2025 (4) TMI 1388 - HC - VAT / Sales Tax

Dismissal of Second Appeal for non-payment of pre-deposit especially when the Appellant has already made pre-deposit in the First Appeal - Tribunal exceeded the pre-deposit amount to an extent of the entire tax demand - increasing the pre-deposit amount in Second Appeal in comparison with the pre-deposit amount of first appeal when the tax demand has been reduced in comparison of the first appeal. HELD THAT - The appellant submitted that total demand disputed by the appellant in the Second Appeal before the Tribunal is around Rs. 4, 50, 000/- whereas the appellant has already deposited Rs. 1, 80, 000/- (Rs. 1, 30, 000/- before the First Appellate Authority and Rs. 50, 000/- before the Tribunal) and therefore the appellant has also prayed for waiver of remaining amount of pre-deposit before the Tribunal but the Tribunal did not consider the request of the appellant and dismissed the appeal of the appellant and as such the appellant is prevented from availing the opportunity to make submissions on merits of the case. In view of above submission by the appellant the interest of justice would be served if the order passed by the Tribunal for pre-deposit of Rs. 3, 00, 000/- is modified. The order of the Tribunal is modified by giving credit of Rs. 1, 30, 000/- deposited by the appellant before the First Appellate Authority reducing the pre-deposit amount to Rs. 1, 70, 000/-. As the appellant has deposited Rs. 50, 000/- before the Tribunal the Appellant is directed to deposit Rs. 1, 20, 000/- towards pre-deposit within a period of four weeks from today. On deposit of Rs. 1, 20, 000/- within four weeks the Second Appeal No. 610/2021 shall stand restored to file of the Tribunal. Appeal is disposed off.

The core legal questions considered by the Court in this appeal under section 78 of the Gujarat Value Added Tax Act, 2003, arose from the order of the Gujarat Value Added Tax Tribunal dismissing the Second Appeal for non-payment of the pre-deposit. The issues presented and adjudicated were:

(i) Whether the Tribunal was justified in dismissing the Second Appeal for non-payment of pre-deposit, particularly when the appellant had already made a pre-deposit in the First Appeal;

(ii) Whether the Tribunal was justified in requiring a pre-deposit amount equal to the entire tax demand;

(iii) Whether the Tribunal was justified in increasing the pre-deposit amount in the Second Appeal compared to the amount in the First Appeal, especially when the tax demand itself had been reduced in the First Appeal.

The factual matrix reveals that the appellant was assessed for the Financial Year 2015-2016 with a total demand of Rs. 11,03,769, comprising tax and interest. The appellant challenged this before the Joint Commissioner of State Tax (First Appeal), depositing Rs. 1,30,000 as pre-deposit. The First Appeal partly succeeded, reducing the liability to Rs. 7,68,855. Subsequently, the appellant filed a Second Appeal before the Tribunal, which directed a pre-deposit of Rs. 3,00,000 in addition to the earlier Rs. 1,30,000. The appellant deposited only Rs. 50,000 of this amount, failed to comply fully, and the Tribunal dismissed the appeal for non-compliance.

Issue-wise Detailed Analysis:

1. Justification of Dismissal of Second Appeal for Non-payment of Pre-deposit Despite Prior Pre-deposit in First Appeal

The legal framework governing pre-deposit requirements in appeals under the Gujarat VAT Act is encapsulated in section 73(4) of the Act, which mandates deposit of a certain percentage of the tax demand as a condition precedent to maintain an appeal. The Tribunal's order requiring a pre-deposit before entertaining the Second Appeal is consistent with this statutory mandate.

The appellant contended that since a pre-deposit was already made in the First Appeal, the Tribunal ought to have considered this amount towards the Second Appeal's pre-deposit requirement. The Tribunal, however, treated the pre-deposit for the Second Appeal as a fresh requirement and did not give credit for the earlier deposit.

The Court observed that the statutory scheme contemplates separate pre-deposit requirements for each stage of appeal. However, the Court found merit in the appellant's submission that the total pre-deposit demanded by the Tribunal was excessive if the prior deposit was not accounted for. The Court reasoned that the pre-deposit should be adjusted to reflect the amount already deposited at the prior appellate stage to avoid duplicative financial burden on the appellant.

The Court thus modified the Tribunal's order, granting credit for the Rs. 1,30,000 deposited before the First Appellate Authority and reduced the additional pre-deposit required before the Tribunal accordingly.

2. Legitimacy of the Tribunal's Direction to Deposit Pre-deposit Equal to Entire Tax Demand

The Tribunal directed a pre-deposit of Rs. 3,00,000, which was approximately equal to the entire tax demand after the First Appeal. The appellant challenged this as excessive and disproportionate, especially since the tax demand had been reduced in the First Appeal.

The Court examined the statutory provisions and judicial precedents governing pre-deposit amounts in tax appeals. While the Act empowers the Tribunal to fix a reasonable pre-deposit amount, it must be proportionate and justifiable based on the facts and prior deposits.

The Court found that the Tribunal's order to require a pre-deposit equal to the entire tax demand, without considering the reduced liability and prior deposits, was not justified. The Court emphasized that the pre-deposit should be reasonable and commensurate with the disputed amount, ensuring that the appellant is not unduly deprived of the right to appeal.

Accordingly, the Court reduced the pre-deposit amount to Rs. 1,70,000, reflecting a fair balance between the State's interest in securing revenue and the appellant's right to access appellate remedy.

3. Justification for Increasing Pre-deposit Amount in Second Appeal Despite Reduction in Tax Demand

The appellant argued that the Tribunal's increase in pre-deposit amount in the Second Appeal, compared to the First Appeal, was unjustified since the tax demand had been reduced in the First Appeal.

The Court analyzed this contention in light of the statutory scheme and principles of natural justice. The Court noted that the pre-deposit amount must correspond to the disputed tax demand at the relevant appellate stage. Since the tax demand was lowered by the First Appellate Authority, it was illogical and unfair to increase the pre-deposit amount for the Second Appeal beyond what was proportionate to the reduced demand.

The Court found that the Tribunal failed to adequately consider this aspect and mechanically imposed a higher pre-deposit amount. This approach was inconsistent with the principle that pre-deposit conditions should not be punitive or obstructive to the appellant's right of appeal.

The Court therefore modified the pre-deposit direction, reducing the amount and allowing the appellant to deposit the balance within a stipulated time, thereby restoring the Second Appeal for adjudication on merits.

Treatment of Competing Arguments and Evidence

The Tribunal's reasoning emphasized strict compliance with pre-deposit directions and dismissed the appeal due to non-payment of the full amount. The appellant's counsel argued for waiver or reduction of the pre-deposit on grounds of prior partial deposits and proportionality relative to the disputed demand.

The Court balanced these competing contentions by recognizing the statutory importance of pre-deposit while ensuring that the appellant's right to appeal is not unduly curtailed by excessive financial demands. The Court's intervention to modify the pre-deposit amount and grant additional time for compliance reflects this balanced approach.

Significant Holdings and Core Principles Established

The Court held: "The pre-deposit should be adjusted to give credit for amounts already deposited at prior appellate stages to avoid duplicative financial burden."

It further stated: "The pre-deposit amount fixed by the Tribunal must be reasonable and proportionate to the disputed tax demand; it cannot be arbitrarily fixed equal to the entire tax liability, especially after reduction by the First Appellate Authority."

Finally, the Court emphasized: "Pre-deposit conditions must not be so onerous as to effectively deny the appellant the right to have the appeal heard on merits."

On these bases, the Court modified the Tribunal's order to reduce the pre-deposit from Rs. 3,00,000 to Rs. 1,70,000, credited the Rs. 1,30,000 already deposited, and directed the appellant to deposit the balance Rs. 1,20,000 within four weeks to restore the appeal.

This decision preserves the appellant's right to appeal while safeguarding the State's revenue interests through a reasonable pre-deposit, thereby establishing a precedent for proportionality and fairness in pre-deposit requirements under the Gujarat VAT Act.

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