2022 (4) TMI 1202 - HC - VAT and Sales Tax

Maintainability of second appeal - failure on the part of the writ applicant to pre-deposit at the stage of second appeal - HELD THAT - The provision of Section 73(4) of the VAT Act, 2003, apparently makes it clear that ordinarily no appeal against an order of assessment shall be entertained by the appellate authority, unless an appeal is accompanied by satisfactory proof of payment of tax in respect of which an appeal has been preferred. The proviso to clause 4 makes the picture further clear. The said proviso explicitly gives discretion to the appellate authority to entertain an appeal against the orders as provided under clause (a) or (b) or (c) of sub section 4 of section 73 of the act. Thus, the legislation in its wisdom has reposed discretion upon the appellate authority to entertain an appeal without payment of tax with penalty or in appropriate case on proof of the payment of a smaller sum as the appellate authority may consider reasonable or in an appropriate case on furnishing security by the appellant for such an amount which the appellate authority may direct. In the case on hand, while going through the order dated 22.11.2021 passed by the Tribunal, the only reason assigned by the Tribunal is that the hearing of the matter has been prolonged from the year 2019 on the aspect of pre-deposit and stay and the first appeal being summarily dismissed without going into the merits of the case. Thus, the Tribunal deemed it fit to direct the appellant to pay the amount of ₹ 20,00,000/- towards the pre-deposit. This Court has time and again in identical cases has held that Tribunal is obliged to consider a prima facie case, which the appellant may be in position to highlight. It 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 payment of tax penalty or even smaller amount - the Tribunal committed serious error of law by not taking note of the prima facie case of the writ applicant while examining the aspect of payment of pre-deposit. Therefore, in the facts and circumstances of the case, the order passed by the Tribunal dated 22.11.2021 is hereby quashed and set aside. Application allowed.

Issues involved:
Challenge to order of Gujarat Value Added Tax Tribunal dismissing Second Appeal No.784 of 2019 due to failure to pre-deposit, legality of direction for pre-deposit of ?20,00,000, justification of directing pre-deposit, exercise of discretion by appellate authority, interpretation of Section 73(4) of VAT Act, 2003, error in not considering prima facie case at pre-deposit stage, quashing and setting aside Tribunal's order, directions for hearing on merits and stay pending appeal.

Detailed Analysis:

1. Challenge to Tribunal's Order:
The writ applicant, a partnership firm, challenged the order of the Gujarat Value Added Tax Tribunal dismissing Second Appeal No.784 of 2019 due to non-compliance with the direction to pre-deposit ?20,00,000. The core issue was the failure to pre-deposit at the second appeal stage, leading to the summary rejection of the appeal by the Tribunal.

2. Legality of Pre-Deposit Directive:
The Tribunal directed the writ applicant to pre-deposit ?20,00,000 within a month, citing prolonged proceedings and reliance on a master agreement. The applicant's failure to comply led to the summary dismissal of the appeal. The legality of this directive was questioned, especially in light of the strong prima facie case made by the applicant.

3. Justification of Pre-Deposit Directive:
The Tribunal's decision to insist on the pre-deposit amount without considering the applicant's prima facie case was deemed erroneous. The appellate authority should exercise discretion judiciously and not insist on pre-deposit when a strong case is presented by the appellant.

4. Exercise of Discretion by Appellate Authority:
The appellate authority has the discretion to entertain appeals without payment of tax or penalty, or on proof of a smaller sum. In this case, the Tribunal's failure to address the applicant's prima facie case before directing pre-deposit was considered a serious error.

5. Interpretation of Section 73(4) of VAT Act, 2003:
Section 73(4) of the VAT Act, 2003 mandates proof of tax payment for entertaining an appeal, with provisions for exceptions based on the discretion of the appellate authority. The legislation allows flexibility in admitting appeals without insisting on full payment upfront.

6. Quashing and Setting Aside Tribunal's Order:
The High Court quashed and set aside the Tribunal's order, directing a reevaluation of the case on merits and stay pending appeal. The Court emphasized the need for the Tribunal to consider the applicant's prima facie case before requiring pre-deposit.

7. Directions for Hearing on Merits and Stay Pending Appeal:
The Court directed the Tribunal to hear the matter on merits, considering Circulars issued by the CBDT for stay pending appeal. The instructions provide guidelines for the discretionary powers of the Assessing Officer and Commissioner in determining the percentage of disputed tax demand to be deposited for stay.

8. Conclusion:
The writ application was allowed, the Tribunal's order was quashed, and the second appeal was to be restored for further proceedings. The respondents were instructed not to take coercive actions pending the appeal. The Court emphasized the importance of considering the prima facie case before requiring pre-deposit and highlighted the need for a fair exercise of discretion by the appellate authority.

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