proviso in question, conferring power to the Tribunal for dispensation, is legislated to be an exception. The main provision puts an obligation on the Tribunal to not entertain an appeal against an assessment order, unless it is accompanied by satisfactory proof of the payment of the disputed amount. This makes the payment of the disputed amount a mandatory condition for entertaining an appeal - The objective behind the requirement of recording of reasons is that it would disclose the rationale of the authority and ensure that exercise of power is not done arbitrarily or for extraneous reasons. It will also ensure that the superior court, while exercising judicial scrutiny, is able to examine whether the tribunal has applied its mind and also discerned if the satisfaction arrived at has reasonable nexus to the facts and the law involved in the case. The guiding principles for grant of stay order, pending disposal of a matter before the concerned forum, have been well-entrenched by way of several judicial pronouncements. It is a settled principle of law that the Courts must consider the prima facie merits of the case, the balance of convenience, and the possibility of causing irreparable injury to the parties, while considering an application for grant of stay. However, the revenue contends that the wording of the statute is water-tight and requires the Tribunal to insulate itself from the above, while exercising its discretion for dispensation of the pre-deposit amount. We do not agree. The Supreme Court in MEHSANA DIST. CO-OP. MILK PU. LTD. VERSUS UNION OF INDIA 2003 (3) TMI 113 - SC ORDER , had remanded the case to the Appellate Authority, on the ground that the Appellate Authority did not apply its mind, gave unsatisfactory reasons, and focused only on prima facie balance of convenience without addressing the prima facie merits of the case, in the impugned order. It can be concluded that the prima facie merits of the case are an important factor to be taken into account at the stage of deciding a stay application. The first proviso of Section 76(4) of the Act gives the discretion to the Appellate Tribunal to dispense with the requirement of a pre-deposit. The provision is widely worded and does not put any fetter or constraint on the Tribunal. The prima facie view of the merits of the matter is one of the cornerstones of any application seeking dispensation of the pre-deposit. No application for dispensation can be decided devoid of an inquiry into the demonstrable merits of the case. Supreme Court, too, has disapproved the approach of deciding the stay application without analysing the factual scenario involved in a particular case. If an Appellant has a strong prima facie case and on a cursory glance it appears that the demand raised completely lacks foundation, this aspect of the matter has to be necessarily considered by the Appellate Tribunal while deciding the application under Section 76(4) of the Act. The discretionary power is not to be exercised as a matter of course. It is only in such cases where the Tribunal would find that there is a very strong prima facie case made out in its favour, should the Tribunal consider whether to grant stay and dispense with the pre-deposit in terms of Section 76(4) of the Act. On the face of it, the Tribunal must be satisfied that the entire purpose of the appeal would be frustrated or rendered meaningless by allowing the recovery proceeding to continue during the pendency of the appeal. The Tribunal also has to be mindful of the consequences that would follow from an order that required the Assessee to deposit the whole or part of the demanded amount. While exercising this discretion, the Tribunal should not act in a mechanical manner and exercise discretion after taking into account the totality of circumstances which include the prima facie case of the Appellant. In the present case, the Tribunal has declined to go into the merits of the case. The prima facie case of the Appellant has not been evaluated by the Tribunal while exercising its discretion under Section 76(4) of the Act. The Appellant had pleaded strong prima facie case for complete waiver of pre-deposit, on the several grounds - all the aspects enumerated above are pertinent. Unfortunately, the same have not been taken into consideration. While the Tribunal is correct in observing that these questions would have to be examined when the appeals are taken up finally on for disposal, but at the same time, these aspects would also have to be cursorily examined for arriving at the satisfaction about the prima facie on merits, for deciding the stay application. Let the matter be remanded back to the DVAT Appellate Tribunal. The Tribunal shall now decide the application under Section 76(4) of the Act afresh, having regard to the views expressed by us in this order, after affording opportunity to both the parties for hearing - Appeal allowed by way of remand.
Issues Involved:
1. Legality of the Tribunal's interim order directing pre-deposit. 2. Consideration of prima facie merits in stay applications. 3. Interpretation of Section 76(4) of the Delhi Value Added Tax Act, 2004. 4. Financial hardship consideration in pre-deposit orders. Detailed Analysis: 1. Legality of the Tribunal's Interim Order Directing Pre-Deposit: The appellant challenged the Tribunal's order requiring a pre-deposit of 10% of the disputed tax and interest and 5% of the disputed penalty as a condition for entertaining the appeal. The appellant argued that the Tribunal failed to consider the grounds urged in the appeal and did not provide cogent reasoning for making the pre-deposit direction. The Tribunal's order was seen as lacking in reasoning and not addressing the merits of the appellant's case, which is a crucial aspect in such decisions. 2. Consideration of Prima Facie Merits in Stay Applications: The court emphasized that the prima facie merits of the case are an important factor in deciding a stay application. The Tribunal must consider whether there is a strong prima facie case, as it would prevent the appeal from being rendered nugatory if the demand is enforced during the pendency of the appeal. The court referred to several judgments, including ITO v. M.K. Mohammed Kunhi, which highlighted the necessity of considering the prima facie merits to prevent irreparable harm to the appellant. 3. Interpretation of Section 76(4) of the Delhi Value Added Tax Act, 2004: Section 76(4) allows the Tribunal to entertain an appeal without the pre-deposit of the disputed amount, provided reasons are recorded in writing. The court noted that this discretion must be exercised judiciously and not arbitrarily. The Tribunal is required to evaluate the prima facie case, balance of convenience, and potential irreparable injury to the appellant. The court disagreed with the respondent's contention that the Tribunal should not consider the merits of the case at the stay application stage. 4. Financial Hardship Consideration in Pre-Deposit Orders: The court also addressed the issue of financial hardship, stating that the financial condition of the appellant is a relevant factor in deciding the stay application. The absence of terms like "hardship" or "undue hardship" in Section 76(4) does not imply that financial hardship should be ignored. The court cited Schneider Electric India v. GNCTD, which supported the consideration of financial hardship in such decisions. Conclusion: The High Court set aside the Tribunal's order, remanding the matter back to the DVAT Appellate Tribunal for a fresh decision on the stay application. The Tribunal was directed to consider the prima facie merits of the case, financial hardship, and other relevant factors while making its decision. The court emphasized the necessity of a reasoned order that reflects the application of mind and judicial discretion. The appeal was allowed, and the Tribunal was instructed to expedite the hearing of the stay application.
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