High Court has the power to reduce or waive the amount of pre-deposit paid at the time of filing the appeal due to financial hardship faced by the Assessee

[CA Bimal Jain]

The Hon’ble Punjab and Haryana High Court in the case of M/S. SHIVA TEXFABS LTD. VERSUS STATE OF PUNJAB AND ORS. - 2023 (11) TMI 717 - PUNJAB AND HARYANA HIGH COURT reduced the amount of pre-deposit required under the Punjab Value Added Tax Act, 2005 (“the Punjab VAT Act”) from twenty-five percent to ten percent due to financial hardship faced by the Petitioner thereby holding that, the High Court has inherent powers under Article 226 of the Constitution to waive or reduce the pre-deposit amount required at the time of filing the appeal.

Facts:

The Petitioner is engaged in the business of manufacturing and sale of yarn manufactured from PET bottles and is registered under the Punjab VAT Act. The Revenue Department (“the Petitioner”) inspected the office of the Petitioner and thereafter initiated assessment proceedings against the Petitioner under the Central Sales Tax Act by the issuance of a Show Cause Notice. The Respondent vide order dated June 25, 2018 (“the Order”) disallowed the ITC claimed by the Petitioner.

The Petitioner filed an appeal against the Order passed by the Petitioner before the Respondent Appellate Authority wherein the Petitioner was directed to deposit fifteen percent of the total demand raised for fulfilling the requirement of filing the appeal under Section 62(5) of the Punjab VAT Act. However, due to poor financial condition, the Petitioner was not able to pre-deposit the required fifteen percent. The appeal filed by the Petitioner was rejected vide Order dated July 18, 2019 (“the Order”).

Aggrieved by the Order passed by the Respondent Appellate Authority, the Petitioner filed an appeal before the Punjab VAT Tribunal (“the Tribunal”) wherein the Tribunal vide order dated November 3, 2020 (“the Order”) granted three months to the Petitioner to pre-deposit twenty-five percent of the additional demand otherwise the appeal filed would be dismissed.

Aggrieved by the orders passed by the Respondent and Tribunal, the Petitioner filed a writ petition before the Hon’ble Punjab and Haryana High Court on the ground that the Petitioner is not in a financial condition to comply with the condition of pre-deposit to the extent of twenty-five percent of additional demand.

Issue:

Whether the High Court have the power to reduce or waive the amount of pre-deposit to be paid at the time of filing the appeal due to financial hardship faced by the Assessee?

Held:

The Hon’ble Punjab and Haryana High Court in the case of M/S. SHIVA TEXFABS LTD. VERSUS STATE OF PUNJAB AND ORS. - 2023 (11) TMI 717 - PUNJAB AND HARYANA HIGH COURT held as under:

• Relied upon the judgment of the Hon’ble Supreme Court in the case of M/S TECNIMONT PVT. LTD. (FORMERLY KNOWN AS TECNIMONT ICB PRIVATE LIMITED) VERSUS STATE OF PUNJAB & OTHERS - 2019 (9) TMI 788 - SUPREME COURT  wherein it was held that the High Court has inherent powers to grant exemption from payment of pre-deposit or limitation in cases of genuine hardship by way of writ petition.
• Noted that, the Petitioner being in debt is paying loan installments, and Petitioner in order to avoid cancellation of GST Registration prays for direction to the Respondent to entertain the appeal on merits. However, as of now, the Petitioner has agreed to pre-deposit ten percent of the amount. 
• Opined that, if the Petitioner is forced to pay the twenty-five percent pre-deposit, the Petitioner would not be able to pay the loan. Also, the Petitioner is regularly paying the GST amount and if the business is shut down, it would lead to cancellation of GST registration. Therefore, the condition of a twenty-five percent deposit is liable to be modified.
• By exercising the inherent powers granted under Article 226 of the Constitution, the Petition disposed of by directing the Petitioner to entertain the appeal and decide in accordance with law, after accepting the ten percent of pre-deposit amount paid by the Petitioner.

Our Comments:

The condition of pre-deposit in case of appeal is prescribed under Section 107(6) of the Central Goods and Services Act, 2017, (“the CGST Act”) wherein it is stated that, the appellant before the Appellate Authority is required to pay the full amount of tax, interest, fine, fee, and penalty arising from the impugned order, which is admitted by the Appellant. The Appellant is required to pre-deposit ten percent of the remaining tax amount in dispute for which the appeal has been filed. However, as per Section 112(8) of the CGST Act, the amount of pre-deposit in case of disputed tax amount would be twenty percent for appeal filed before the GST Appellate Tribunal; in addition to the amount of pre-deposit made at the time of filing appeal subject to the maximum limit of Fifty Crore Rupees.

Author can be reached at [email protected])