GST Appeals: Bombay High Court Grants Relief On Pre-Deposit Requirement

The high court order will save taxpayers from having to scrape out an additional amount for the same dispute, experts said.

<div class="paragraphs"><p>Bombay High Court building exterior. (Photo: Vijay Sartape/ BQ Prime)</p></div>
Bombay High Court building exterior. (Photo: Vijay Sartape/ BQ Prime)

In a significant relief for taxpayers, the Bombay High Court has laid down that any amount voluntarily paid during a GST investigation can be adjusted against the pre-deposit requirement for filing an appeal.

The high court order will save taxpayers from having to scrape out an additional amount for the same dispute, experts said.

The case involved a Goods and Services Tax investigation against Vinod Metals HUF, an entity engaged in the steel business. During the investigation, but prior to the issue of a GST notice, the company deposited a certain amount with the authorities towards the disputed claim.

Such a voluntary payment may be done for a variety of reasons, Niraj Bagri, partner at Dhruva Advisors, highlighted. One of them could be that the taxpayer considers the matter under dispute is debatable. Therefore, such a deposit is made to avoid the interest liability that the taxpayer may have to incur if the dispute is decided against it, Bagri said.

After Vinod Metals received the GST notice, it expressed its intent to the department to adjust the amount already paid against the pre-deposit. The GST law lays down a pre-deposit condition before any appeal is filed. 10% of the disputed tax claim needs to be paid as a pre-deposit. The provision ensures that no frivolous appeals are filed.

Vinod Metals argued before the GST department that the requirement to shell out an additional amount towards pre-deposit would be unjust. However, the request was denied by the tax authorities, leading the company to approach the Bombay High Court.

Before the high court, it was also argued that if the GST portal does not recognise such adjustments, the entity should be allowed to file an appeal manually. And that as such, technical difficulties cannot defeat a statutory remedy available to a taxpayer.

The GST department countered, saying the provisions that allow for voluntary payment and appeal are distinct and operate differently. Thus, they cannot be read together. Further, it was argued that the GST portal is a system applicable throughout the country. And such an adjustment would disturb the prevalent practices and must not be allowed.

The court didn't agree. It allowed Vinod Metals to file the appeal either through the portal or manually, saying a statutory right cannot be frustrated by the shackles of complex procedural formalities. The law should be interpreted in such a way as to recognise the intention of the legislature, which is to aid access to justice. Since the right to appeal is a fundamental right, it should not be prevented by a technical difficulty, the court held.

This is merely a reiteration of a law that the Supreme Court laid down in the erstwhile indirect tax regime, Kishore Kunal, founder at KK and Co. Law Chambers, said.

The Supreme Court, in multiple cases, has held that any amount deposited at any stage of investigation prior to the issuance of notice will have to be adjusted against the pre-deposit for an appeal, he highlighted. The Central Board of Indirect Taxes, too, adopted a similar stance in favour of the adjustment through various circulars during the previous tax regime, Kunal said.

Several GST circulars take a position against such adjustments. The present high court order will thus enable taxpayers to enjoy the same benefits as in the VAT regime.
Kishore Kunal, founder, KK And Co. Law Chambers

Bagri holds a similar view. Both provisions allowing a pre-deposit should be read in congruence with the object of the GST statute, according to him.

The object of the pre-deposit provisions is to secure the interest of the revenue, and as the voluntary deposit is already a payment towards that purpose, it must be allowed to be considered as part of the mandatory pre-deposit for appeals.
Niraj Bagri, Partner, Dhruva Advisors

Unless and until there is an express bar in the GST laws preventing adjustment of the deposits, no such restriction can be placed by the authority, Bagri said.

The bar in this case has arisen, since the GST portal is not allowing such an adjustment. Such technicality shouldn't take away the statutory right to appeal and taxpayers should be allowed to file an appeal, either through the portal or manually, he said.