2016 (2) TMI 245 - HC - VAT and Sales Tax

Waiver of pre-deposit - power of appellte authority under PVAT to grant interim injunction / protection - Valuation - inclusion of receipts of charges from the customers as meter rent - the receipts of charges from the customers as service line rental had been brought to tax while treating these as meter rent - Activities in respect of generation, distribution and supply of electric energy/electricity power and other allied material to the consumers viz. domestic, commercial and industrial consumers. Held that - when no express power has been conferred on the first appellate authority to pass an order of interim injunction/protection, in our opinion, by necessary implication and intendment in view of various pronouncements and legal proposition expounded above and in the interest of justice, it would essentially be held that the power to grant interim injunction/protection is embedded in Section 62(5) of the PVAT Act. Instead of rushing to the High Court under Article 226 of the Constitution of India, the grievance can be remedied at the stage of first appellate authority. As a sequel, it would follow that the provisions of Section 62(5) of the PVAT Act are directory in nature meaning thereby that the first appellate authority is empowered to partially or completely waive the condition of pre-deposit contained therein in the given facts and circumstances. It is not to be exercised in a routine way or as a matter of course in view of the special nature of taxation and revenue laws. Only when a strong prima facie case is made out will the first appellate authority consider whether to grant interim protection/injunction or not. Partial or complete waiver will be granted only in deserving and appropriate cases where the first appellate authority is satisfied that the entire purpose of the appeal will be frustrated or rendered nugatory by allowing the condition of pre-deposit to continue as a condition precedent to the hearing of the appeal before it. Therefore, the power to grant interim protection/injunction by the first appellate authority in appropriate cases in case of undue hardship is legal and valid. As a result, question (c) posed is answered accordingly.

Summary

Issues Involved:
1. Whether the State is empowered to enact Section 62(5) of the PVAT Act.
2. Whether the condition of 25% pre-deposit for hearing the first appeal is onerous, harsh, unreasonable, and violative of Article 14 of the Constitution.
3. Whether the first appellate authority has inherent powers to grant interim protection against the imposition of such a condition for hearing appeals on merits.

Detailed Analysis:

Issue 1: Empowerment of the State to Enact Section 62(5) of the PVAT Act
The court examined whether the State had the authority to enact Section 62(5) of the PVAT Act, which mandates a 25% pre-deposit of the tax, penalty, and interest as a condition for hearing an appeal. The court cited numerous precedents where similar provisions under different statutes were upheld by the Supreme Court and various High Courts. The court concluded that the State is empowered to enact such a provision, as the right to appeal is a statutory right and can be conditioned by the legislature. The provision aims to balance the right of appeal with the need for speedy tax recovery.

Issue 2: Condition of 25% Pre-deposit
The court addressed whether the condition of a 25% pre-deposit is onerous, harsh, or unreasonable. It was noted that the right to appeal is not absolute and can be subject to conditions imposed by the legislature. The court referred to multiple judgments, including those of the Supreme Court, which upheld similar pre-deposit conditions in various statutes. The court held that the condition of 25% pre-deposit is not violative of Article 14 of the Constitution, as it is a reasonable measure to ensure that appeals are not filed frivolously and that the revenue's interest is protected.

Issue 3: Inherent Powers of the First Appellate Authority
The court examined whether the first appellate authority has the inherent power to grant interim protection against the pre-deposit condition. The court referred to the principle that where a statute confers jurisdiction, it also implies the power to do all acts necessary to exercise that jurisdiction effectively. The court cited the Supreme Court's judgment in "Income Tax Officer, Cannanore vs. M.K. Mohamad Kunhi," which held that appellate authorities have inherent powers to grant stay as incidental to their appellate jurisdiction. The court concluded that the first appellate authority under the PVAT Act has the power to grant interim protection in appropriate cases to prevent the appeal from being rendered nugatory. This power should be exercised judiciously and not routinely, ensuring that the purpose of the appeal is not frustrated by the pre-deposit condition.

Conclusion:
The court upheld the validity of Section 62(5) of the PVAT Act, affirming that the State is empowered to enact such a provision. It also held that the condition of a 25% pre-deposit is not unconstitutional or unreasonable. Furthermore, the court recognized the inherent power of the first appellate authority to grant interim protection in deserving cases, ensuring that the appeal process remains effective and just. The judgment provides a balanced approach, safeguarding both the appellant's right to appeal and the revenue's interest in tax recovery.