TMI Blog2020 (10) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order, unless it is accompanied by satisfactory proof of the payment of the disputed amount. This makes the payment of the disputed amount a mandatory condition for entertaining an appeal - The objective behind the requirement of recording of reasons is that it would disclose the rationale of the authority and ensure that exercise of power is not done arbitrarily or for extraneous reasons. It will also ensure that the superior court, while exercising judicial scrutiny, is able to examine whether the tribunal has applied its mind and also discerned if the satisfaction arrived at has reasonable nexus to the facts and the law involved in the case. The guiding principles for grant of stay order, pending disposal of a matter before the concerned forum, have been well-entrenched by way of several judicial pronouncements. It is a settled principle of law that the Courts must consider the prima facie merits of the case, the balance of convenience, and the possibility of causing irreparable injury to the parties, while considering an application for grant of stay. However, the revenue contends that the wording of the statute is water-tight and requires the Tribunal to insulate it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking into account the totality of circumstances which include the prima facie case of the Appellant. In the present case, the Tribunal has declined to go into the merits of the case. The prima facie case of the Appellant has not been evaluated by the Tribunal while exercising its discretion under Section 76(4) of the Act. The Appellant had pleaded strong prima facie case for complete waiver of pre-deposit, on the several grounds - all the aspects enumerated above are pertinent. Unfortunately, the same have not been taken into consideration. While the Tribunal is correct in observing that these questions would have to be examined when the appeals are taken up finally on for disposal, but at the same time, these aspects would also have to be cursorily examined for arriving at the satisfaction about the prima facie on merits, for deciding the stay application. Let the matter be remanded back to the DVAT Appellate Tribunal. The Tribunal shall now decide the application under Section 76(4) of the Act afresh, having regard to the views expressed by us in this order, after affording opportunity to both the parties for hearing - Appeal allowed by way of remand. - S.T.APPL. 1/202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asions. As the controversy before us is on a limited aspect, we need not delve deep into the history of the litigation. In sum and substance, this is the second occasion for the Appellant to approach this court in the same lis. On the previous occasion, the order of the Special Commissioner, being the Objection Hearing Authority [hereinafter referred to as the OHA ] dated 24.08.2018 was assailed by the Appellant in W.P.(C) No.10576/2018 on the ground, inter alia, of nonapplication of mind. This Court agreed with the Appellant and, accordingly, vide its order dated 12.11.2018, directed the expeditious disposal of the objection by the OHA. The relevant part of the order dated 12.11.2018 passed by this Court is extracted as under: ( ) However, on the merits of the impugned order, the court is of the opinion that the Special Commissioner has not applied her mind to the limited scope of the remand which the first OHA order had required. In these circumstances, the Special Commissioner is directed to decide the issue as expeditiously as possible having regard to the scope of the remand, made by the order of 13.11.2013, by the Special Commissioner while deciding the objection i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s right to appeal is not an absolute right and is subject to fulfilment of just and reasonable condition to be prescribed by this Tribunal, Appellant is directed to deposit 10% of disputed amount of tax interest and 5% of disputed amount of penalty within a period of 30 days. On compliance of these orders, let these appeals are fixed for hearing on merit on 20.02.2020. [Emphasis added] The Controversy: 6. The impugned order, without considering any of the grounds urged by the Appellant in the appeal, directs the Appellant to deposit a percentage of the demand as a condition for entertaining the appeal. The brief impugned order divulges no cogent reasoning for making the afore-said direction and conspicuously proceeds on the premise that the grounds of challenge or in other words, the merits of the case are not required to be considered at the stage of deciding the question of waiver of pre-deposit. This viewpoint of the Tribunal forms the fulcrum of dispute between the parties. Thus, in fact, the scope of the present appeal, lies in a narrow compass. We have to examine the legality of the interim (impugned) order passed by the Tribunal, having regard to the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as adjusted. The export sales are outside tax net in terms of Section 6(1) of the CST Act. Thus, the entire turnover of the Appellant, regardless of any change in price of export sales, has no taxable consequence. Moreover, the Appellant had subsequently also filed revised returns to regularize the matter, the same were ignored by the VATO. (b) Secondly, it was argued, that demand of ₹ 10,88,56,636/- as tax on amounts transferred by the Appellant is entirely baseless and without any logic. The tax has been demanded on the alleged amount of duty drawback received by Appellant from the government, as export incentive, which have been passed on to the vendor with respect to the goods procured from them. This, the Appellant argues, amounts to sale made in the course of export, which is exempted from taxation, and does not amount to domestic sale. Had the defective goods been brought back and sold in India in the course of inter-state sale, it would have resulted in domestic tax, which would have been denied to the revenue. On this illogical basis, the amounts in the debit notes have been assessed as deemed sale , and tax demand has been made by the VATO. (c) Thirdly, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon the decision in State of Haryana v. Maruti Udyog Ors, (2000) 7 SCC 348 . He submitted that in view of the specific wordings of Section 76(4) of the Act, the merits of the dispute are not required to be gone into by the Tribunal in the exercise of its discretion while passing such an order. He further argued that, at this stage, the only aspect that is required to be considered is whether irreparable loss or likelihood of prejudice to the public interest is not caused to the State by the order passed under the first proviso to Section 76(4) of the Act, and that the focus has to be on the interest of the revenue alone. The Tribunal is required to justify under the said proviso as to how the order of dispensation of the pre-deposit amount, whether in whole (alongwith the corresponding value of security) or part (alongwith the corresponding value of security of the dispensed amount) is for / against the interest of the revenue. He further argued that under the scheme of the Act, for the purpose of dispensation of pre-deposit, even at the first appeal stage [under the third proviso to Section 74(1)(b)], there is no requirement to go into the merits of the dispute, which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax liability of ₹ 10.88 crores out of the total tax liability of ₹ 12.03 crores and corresponding interest amount did not arise. Analysis and Findings: 16. In view of the above-noted rival contentions of the parties, we are of the considered opinion that the legal aspect pertaining to the scope of enquiry/satisfaction required to be undertaken while exercising discretion under the Act, is required to be determined first, before we proceed to examine the correctness and legality of the impugned order. Let us briefly take note of the relevant provision, which, for ready reference is extracted herein below: 76 Appeals to Appellate Tribunal (4) No appeal against an assessment shall be entertained by the Appellate Tribunal unless the appeal is accompanied by satisfactory proof of the payment of the amount in dispute and any other amount assessed as due from the person: Provided that the Appellate Tribunal may, if it thinks fit, for reasons to be recorded in writing, entertain an appeal against such order without payment of some or all of the amount in dispute, on the Appellant furnishing in the prescribed manner security for such amount as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an application for grant of stay. However, the revenue contends that the wording of the statute is water-tight and requires the Tribunal to insulate itself from the above, while exercising its discretion for dispensation of the pre-deposit amount. We do not agree. Let s elaborate on this aspect and deal with the case laws cited by the Revenue. 19. The Respondents have placed reliance upon Maruti Udyog (supra), to state that pre-deposit provision is to be interpreted based on strict wordings of the provision. While we agree with the principles set out therein, it is necessary to point out that the provision under question in Maruti Udyog, being Section 39 (5) of Haryana General Sales Tax Act, 1973, is vastly different from Section 76(4) of the Act under which the present appeal is filed. The Supreme Court in Maruti Udyog laid emphasis and placed reliance on the meaning of the words unable to pay the whole of the amount of tax assessed as found in Section 39(5) of the 1973 Act to hold that it refers to the paying capacity and financial position of the Assessee/Appellant and not its legal or actual liability to pay the amount. In this context, it was held that the wording of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon Dunlop India s case (supra), to argue that even the establishment of a prima facie case by the Assessee is not sufficient to justify the grant of stay order against a predeposit requirement. However, upon a perusal of this case, it is seen that the case stems from a writ petition filed in the High Court seeking interim stay from deposit of demand in an appeal matter. In this case, under Central Excise and Salt Act, 1944, the company claimed benefit of exemption under the first schedule, but the Department viewed that the company was not entitled to the exemption as it has cleared the goods earlier without paying central excise duty, by furnishing Bank Guarantees under various interim orders of courts. The Supreme Court, in this case, disapproved of the practice of High Courts to grant interim order staying the collection of taxes under writ jurisdiction, and urged the High Courts to exercise restraint and circumspection, as it is settled principle that a stay should not be granted as a matter of routine, but only in cases where gross violation of law and injustices are perpetrated or about to be perpetrated. In light of the above discussion, the ratio of the Dunlop India judge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ima facie aspects of a case, the court may interfere with the impugned order if patently perverse grounds are present such as lack of jurisdiction, or palpably incorrect / perverse order and not when the merits of the case are of an arguable nature. 24. We have read the Schneider Electric judgement extensively. In this case, demand was raised for A.Y. 2003-04 under Section 43 of the Delhi Sales Tax Act, 1975 (later repealed by the Delhi VAT Act, 2004 with effect from 01.04.2005). The Assessee approached the High Court under writ jurisdiction, seeking a stay on recovery of demand till the disposal of appeal by the Additional Commissioner under section 76 of the Act. Let s first note the relevant provision i.e. Sub-sections 5 and 6 of Section 43, which reads as under: (5) No appeal against an order of assessment with or without penalty or against an order imposing the penalty shall be entertained by an appellate authority unless such appeal is accompanied by a satisfactory proof of the payment of tax with or without penalty or, as the case may be, of the payment of the penalty in respect of which the appeal has been preferred: Provided that the appellate authority ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced on paragraph 6 of the judgement, which is as follows: Thereafter in the context of Section 43(5) of the DST Act Vijay Power specifically held that in exercising the discretion contained in the said provision the concerned authority has only to consider (a) the existence of a prima facie case in favor of the assessed, (b) balance of convenience qua the deposit or otherwise, (c) irreparable loss, if any, to be caused in case stay is not granted and (d) safeguard of public interest. This discretion has to be exercised according to law, reason and justice and not as a result of private opinion or humour or arbitrariness. Moreover, all these factors should coexist as they are of equal importance. 26. The court had also noted that the Supreme Court in Mehsana District Cooperative Milk P.U. Ltd. v. Union of India, 2003 (154) ELT 347 (SC), had remanded the case to the Appellate Authority, on the ground that the Appellate Authority did not apply its mind, gave unsatisfactory reasons, and focused only on prima facie balance of convenience without addressing the prima facie merits of the case, in the impugned order. 27. In para 8 of the Schneider El ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l while deciding the application under Section 76(4) of the Act. 30. In ITO v. M.K. Mohammed Kunhi, [1969] 71 ITR 815 (SC), in the context of Income Tax proceedings, the Supreme Court held that the Appellate Tribunal should stay the recovery of tax, where a strong prima facie case is shown. The relevant para read as under: 13. ( ) It could well be said that when S. 254 [of the Income Tax Act 1961] confers appellate jurisdiction, it impliedly grants the power of doing all such acts, or employing such means, as are essentially necessary to its execution and that the statutory power carries with it the duty in proper cases to make such orders for staying proceedings as will prevent the appeal if successful from being rendered nugatory. 14. A certain apprehension may legitimately arise in the minds of the authorities administering the Act that if the Appellate Tribunals proceed to stay recovery of taxes or penalties payable by or imposed on the assesses as a matter of course the revenue will be put to great loss because of the inordinate delay in the disposal of appeals by the Appellate Tribunals. It is needless to point out that the power of stay by the Tribunal is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal order like exhibit P9 is passed, the exercise of discretion will cause hardship and irreparable injury to the parties, to the assessee or the Revenue, as the case may be. 32. There are several other cases where the pre-condition of deposit of demand has been dispensed with and we need not refer to all of them, as there cannot be any rule of universal application. Each case will turn on its own facts and the appellate authority will have to weigh the factual scenario involved. The fact that a wide-ranging discretion has been vested with the appellate authority necessarily implies that the exercise of this power has to be based on a case-to-case basis. However, we can emphatically say that we do not agree with Mr. Ramesh Singh that the prima facie merits of the case are not required to be gone into at the stage of consideration of application under Section 76(4) of the Act. 33. That said, it must be remembered that if, assuming an assessee has established a prima facie case, it would not ipso facto entail sufficient justification for grant of dispensation. This principle has to be borne in mind while deciding the stay application. The Supreme Court has held that the appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated or rendered meaningless by allowing the recovery proceeding to continue during the pendency of the appeal. The Tribunal also has to be mindful of the consequences that would follow from an order that required the Assessee to deposit the whole or part of the demanded amount. While exercising this discretion, the Tribunal should not act in a mechanical manner and exercise discretion after taking into account the totality of circumstances which include the prima facie case of the Appellant. 35. Next, we are also unable to agree with Mr. Singh that the lack of the terms hardship or undue hardship in the wording of Section 76(4) and its provisos indicate that the merit of the dispute is not a relevant consideration in a stay application. Mere absence of the terms does not indicate deliberate omission, much less lead to the inference that the merits of the case are irrelevant. The respondent s interpretation is contrary to the plain reading of the provision. On the contrary, we are of the opinion that the provision is wide enough to consider various aspects which may contribute to mitigating factors, including the aspect of undue hardship or weak financial condition of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e application of mind on part of the Tribunal. Since the order does not contain any material grounds for rejection of stay application, it is liable to be quashed on this ground itself. In our view, this kind stereotypical, mechanical order without application of mind to the facts of the case, is not in accordance with the law and the decisions of the courts laying down guidelines for appellate authorities to exercise its discretion under the provisions of the Act. Conclusion : 40. In view of the aforesaid, the impugned order is set aside. Let the matter be remanded back to the DVAT Appellate Tribunal. The Tribunal shall now decide the application under Section 76(4) of the Act afresh, having regard to the views expressed by us in this order, after affording opportunity to both the parties for hearing. The tribunal will also examine the question of financial hardship of the Appellant. On this aspect, Revenue shall be free to urge and request the Tribunal to consider the financials of the holding company of the Appellant, and cite case laws in support thereof. Needless to say, we have not examined the merits of the case and the observations made in this order shall not be r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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