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Judgment
Akil Kureshi, J.—Heard learned counsel for final disposal of the petition. The petitioners have made multiple prayers. Several prayers came to be added after the petition was filed which, according to the learned counsel for the petitioners, was necessary as certain developments had taken place subsequently. Since the departmental appeal proceedings are pending, we would not deal with all these prayers, instead, we would address as to what should be done in the interregnum till the appellate authority decides the appeal already instituted by the petitioners. The central controversy is the demand raised by the respondents against the petitioners of value added tax under a provisional assessment. The demand with interest and penalty touches Rs. 3 crores (rounded off).
The petitioners are in the business of manufacturing vitrified and ceramic tiles. They have been paying value added tax under the Gujarat Value Added Tax Act ("the VAT Act", for short) since several years. On certain contentious issues, the adjudicating authority passed its provisional assessment order on August 21, 2012 u/s 32 of the VAT Act. Against such an order, the petitioners have preferred an appeal before the appellate authority on October 3, 2012 and such appeal is pending. Alongwith such appeal, the petitioners have also prayed for waiver of pre-deposit in terms of section 73(4) of the VAT Act.
It is the case of the petitioners and which is not seriously disputed by the respondents that during the period between October 11, 2011 to January 6, 2012, the petitioners were forced to deposit a sum of Rs. 1.83 crores, out of which, a sum of Rs. 1.28 crores represented the demand of the Department relatable to the provisional order of assessment later on framed by the adjudicating authority. Be that as it may, it is not in serious dispute that against such claim based on the provisional assessment of Rs. 3 crores, a sum of Rs. 1.28 crores was already recovered earlier. While the petitioners'' appeal with stay application was still pending, the Department continued with the recovery proceedings instituted vide notice dated November 27, 2012. Following steps were taken by the Department in furtherance of such recovery proceedings:
(a) Stock worth Rs. 2 crores of the petitioners is obtained as security against the demand which was done on January 4, 2013;
(b) Bank account of the petitioners was attached on February 12, 2013 and amount of Rs. 33 lacs was recovered from the bank account on February 13, 2013;
(c) Further sum of Rs. 2.03 lacs was recovered on February 14, 2013 from the said bank account;
(d) Amount of Rs. 1.37 crores was withdrawn from the said bank account by coercive action. However, due to the intervention of the court, such demand draft was not encashed and such amount, ultimately, was not recovered;
(e) On or around February 14, 2013, the departmental authorities also issued communication to the customers of the petitioners seeking direct recovery of their dues.
On the basis of the above facts, counsel for the petitioners contended that the respondents acted in a high handed manner and recoveries were initiated in an unauthorized way. In fact, part of the recovery was made even when the petitioners'' appeal with pre-deposit waiver was pending and under active consideration of the appellate authority. The counsel further submitted that substantial portion of the recovery relates to a legal issue namely whether fuel used in manufacturing activity would incur reversal of tax credit at the rate of four percent once or twice in case, the same fuel also falls under clauses (ii) and (iii) of section 11(3)(b) of the VAT Act. He pointed out that such issue has been decided by this court in case of State of Gujarat Vs. Reliance Industries Ltd., in Tax Appeal No. 934 of 2012 vide judgment dated January 18, 2013. He pointed out that the department''s tax appeal against judgment of the Tribunal holding such an issue in favour of the assessee came to be dismissed. In short, therefore, liability to reverse the credit on such consumption of fuel would be four percent only once and not more. The counsel for the petitioners further submitted that the petitioners have already reversed credit on fuel consumed in manufacturing activity far in excess of what was required under the law. The petitioners are entitled to recover such excess reversal of credit. If this aspect is taken into consideration, the entire demand would come down considerably and would in any case be lesser than tax already recovered from the petitioners. The counsel further submitted that action of the departmental authorities was high handed. When the appeal proceedings were pending, recovery ought not to have been done without waiting for the order of the appellate authority. Even when the petitioners had approached this court in a writ petition, the Department continued with the coercive recovery.
On the other hand, the learned Additional Government Pleader opposed the petition, raising following contentions:
(i) Order of provisional assessment is appealable;
(ii) The petitioners have already preferred an appeal and this petition, therefore, should not be entertained;
(iii) He contended that the demand relatable to the issue involved in the decision in case of State of Gujarat Vs. Reliance Industries Ltd., , is Rs. 60 lacs approximately with interest and penalty out of the total demand of Rs. 3 crores. He further contended that the petitioners'' claim to give credit of excess reversal was never at issue before the adjudicating authority who passed the order of provisional assessment. Such issue, at best, can be gone into in the appeal proceedings if raised by the petitioners and otherwise permissible under law.
(iv) The counsel lastly contended that the respondents have not acted unlawfully and that allegations, mala fide, are baseless.
Having heard the learned counsel for the parties, we would deal with the petition for the limited purpose of deciding what interim arrangement should be made till the appellate authority disposes of the petitioners'' pending appeal. If the appellate authority had decided the application for waiver of pre-deposit, this exercise would not have been necessary. However, we do not gather any impression that the petitioners ran away from the appellate authority to approach this court. As is apparent from the record, the respondents were proceeding with the coercive recover)'' even when the appellate authority was ceased of the petitioners'' appeal and application for waiver of pre-deposit. Even without waiting for a reasonable period, such recovery was being made in hot-haste. In that view of the matter, the petitioners were well within their right to approach this court and seek interim protection. Availability of alternative remedy or actual filing of such appeal therefore would not convince us to reject the petition only on such ground.
We may therefore decide the interim formula which will operate till the appeal is disposed of. Essentially, therefore, we will decide whether and if so on what condition, the pre-deposit requirement should be waived. In the process, whatever observations we make, shall be only for the limited purpose of deciding this issue. Nothing stated in this order shall prejudice either side in the pending proceedings. The facts that emerged from the record are as follows.
The respondents have raised a demand of Rs. 3 crores out of which, even, as per the respondents, a sum of Rs. 60 lacs represents the issue pertaining to reversal of credit on the fuel used in manufacturing activity. If the judgment of this court is applied, the demand, therefore, gets reduced to Rs. 2.40 crores. Even, therefore, without taking into account the dispute of the petitioners with respect to the quantification of this amount, even as per the Department, total amount would come to Rs. 2.40 crores.
As against such demand, the petitioners have already deposited a sum of Rs. 1.28 crores in the year 2011.
Further, a sum of Rs. 33 lacs and Rs. 2.03 lacs were recovered by the respondents in February, 2013 even when the appeal proceedings with stay application were under active consideration. The petitioners gave stock worth Rs. 2 crores as security. Their bank account has been attached. Under different interim orders passed by us, the petitioners are liable to maintain a minimum balance of Rs. 50 lacs. The petitioners have raised several contentions in the pending appeal as well as before us with respect to the duty liability. We are not inclined to examine such contentions in this petition and leave it to the appellate authority to do so. However, it cannot be stated that there are no arguable points in favour of the petitioners.
Sub-section (4) of section 73 of the VAT Act provides that no appeal against an order of assessment shall ordinarily be entertained unless it is accompanied by proof of payment of the tax in respect of which appeal is preferred. Proviso to sub-section (4), however, empowers the appellate authority, if it thinks fit, for reasons to be recorded in writing, may entertain such appeal without payment of tax, penalty or interest or upon payment of smaller sum as may be considered reasonable or on the appellant furnishing security in the manner as may be prescribed.
The appellate authority thus enjoys wide discretionary powers to waive either full or part of the pre-deposit requirement. The same can be done conditionally or unconditionally. Such discretion has to be exercised judiciously depending on the facts of the case. In the present facts and circumstances of the case, in our opinion, a sum of Rs. 1.28 crores as already recovered from the petitioners qua the demand arising out of provisional assessment of Rs. 3 crores, should be sufficient to meet with the pre-deposit requirement. No further pre-deposit should be insisted upon, particularly, as already noted, demand itself upon application of judgment of this court and even as per the Department''s calculation, comes down to Rs. 2.40 crores. Pre-deposit would thus be in excess of 50 percent of the total demand inclusive of interest and penalty.
Rest of the steps for recovery taken in furtherance of the demand must be reversed. In other words, the attachment of the bank account is set aside. The security on the stock obtained from the petitioners is lifted. A sum of Rs. 35.03 lacs directly recovered from the bank account of the petitioners by the respondents shall be refunded. This shall be done within three weeks from receipt of a copy of this order. The communication by the respondents to the customers of the petitioners seeking certain direct recovery also stands quashed.
The appellate authority shall decide the appeal proceedings unmindful of the observations made in this order in accordance with law and preferably within four months from receipt of a copy of this order. Before closing, we have noticed the aggressive posture adopted by the respondents in the affidavit filed before us. Private individual, some times, may get involved in the issue more than he should, surely the departmental authorities cannot allow themselves to be personally involved in any issue. Adjudicating and appellate authority exercises quasi judicial powers and require to decide the issue in accordance with law. A citizen can always avail of a remedy as may be available under the law. The departmental authorities cannot grudge any citizen initiating such proceedings.
With these observations, we spare the order of cost though heavily insisted by counsel for the petitioners. The petition is disposed of in the above terms.