DEFECTS IN FILING APPEAL - WHETHER COULD BE REJECTED BY APPELLATE AUTHORITY?

[Mr. M. GOVINDARAJAN]

Section 107 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides the procedure for filing appeal before the Commissioner (Appeal), the Appellate Authority.   Any person aggrieved by any decision or order passed under this Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act by an adjudicating authority may appeal to such Appellate Authority as may be prescribed within 3 months from the date on which the said decision or order is communicated to such person.  Before filing an appeal the aggrieved person shall pay-

• in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him; and
• a sum equal to 10% of the remaining amount of tax in dispute arising from the said order subject to a maximum of Rs. 25 crores, in relation to which the appeal has been filed.

The Appellate Authority may admit the appeal if the aggrieved person has complied with the provisions of filing appeal.  If the aggrieved person has not complied with the same then the Appellate Authority may reject the application.  The Appellate Authority shall give the aggrieved a reasonable opportunity of hearing before rejecting the appeal.  If the said procedure is not followed the rejection order may be liable to be set aside by the Higher Appellate Authorities.

If the appeal is rejected on the above grounds, the Appellate Authority is not competent to decide the case on merits.  If so the order of the Appellate Authority is liable to be set aside as decided by the Bombay High Court in JEM EXPORTER, VERSUS UNION OF INDIA, STATE OF MAHARASHTRA, COMMISSIONER OF CGST & C. EX, APPEAL-I, JOINT COMMISSIONER APPEAL-I, CGST & CX. MUMBAI, DEPUTY COMMISSIONER MUMBAI, ASSISTANT COMMISSIONER, SUPERINTENDENT, MUMBAI - 2023 (8) TMI 173 - BOMBAY HIGH COURT.

In the above case the petitioner is engaged in the business of exporting mobile handsets.  The petitioner made an application for refund of input tax credit on 24.02.2020 and 10.04.2020 on export of goods and services for the period for January 2020 and February 2020 respectively.  The refund amount is Rs.10172874/- and 1651370/- respectively. 

The Department issued summons to the petitioner on  07.08.2020 to conduct enquiry on the contraventions of the provisions of the Act and Rules.  The petitioner attended on that date and a statement was recorded on that date.  The Department, on 25.03.2021 issued a common notice to the petitioner and other two companies.  In the said show cause notice it was alleged that IJM Exporters has availed input tax credit on goods purchased from non existing entities and passed on the said input tax credit to the petitioner since IJM Exporters have sold the goods to the petitioner, who has made the claim for refund of input tax credit on export of the goods purchased from IJM Exporters.  In the show cause notice the petitioner was required to show cause why the GST registration should not be cancelled under Section 29(2) of the Act.

The petitioner replied in the show cause notice that they have purchased the goods from IJM, a registered with GST Department.  They have purchased the goods as per invoices and payments have been made through banking channel.  Therefore the petitioner is justified in claiming refund from export of the goods.  There petitioner, therefore, prayed that the show cause notice may be dropped.

The Department, on 13.08.2021, issued common order against the petitioner and IJM Exporters.  The Department cancelled the registration of the petitioner vide the said order.  The petitioner filed an appeal before the Commissioner (Appeals) challenging the above said order. 

The Appellate Authority passed its order on 17.07.2022.  In the order the Appellate Authority upheld the order of the lower authority cancelling the registration certificate of the petitioner.  In the said order the Appellate Authority further stated that the appellant has not paid the pre deposit before filing the appeal and the appeal is not signed by the appellant.  Therefore the Appellate Authority was of the view that the appeal was liable to be rejected.  The Appellate Authority further observed that the persons from whom IJM Exporters had purchased the goods were non existence and therefore the IJM Exporters had claimed faked input tax credit and since purchases of the petitioner are from IJM Exporters, consequently the petitioner has also wrongly availed input tax credit and made a claim for refund.

Against the order of Appellate Authority the petitioner filed the present writ petition since no GST Appellate Tribunal has been established.   The petitioner submitted the following before the High Court-

• The petitioner has made an application for refund of input tax credit on export of goods and services under section 54 of the Act.
• The Department has not followed the provisions relating to refund but the Department raised a demand of Rs.1,01,02,741/- in addition to interest and penalty.
• No demand could have been raised while refund application is processed.
• Therefore the impugned order in appeal confirming the order-in-original is required to be set aside.

The Department submitted the following before the High Court-

• The petitioner failed to comply with mandatory pre-deposit of10% for entertaining the appeal.
• Therefore the Appellate Authority was justified in rejecting the appeal.
• The petitioner has purchased goods from IJM and the suppliers of IJM  have been found to be non existence, therefore, the input tax credit claimed by the petitioner is not genuine and consequently the petitioner is not entitled to the refund.
• The petitioner has furnished false information with regard to filing of GSTR-1 and GSTR - 3. 
• The petitioner has not taken the plea that the Department has not followed the provisions relating to refund before the lower authorities.
• The petitioner replied to the show cause notice dated 25.03.2021 without objecting to the procedure and therefore the contention raised by the petitioner is to be rejected.
• The petitioner participated in the proceedings without objecting to the same.

The High Court considered the submissions of the parties to the writ petition.  The High Court observed that as per the provisions of the Act unless the appellant has paid admitted tax, interest, fine, fee and penalty in full and a sum equal to 10% of tax of the tax in dispute in relation o which the appeal has been filed.  The appeal papers shall be signed by the appellant and verified the same.    The appellant has not provided challan or proof of having made pre deposit.  Therefore the Commissioner (Appeals) rejected the appeal.  However the Appellate Authority after having given a finding on the merits of the case and upheld the cancellation of registration.  The Commissioner (Appeals) also observed that the proprietor of IJM has created a syndicate with intent to evade payment of tax by wrongly availing input tax credit in one firm and utilizing the same in another firm for availing refund claim on account of export.

The High Court was of the view that the Commissioner (Appeals) was not justified in deciding the matter on merits after having come to a conclusion that the appeal is liable to be rejected on the ground of no proof of pre deposit, failure to file certified copy of the order and the appeal not having been authenticated.  If the appeal is rejected on this ground then any adjudication on merits is not permissible by the Appellate Authority and would be without jurisdiction.  The High Court was of the view that justice cannot be denied for failure to comply with the procedure without giving an opportunity to the appellant to rectify the procedural defects.  The Commissioner (Appeals) did not give an opportunity to the petitioner for curing the procedural defect and therefore there is no justification in rejecting the appeal.  This would be contrary to the principles of Natural Justice.

The High Court also observed that the petitioner has not raised the objection before the lower authorities that the refund application and for cancellation of registration has not been followed by the Adjudicating Authority.  The High Court held that-

• The order in appeal dated 17.06.2022 is set aside and restored to the file of Commissioner (Appeals).
• The Commissioner (Appeals) will issue a defect memo to the petitioner pointing out the procedural defect in the appeal and would give adequate opportunity for rectifying the same.
• If the petitioner rectifies the defect specified in the defect memo, then the Commissioner (Appeal) will pass a fresh order disposing of the appeal on merits after considering all the submissions made, including the contention of correct procedure having not followed by the Adjudicating Authority.