Shivam Water Theaters Pvt. Ltd. vs State of Gujarat

Harsha Devani, J.—Rule. Mr. Jaimin Gandhi, learned Assistant Government Pleader, waives service of notice of rule on behalf of the respondent. Having regard to the facts of the case and with the consent of the learned advocates for the respective parties, the matter is taken up for final hearing today. By this petition under articles 226 and 227 of the Constitution of India, the petitioner has challenged the order dated September 9, 2014 passed by the Gujarat Value Added Tax Tribunal, Ahmedabad (hereinafter referred to as "the Tribunal") and seeks a direction to the Tribunal to hear the appeal on merits or remand the matter to the first appellate authority, namely, the Deputy Commissioner of Commercial Tax who had dismissed the appeal on the ground that the order of pre-deposit passed by him has not been complied with. The petitioner alternatively prays that the Deputy Commissioner of Commercial Tax be directed to hear the appeal on merits without requiring the petitioner to make any further deposit towards the tax dues.

The petitioner herein was engaged in the business of manufacturing and selling water treatment plant, water purifiers, ferrous and non-ferrous metal, iron and steel, etc., and is registered as a dealer under the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as "the GVAT Act") as well as the Central Sales Tax Act, 1956 (hereinafter referred to as "the CST Act").

On June 24, 2011, the enforcement officers visited the business premises of the petitioner and certain books of accounts were seized. Subsequently, notices for assessment in forms 302 and 6B for the assessment year 2009-10 came to be issued under the VAT Act and CST Act, respectively, by the Assistant Commissioner of Commercial Tax (3) (Enforcement) Division I, Ahmedabad. It is the case of the petitioner that pursuant to the said notices, the petitioner remained present and submitted that the petitioner had made genuine purchases and sales and also produced necessary evidence in support of his submission. Vide orders dated 31st March, 2014 made under the VAT Act and CST Act, the adjudicating authority framed assessments demanding a total amount of Rs. 35,42,64,040 including tax, interest and penalty under the VAT Act and Rs. 54,66,643 including tax, interest and penalty under the CST Act. Thus, the total demand raised against the petitioner by virtue of the above two orders came to Rs. 35,97,30,683. The petitioner carried the matter in appeals before the Deputy Commissioner of Commercial Tax on May 9, 2014. The petitioner also requested that the appeals be admitted without any payment. The plea of the petitioner was not accepted by the appellate authority who directed ad-hoc payment of the total tax amount of Rs. 7,13,27,525 under the VAT Act and Rs. 10,00,000 under the CST Act, as part payment for admission of the appeals. Due to financial difficulties, as also on account of the fact that all the assets, goods, factory, land, motor cars and other properties of the directors were already attached on July 5, 2011, the petitioner was not in a position to pay the amount as directed. It, therefore, requested that the appeals be admitted without payment of any amount. However, the request of the petitioner came to be turned down and the appeals came to be summarily dismissed vide orders dated June 20, 2014. Being aggrieved by the summary rejection of the appeals by the appellate authority, the petitioner preferred second appeals before the Tribunal. The Tribunal initially by an order dated August 19, 2014, asked the Department to recover the amount payable by way of pre-deposit out of the sale proceeds of stock, land, material, etc., attached by the Department and to ascertain that the stock attached since 2011 was still in the same position. The matter thereafter came to be adjourned to August 28, 2014. On August 28, 2014, the Tribunal noted that pursuant to the previous order, no action had been taken by the Department and no complete details had been furnished and accordingly found it necessary to have the presence of some responsible officer from the Department and accordingly requested the Additional Commissioner, Enforcement Department to remain personally present. The matter was thereafter adjourned to September 9, 2014. By the impugned order dated September 9, 2014, the Tribunal, after hearing the respective parties with their learned representatives at length, observed that the total demand raised against the petitioner under both the Act is Rs. 35,97,30,683 and the entire demand is on account of disallowance of input-tax credit. That the petitioner is, therefore, required to make payment of tax as well as interest which comes to Rs. 12 crores, however, the Deputy Commissioner has directed to make payment of Rs. 7,13,27,525 under the VAT Act and Rs. 10,00,000 under the CST Act by way of pre-deposit and that it could not exceed this and direct the petitioner to make more payment than what was directed by the Deputy Commissioner. The Tribunal further observed that since the petitioner had already given its consent and permitted the Department to sell the stock attached by it, it is open for the Department to put the stock attached by it on sale and adjust the sale proceeds of the said stock against the outstanding demand. The Tribunal, ultimately directed the petitioner to make payment of the amount as directed by the Deputy Commissioner by way of pre-deposit within one month from the date of the order and that upon payment of the said amount either by way of payment made by the petitioner or by way of recovery from the sale of the stock, the stay would come into operation. It was further observed that till the above amount is realised by the Department, over and above the attachment, the petitioner is not permitted to sell, transfer or otherwise dispose of its properties during the pendency of the appeals. The matter was thereafter adjourned to October 9, 2014 for production of challan and details of more realisation by way of sale of stock. Being aggrieved, the petitioner has presented this petition.

At the outset, Mr. Manish Kaji, learned advocate for the petitioner, has placed on record copies of the auction notice published by the respondent putting on sale the stock attached by the Department at an estimated cost of Rs. 8,17,86,070.

In response to the averments made in the petition, the first respondent has filed an affidavit-in-reply wherein it has been, inter alia, stated that the petitioner has not made any effort to indicate any financial hardship for the purpose of making payment of pre-deposit of around Rs. 7,00,00,000. The order of attachment speaks about the financial well-being of the petitioner as the petitioner owns luxurious cars like BMW, Land Cruisers, Audi, etc. It is further averred that the contention of the petitioner that there is already an attachment of around Rs. 50 crores and that the petitioner should be permitted waiver of pre-deposit is not acceptable as the attachment of Rs. 50 crores is jointly for the demand arising for the financial years 2009-10, 2010-11 and 2011-12. The respondent has further averred that the approximate value of the properties attached by the order dated July 5, 2011 is around Rs. 53 crores and the stock of the petitioner is valued at Rs. 48 crores in the said order. However, now the value of the stock is very negligible and the auction proceeds of the stock is estimated at Rs. 2.15 crores. It is stated that there is an attachment of the Income-tax Department over the properties of the petitioner and, therefore, the interest of the Department is not fully protected.

Mr. Manish Kaji, learned advocate for the petitioner, assailed the impugned order by submitting that the Tribunal has failed to consider that the entire factory and goods as well as other lands and even the cars of the petitioner and the family members of the directors valued at over Rs. 48 crores had already been attached by the Department. It was submitted that the Tribunal failed to consider that any deterioration in the value of the attached properties was not on account of any fault on the part of the petitioner as the same had been under the attachment of the Department since 2011. It was submitted that in the light of the provisions of section 73 of the VAT Act and more particularly clause (c) of the proviso thereto, the interest of the Department was sufficiently secured, inasmuch as, properties worth more than Rs. 50 crores had been attached by the Department in the year 2011. Under the circumstances, the Tribunal ought to have considered the plea of the petitioner and ought to have restored the appeals before the appellate authority without insisting upon payment of pre-deposit.

Vehemently opposing the petition, Mr. Jaimin Gandhi, learned Assistant Government Pleader, submitted that the petitioner has failed to make out any of the circumstances which are necessary for the purpose of waiver of pre-deposit or for grant of stay against the order of assessment, inasmuch as, the petitioner has neither made out a prima facie case nor has it been able to show that the balance of convenience lies in its favour nor has any case of irreparable loss been made out. Reliance was placed upon an unreported decision of the Supreme Court in the case of Shreenath Corporation v. Consumer Education and Research Society, rendered in Civil Appeal No. 9052 of 2013, wherein the court has observed that entertainment of an appeal and stay of proceedings pursuant to the order impugned in the appeal stands on different footings, at two different stages. One (pre-deposit) has no nexus with the merit of the appeal and the other (grant of stay) depends on prima facie case, balance of convenience and irreparable loss to party seeking such stay. It was submitted that thus, the order of pre-deposit and the order for granting stay stand on different footings, and accordingly, the petitioner ought not to be granted any exemption from payment of pre-deposit nor should it be granted any stay in its favour during the pendency of the proceedings before the appellate authority. It was submitted that the Tribunal has rightly ordered the petitioner to pre-deposit the amount as directed by the appellate authority and alternatively, permitted the Department to dispose of the stock attached by it to recover such amount. Reference was made to the assessment order to submit that no prima facie case has been made out by the petitioner so as to warrant interference by this court. Reliance was placed upon the decision of the Supreme Court in the case of Ravi Gupta Vs. Commissioner Sales Tax, Delhi and Another, , for the proposition that an order in terms of section 43(5) of the Delhi Sales Tax Act, 1975 is essentially an order of stay. Three things are to be considered by the Tribunal while dealing with the application for dispensing with the pre-deposit. They are: a prima facie case, balance of convenience and irreparable loss. It was submitted that in the present case, none of the ingredients necessary for grant of indulgence by this court in the matter of making payment of pre-deposit are satisfied and hence, no intervention is warranted.

This court has considered the submissions advanced by the learned counsel for the respective parties and has perused the record of the case as available before the court. The facts are not in dispute. By an order dated July 5, 2011, the assets of the petitioner including goods, factory, land, motor cars, lands of directors, etc., came to be attached. In terms of the averments made in the affidavit-in-reply filed by the respondent, it appears that at the time of attachment, the value of the properties was around Rs. 53 crores, out of which the stock was valued at Rs. 48 crores. However, now according to the respondent, the value of the stock is estimated at Rs. 2.15 crores only. The appellate authority/Deputy Commissioner has directed the petitioner to pre-deposit Rs. 7,13,27,525 for hearing the appeals on merits. The Tribunal, while upholding the order of the Deputy Commissioner of directing pre-deposit of the above referred amount, has adopted a novel approach. Instead of deciding the matter on merits by examining as to whether the petitioner had made out a prima facie case or as to whether any of the circumstances envisaged under the proviso to section 73 of the Act are attracted, the Tribunal proceeded to ask the Department to dispose of the stock attached by it with a view to recover the amount towards the pre-deposit. By the impugned order, the Tribunal has directed the petitioner to pre-deposit the amount or, in the alternative, has directed the Department to recover such amount from the sale of the stock of the petitioner whereafter the stay would come into operation. The Tribunal has further directed that till the amount is realised by the Department over and above the attachment, the petitioner is not permitted to sell, transfer or otherwise dispose of the properties during the pendency of the appeals.

Before adverting to the merits of the rival contentions, reference may be made to the provisions of section 73 of the GVAT Act and more particularly, sub-section (4) thereof which reads as under:

Appeal--(1) to (3) . . .

(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."

On a plain reading of sub-section (4) of section 73 of the GVAT Act, it is apparent that the same prohibits entertainment of any appeal by an appellate authority unless the same is accompanied by satisfactory proof of payment of tax in respect of which the appeal has been preferred. However, the proviso thereto permits the appellate authority if it thinks fit for reasons to be recorded in writing to entertain the appeal without payment of tax with penalty or without penalty, on payment of proof of a smaller sum as it may consider reasonable or on the appellant furnishing in the prescribed manner, security for such amount as the appellate authority may direct. Thus, any of the aforesaid three courses of action are available to the appellate authority, if it so deems fit.

In the facts of the present case, the appellate authority has thought it fit to direct the petitioner to pre-deposit an amount of Rs. 7,13,27,525 under the VAT Act and Rs. 10,00,000 under the CST Act as part-payment for admission of appeals. However, the petitioner was not in a financial position to pay such amount, more so, in view of the fact that its assets, as noted above, have been attached by the respondent, and as such could not make the pre-deposit as directed by the appellate authority. The appellate authority, therefore, summarily dismissed the appeals on the ground of non-payment of the amount of pre-deposit. The Tribunal, in the appeals preferred by the petitioner against the order of dismissal of appeals, has upheld the order passed by the appellate authority directing pre-deposit of the aforesaid amount. However, the Tribunal has called upon the petitioner to deposit such amount before it or, in the alternative, permit the respondent to recover such amount from the properties attached by it. In the opinion of this court, once the Tribunal did not deem it fit to interfere with the order passed by the appellate authority to the extent of the amount of pre-deposit directed by it, all that was required to be done was to confirm the said order and permit the petitioner to pay such amount as a condition precedent for restoration of its appeals. The Tribunal was not required to enter into any exercise thereafter as regards how such amount is to be recovered from the assets of the petitioner. In the order dated August 19, 2014, the Tribunal has taken note of the fact that the learned advocate appearing on behalf of the petitioner had submitted that the Department has attached stock, land, cars, etc., worth Rs. 53 crores by an order dated July 5, 2011 and that three years have passed and the attachment still continues. That the Department was adequately secured and hence, the appeals should be admitted without any payment and stay should be granted against recovery of outstanding payment considering the said security. From the orders passed by the Tribunal from time to time, there is nothing to indicate that the Tribunal has applied its mind to the above referred submission made on behalf of the petitioner. The Tribunal appears to have completely overlooked the provisions of the proviso to section 73 and more particularly, clause (c) thereof which permits the appellant to furnish security of such amount as the appellate authority may direct. Moreover, on a plain reading of all the orders passed by the Tribunal from time to time, there is nothing to indicate that the Tribunal has applied its mind to any of the factors which are required to be taken into consideration while deciding an application for stay of the demand, namely, as to whether the petitioner had made out a prima facie case, in whose favour balance of convenience lies, as well as to whether any irreparable injury would be caused to the petitioner.

This court has examined the order of assessment passed by the assessing officer and is of the view that the petitioner does have a prima facie case in its favour. However, the court does not deem it fit to express any opinion on the merits of the order of assessment as the same would be likely to affect the final outcome of the proceedings before the appellate authority. Insofar as the payment of pre-deposit as directed by the appellate authority is concerned, this court is of the view that as per the averments made in the affidavit-in-reply filed by the respondent that at the time when the properties were attached vide order dated July 5, 2011, the same were worth Rs. 53 crores, and as such the interest of the Department is sufficiently secured. Under the circumstances, in the light of clause (c) of the proviso to section 73 of the Act which provides that the appellate authority may entertain an appeal on the appellant furnishing security of such amount as the appellate authority may direct, this court is of the view that the appeals filed by the petitioner before the appellate authority are required to be heard on merits without payment of any amount by way of pre-deposit, in view of the fact that sufficient security is available with the Department by way of attachment of the properties of the petitioner.

In the light of the aforesaid discussion, the court is of the view that the impugned order passed by the Tribunal, which fails to consider any of the relevant factors that should be taken into consideration while considering the question of directing payment of pre-deposit or granting stay of the assessment order, cannot be sustained.

However, in view of the fact that the Tribunal has agreed with the appellate authority insofar as payment of pre-deposit is concerned, restoring the matter to the Tribunal will not serve any fruitful purpose, inasmuch as, the appellate authority/Deputy Commissioner has also dismissed the appeals on the ground of non-payment of pre-deposit. Under the circumstances, instead of remanding the matter to the Tribunal for passing formal orders in this regard, it would be appropriate to restore the appeals before the appellate authority for deciding the same on merits.

In the light of the above discussion, the petition succeeds and is accordingly allowed. The common impugned order dated September 9, 2014 passed by the Tribunal in Second Appeal Nos. 533 of 2014 and 534 of 2014, the auction notice issued by the respondent in compliance of the said order as well as the order dated June 20, 2014 passed by the Deputy Commissioner of Commercial Tax (Appeals), Ahmedabad, summarily dismissing the appeals preferred by the petitioner, are hereby quashed and set aside. The appeals are restored to the file of the Deputy Commissioner to be decided on merits within a period of three months from the date of receipt of a copy of this order. The attachment of properties by the Department shall be considered as sufficient security as envisaged under clause (c) of section 73 of the GVAT Act. Insofar as costs for issuance of notice of auction as well as the costs that the respondent would be required to incur for issuance of notice for cancellation of auction are concerned, the same shall be subject to the outcome of the proceedings before the appellate authority. Rule is made absolute accordingly with no order as to costs.