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2022 DIGILAW 240 (GUJ)

Micro Media System v. State of Gujarat

2022-02-09

J.B.PARDIWALA, NISHA M.THAKORE

body2022
JUDGMENT : J.B. PARDIWALA, J. 1. By this writ application under Article 226 of the Constitution of India, the writ applicant, a dealer and an assessee under the Gujarat Value Added Tax Act, 2003 (for short, "the VAT Act"), has prayed for the following reliefs: "A. This Hon'ble Court may be pleased to issue a writ of certiorari or writ in the nature of certiorari or any other appropriate writ or order quashing and setting aside impugned order dated 17.6.2021 (annexed at Annexure A) passed by the Gujarat Value Added Tax Tribunal in Second Appeal No. 327 of 2020 and the Tribunal may please be directed to admit the second appeal and grant stay against recovery of dues without insisting for any pre-deposit; B. In the alternative this Hon'ble Court may be pleased to issue a writ of certiorari or writ in the nature of certiorari or any other appropriate writ or order quashing and setting aside impugned order dated 17.6.2021 (annexed at Annexure A) as well as the first appeal order dated 5.9.2020 (annexed at Annexure H) and assessment order dated 10.3.2016 (annexed at Annexure B) and the matter may please be remanded to the assessing authority i.e. respondent No. 3 for fresh assessment after giving due show cause notice and proper opportunity of hearing to the petitioner; C. Pending notice, admission and final hearing of this petition, this Hon'ble Court may be pleased to stay coercive recovery against the petitioner pursuant to the assessment order dated 10.3.2016 passed by the respondent No. 3; C1. The impugned order dated 15th December 2021 (annexed at Annexure L) may please be quashed and set aside and the matter may please be remanded to the Tribunal/assessing authority without any requirement of pre-deposit or security; D. Ex-parte ad interim relief in terms of prayer C may kindly be granted; E. Such further relief(s) as deemed fit in the facts and circumstances of the case may kindly be granted in the interest of justice for which of kindness your petitioner shall forever pray. E1. The impugned order dated 15.12.2021 (annexed at Annexure L) dismissing the second appeal filed by the petitioner is consequent to the non-compliance of order dated 17.6.2021 and since the order dated 17.6.2021 is bad and illegal for the aforementioned grounds, the consequential order dated 15.12.2021 is also bad and illegal." 2. E1. The impugned order dated 15.12.2021 (annexed at Annexure L) dismissing the second appeal filed by the petitioner is consequent to the non-compliance of order dated 17.6.2021 and since the order dated 17.6.2021 is bad and illegal for the aforementioned grounds, the consequential order dated 15.12.2021 is also bad and illegal." 2. The facts giving rise to this writ application may be summarized as under: 3. The writ applicant is a partnership firm. The firm is engaged in the business of reselling laboratory chemicals. It is not in dispute that the firm is registered under the VAT Act. 4. During the year 2011-12, the firm purchased goods from M/s. Nirmal Trading and M/s. I.B. Sulphonator respectively, and thereafter, such goods came to be resold by the firm. The vendor issued tax invoices for the sales to the firm and the firm, in turn, claimed Input Tax Credit under the VAT Act for the tax period pursuant to such tax invoices. 5. It appears from the materials on record that without issuing any show cause notice, the assessing authority straightway proceeded to pass the assessment order disallowing a huge amount of Input Tax Credit on the ground of "unreconciled input tax credit". 6. The writ applicant, being dissatisfied and aggrieved by such assessment order, preferred an appeal under Section 73 of the VAT Act before the first Appellate Authority. It appears that the first Appellate Authority, having regard to a strong prima facie case, admitted the appeal and also granted stay against the recovery pursuant to the assessment order subject to pre-deposit of an amount of Rs. 1 Lakh. 7. It is the case of the firm that the first Appellate Authority intended to allow the appeal and in such circumstances, the file of the firm was sent to the G.R. Cell in accordance with the procedure prescribed by the circular dated 30th July 2016. It appears that based on the suggestions by the G.R. Cell, again, a notice 23rd October 2019 came to be issued to the firm calling upon the firm to produce evidences in respect of the claim of Input Tax Credit. 8. Ultimately, the first Appellate Authority dismissed the first appeal. It is the case of the firm that the first Appellate Authority dismissed the first appeal on the ground which never formed part of the assessment order. 9. 8. Ultimately, the first Appellate Authority dismissed the first appeal. It is the case of the firm that the first Appellate Authority dismissed the first appeal on the ground which never formed part of the assessment order. 9. The firm, thereafter, preferred a Second Appeal before the Tribunal. The Tribunal passed an order asking the writ applicant-firm for a pre-deposit of Rs. 10 Lakh. The order passed by the Tribunal for pre-deposit is at page: 15 of the paper book at Annexure: A. The operative part of the order passed by the Tribunal reads thus: "ORDER A. The appellant is hereby directed to deposit Rs. 10,00,000/- (20% of tax amount of Rs. 49,78,555/-) as a pre-deposit within the period of one month from the date of this order. B. Amount the appellant has paid as a pre-deposit at the stage of first appeal is adjusted against pre-deposit. C. No other interim remedy is granted against stay application. D. No order as to costs. E. The Registry is directed to place present matter for compliance of this order." 10. It also appears that since the writ applicant failed to deposit Rs. 10 Lakh towards pre-deposit, the Second Appeal came to be dismissed by the Tribunal. 11. In such circumstances referred to above, there are two orders before us which are a subject matter of challenge: the first order is dated 17th June 2021 passed by the Tribunal directing the firm to make a pre-deposit of Rs. 10 Lakh and the second order is dated 15th December 2021 (Annexure: L to this petition) dismissing the Second Appeal consequent to the non-compliance of the order dated 17th June 2021. 12. In such circumstances referred to above, the writ applicant is here before this Court with the present writ application. 13. We have heard Mr. Uchit Sheth, the learned counsel appearing for the writ applicant and Mr. Utkarsh Sharma, the learned A.G.P. appearing for the respondents. 14. The only question that falls for our consideration is whether the Tribunal was justified in directing the writ applicant-firm to make a pre-deposit of Rs. 10 Lakh as a condition to hear the Second Appeal on merits. 15. Section 73(4) of the VAT Act, 2003 reads thus: "73. Appeal. Utkarsh Sharma, the learned A.G.P. appearing for the respondents. 14. The only question that falls for our consideration is whether the Tribunal was justified in directing the writ applicant-firm to make a pre-deposit of Rs. 10 Lakh as a condition to hear the Second Appeal on merits. 15. Section 73(4) of the VAT Act, 2003 reads thus: "73. Appeal. (4) No appeal against an order of assessment shall ordinarily be entertained by an appellate authority, unless such appeal is accompanied by satisfactory proof of payment of the tax in respect of which an appeal has been preferred: [Provided that an appellate authority may, if it thinks fit, for reasons to be recorded in writing, entertain an appeal against such order- (a) Without payment of tax with penalty (if any) or, as the case may be, of the penalty, or (b) On proof of payment of such smaller sum as it may consider reasonable, or (c) On the appellant furnishing in the prescribed manner, security for such amount as the appellate authority may direct.]" 16. The aforesaid provision would make it clear that no appeal against an order of assessment shall ordinarily be entertained by an Appellate Authority if such an appeal is not accompanied by satisfactory proof of the payment of tax in respect of which an appeal is preferred. However, the proviso to clause 4 makes the picture further clear. It confers discretion upon the Appellate Authority in appropriate cases to entertain the appeal without the payment of tax with penalty or in an appropriate cases on proof of the payment of the smaller sum as the Appellate Authority may consider reasonable. It is very much necessary to clarify that, before the Appellate Authority or the Tribunal passes an order of pre-deposit, it is obliged to consider a prima facie case, which the appellant may be in a position to highlight. If 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 the payment of tax with penalty or even a smaller sum. In the case on hand, we do not find any discussion as regards the prima facie case which has been put up by the writ-applicant. Straightway the order is passed for the purpose of pre-deposit. In the case on hand, we do not find any discussion as regards the prima facie case which has been put up by the writ-applicant. Straightway the order is passed for the purpose of pre-deposit. Such an approach may lead to injustice if a meritorious appeal is dismissed only on the ground of non-payment of the pre-deposit amount. Therefore, in appropriate cases, the First Appellate Authority is expected to exercise its discretion judiciously and it should not insist for pre-deposit, if otherwise the appellant is able to make out a strong prima facie case in his favour. 17. The Supreme Court in the case of Hindustan Steels Limited Rourkela v. A.K. Roy [ AIR 1970 SC 1401 ] has held that while considering the question of granting relief the Tribunal must exercise the discretion judicially in accordance with the well-recognised principles in that regards; it has to examine carefully the circumstances of the case and decide whether the case is one of those exceptions to the general rule. If the Tribunal, while exercising discretion, does not take note of the pertinent facts and circumstances or acts in breach of the principles laid down by the Supreme Court it would be a case of non-exercise of the discretion vested in it by law. 18. In the aforesaid context, we may refer to and rely upon a decision of the Bombay High Court in the case of Bhupendra Murji Shah v. Deputy Commissioner of Income Tax-15(1)(1) and others (Writ Petition No. 2157 of 2018 and Writ Petition No. 2160 of 2018, decided on 11th September 2018. The order reads thus: "2. It is undisputed that the petitioner has challenged the demand raised in the first petition No. 2157 of 2018 in the sum of Rs. 11,15,99,897/- for Assessment Year 2015-2016 by approaching the Commissioner of Income Tax (Appeals). Thus, an Appeal against the Assessment Order raising this demand is filed and is pending. 3. In the meanwhile, the petitioner approached the Assessing Officer/Deputy Commissioner of Income Tax, Circle 15(1) (1), Aayakar Bhavan, Mumbai. He may have made an application and termed it as a request for stay, but what essentially he was worried and concerned about was that since the Appeal is pending and yet to be decided, nor was there any consideration of application for stay by Appellate Authority, this Deputy Commissioner will treat the petitioner/assessee as 'assessee in default'. He may have made an application and termed it as a request for stay, but what essentially he was worried and concerned about was that since the Appeal is pending and yet to be decided, nor was there any consideration of application for stay by Appellate Authority, this Deputy Commissioner will treat the petitioner/assessee as 'assessee in default'. Thereupon, he will recover the amount by coercive means. It is in these circumstances, this letter was addressed and we have carefully perused that letter. That records that the subject matter of tax is in dispute. The Assessment Order is challenged. The Appeal under Section 246-A of the Income Tax Act 1961 challenging the Assessment Order dated 30th December 2017, received on 1st August 2018 is pending. The request of the petitioner/assessee is that the demand be kept in abeyance till the disposal of this Appeal. 4. With marginal difference in the figures, the issue raised in the second petition No. 2160 of 2018 is also identical. Both petitions are taken up together. It is not disputed before us that in terms of Chapter XX styled as Appeals and Revision, the order of the Assessment Officer is appealable under section 246 subsection (1). Once it is an appealable order and the Appeal has been filed, it is pending, then, the petitioner/appellant should have been given either an opportunity to seek a stay during the pendency of the appeal, which power is also conferred admittedly in the Commissioner or this Deputy Commissioner should have held the demand in abeyance as prayed by the petitioner/assessee. He does neither, but proceeds to communicate to the petitioner/ assessee that his application for stay is dismissed. The petitioner/assessee should pay 20% of the outstanding amount as prescribed in some Circulars of the Revenue and particularly, dated 29th February 2016 and produce the challan and seek stay of demand again, failing which collection and recovery will continue. 5. We are not concerned here with the Circular of the Central Board of Direct Taxes. We are not concerned here also with the power conferred in the Assessing Officer of collection and recovery by coercive means. All that we are worried about is the understanding of this Deputy Commissioner of a demand, which is pending or an amount, which is due and payable as tax. We are not concerned here also with the power conferred in the Assessing Officer of collection and recovery by coercive means. All that we are worried about is the understanding of this Deputy Commissioner of a demand, which is pending or an amount, which is due and payable as tax. If that demand is under dispute and is subject to the appellate proceedings, then, the right of appeal vested in the petitioner/assessee by virtue of the Statute should not be rendered illusory and nugatory. That right can very well be defeated by such communication from the Revenue/Department as is impugned before us. That would mean that if the amount as directed by the impugned communication being not brought in, the petitioner may not have an opportunity to even argue his Appeal on merits or that Appeal will become infructuous, if the demand is enforced and executed during its pendency. In that event, the right to seek protection against collection and recovery pending Appeal by making an application for stay would also be defeated and frustrated. Such can never be the mandate of law. 6. In the circumstances, we dispose both these petitions with directions that the Appellate Authority shall conclude the hearing of the Appeals as expeditiously as possible and during pendency of these Appeals, the petitioner/appellant shall not be called upon to make payment of any sum, much less to the extent of 20% under the Assessment Order/Confirmed Demand or claim to be outstanding by the Revenue." 19. The issue of granting stay pending appeal is governed principally by the two circulars issued by the CBDT. The first circular was issued way back on 2nd February 1993 being instructions no. 1914. The circular contained guidelines for staying the demand pending appeal. It was stated that the demand would be stayed if there are valid reasons for doing so and mere filing of appeal against the order of assessment would not be sufficient reason to stay the recovery of demand. The instructions issued under the office memorandum dated 29th February 2016 are not in super session of the instructions no. 1914 dated 2nd February 1993 but are in partial modification thereof. The instructions issued under the office memorandum dated 29th February 2016 are not in super session of the instructions no. 1914 dated 2nd February 1993 but are in partial modification thereof. The preamble of these instructions provide that in order to streamline the process of grant of stay of standardization of quantum of lump-sum payment to be made as a precondition for stay of demand of dispute before the Commissioner of Income Tax (Appeals), such modified guidelines were being issued. The relevant portion of these instructions read as under: "4. In order to streamline the process of grant of stay and standardize the quantum of lump sum payment required to be made by the assessee as a pre-condition for stay of demand disputed before CIT(A), the following modified guidelines are being issued in partial modification of Instruction No. 1914: (A) In a case where the outstanding demand is disputed before CIT (A), the assessing officer shall grant stay of demand till disposal of first appeal on payment of 15% of the disputed demand, unless the case falls in the category discussed in para (B) hereunder. (B) In a situation where, (a) the assessing officer is of the view that the nature of addition resulting in the disputed demand is such that payment of a lump sum amount higher than 15% is warranted (e.g. in a case where addition on the same issue has been confirmed by appellate authorities in earlier years or the decision of the Supreme Court or jurisdictional High Court is in favour of Revenue or addition is based on credible evidence collected in a search or survey operation, etc.), or (b) the assessing officer is of the view that the nature of addition resulting in the disputed demand is such that payment of a lump sum amount lower than 15% is warranted (e.g. in a case where addition on the same issue has been deleted by appellate authorities in earlier years or the decision of the Supreme Court or jurisdictional High Court is in favour of the assessee, etc.), the assessing officer shall refer the matter to the administrative Pr. CIT/CIT, who after considering all relevant facts shall decide the quantum/proportion of demand to be paid by the assessee as lump sum payment for granting a stay of the balance demand. CIT/CIT, who after considering all relevant facts shall decide the quantum/proportion of demand to be paid by the assessee as lump sum payment for granting a stay of the balance demand. (C) In a case where stay of demand is granted by the assessing officer on payment of 15% of the disputed demand and the assessee is still aggrieved, he may approach the jurisdictional administrative Pr. CIT/CIT for a review of the decision of the assessing officer. (D) The assessing officer shall dispose of a stay petition within 2 weeks of filing of the petition. If a reference has been made to Pr. CIT/CIT under para 4 (B) above or a review petition has been filed by the assessee under para 4 A (C) above, the same shall also be disposed of by the Pr. CIT/CIT within 2 weeks of the assessing officer making such reference or the assessee filing such review, as the case may be. (E) In granting stay, the Assessing Officer may impose such conditions as he may think fit. He may, inter alia - (i) require an undertaking from the assessee that he will cooperate in the early disposal of appeal failing which the stay order will be cancelled; (ii) reserve the right to review the order passed after expiry of reasonable period (say 6 months) or if the assessee has not cooperated in the early disposal of appeal, or where a subsequent pronouncement by a higher appellate authority or court alters the above situations; (iii) reserve the right to adjust refunds arising, if any, against the demand, to the extent of the amount required for granting stay and subject to the provisions of section 245." 20. This circular thus lays down 15% of the disputed demand to be deposited for stay, by way of a general condition. The circular does not prohibit or envisage that there can be no deviation from this standard formula. In other words, it is inbuilt in the circular itself to either decrease or even increase the percentage of the disputed tax demand to be deposited for an assessee to enjoy stay pending appeal. The circular provides the guidelines to enable the Assessing Officers and Commissioners to exercise such discretionary powers more uniformly." 21. In other words, it is inbuilt in the circular itself to either decrease or even increase the percentage of the disputed tax demand to be deposited for an assessee to enjoy stay pending appeal. The circular provides the guidelines to enable the Assessing Officers and Commissioners to exercise such discretionary powers more uniformly." 21. In view of the aforesaid, we have reached to the conclusion that we should quash and set aside both the impugned orders and direct the Tribunal to hear the Second Appeal on its own merits. 22. In the result, this writ application succeeds and is hereby allowed. The impugned order passed by the Tribunal dated 17th June 2021 (Annexure: A, page: 15 to this petition) in the Second Appeal No. 327 of 2020 is hereby quashed and set aside. The consequent order passed by the Tribunal dated 15th December 2021 (Annexure: L to this petition) dismissing the Second Appeal for non-compliance of the order dated 17th June 2021 is also hereby quashed and set aside. 23. The Second Appeal No. 327 of 2020 is ordered to be restored to its original file before the Tribunal. The Tribunal shall now proceeded to hear the Second Appeal No. 327 of 2020 on its own merits and dispose of the same in accordance with law. Let this entire exercise be undertaken at the earliest and completed within a period of eight weeks from the date of receipt of the writ of this order. 24. We clarify that there shall not be any recovery pursuant to the impugned assessment order till the Tribunal decides the Second Appeal finally.