JULY 20, 2019

By Narendra Kumar Singhvi, Joint Partner, Lakshmikumaran & Sridharan

PAYMENT of mandatory pre-deposit in appeals filed in tax matters, particularly under indirect tax laws, has been a unique feature of the tax litigation. Such provisions have also been advised to be introduced in other kinds of litigations. As per media reports, the Securities and Exchange Board of India has recently sought an amendment to the SEBI Act to provide for mandatory pre-deposit in appeals before SAT against its orders.

The objective of such provisions seems to be two-fold: (a) to avoid frivolous litigations, and (b) to relieve the judiciary of the avoidable task of deciding stay applications and to enable it to take up matters for final disposal. When such mandatory pre-deposit was introduced for appeals under Customs, Central Excise and Service Tax laws, the Finance Minister, in his Budget Speech for 2014-15, stated -

"252. To expedite the process of disposal of appeals, amendments have been proposed in the Customs and Central Excise Acts with a view to freeing appellate authorities from hearing stay applications and to take up regular appeals for final disposal."

However, the scheme of the provisions mandating such pre-deposits have raised a lot of issues surrounding their interpretation. This article focuses on one of such issues, which assumes significance in the GST laws.

Prior to GST, the scheme of such provisions varied from one law to another. For illustration, Section 35F of the Central Excise Act, 1944, made applicable to Service Tax law vide Section 83 of the Finance Act, 1994 provides that the Tribunal or Commissioner (Appeals) shall not entertain any appeal, unless the Appellant deposits the amount of specified pre-deposit. Section 82(3) of the Rajasthan VAT Act, 2003 also provides in similar manner that no appeal shall be entertained by the Appellate Authority unless accompanied by satisfactory proof of payment of specified pre-deposit. Similar provisions existed under Section 31 and 33 of the AP VAT Act, 2005.

In certain other States, the law empowers the Appellate Authorities to order pre-deposit or waive such requirement, subject to their judicial discretion. Such provisions exist, for illustration, under Section 74 of the Delhi VAT Act, 2004.

These provisions recently fell for consideration of Hon'ble Supreme Court in S E Graphites Private Limited v. State of Telangana, - 2019-TIOL-263-SC-CT, in the context of Section 31 and 33 of the AP VAT Act, 2005 and similar provisions under the AP General Sales Tax Act, 1957. The question before the Court was whether, under the said provisions, such pre-deposit is required to be made before filing of appeal.

Reinforcing the fine distinction between 'filing of appeal' and 'entertainment of appeal', the Court held that 'entertainment of appeal' is different from 'filing of appeal' and refers to the stage, when the appeal is first considered by the court, either for decision on merits or for other related matters such as condonation of delay etc. It held that the requirement to make pre-deposit can be discharged until the appeal is considered for admission and/or condonation of delay in filing of the appeal, as the case may be, by the Appellate Authority for the first time. That it does not mandate making of pre-deposit at the stage of filing, institution or presentation of the appeal as such; but is a provision stipulating payment of tax dues as a pre-requisite or sine qua non for consideration of appeal on merits or otherwise and/or for condonation of delay in filing the same, as the case may be, for the first time.

The Court further expressly overruled the decision of Hon'ble AP High Court in Ankamma Trading Company v. Appellate Deputy Commissioner, - 2011-TIOL-990-HC-AP-VAT, which, for the same provisions, earlier held that unless the appeal, accompanied by proof of making pre-deposit, is filed within statutory time-limit, it is liable to be dismissed.

The Supreme Court also acknowledged the possibility of misuse of its interpretation, where some litigant may file an appeal within the limitation period, but keep it under defect so that the same does not proceed for consideration before the Appellate Authority. To obviate such a mischief, the Supreme Court directed all Appellate Authorities to take up, without any exception, every singular appeal for consideration for admission on merits and/or for condonation of delay in filing the appeal for the first time, no later than thirty days from the date of its filing, institution or presentation in the office of the Appellate Authority.

Additionally, in the aforesaid decision, Hon'ble Supreme Court further clarified the following propositions of law:

a) Where the Supreme Court grants special leave to appeal, its appellate jurisdiction is invoked, and any order passed thereafter shall be binding precedent, whether of reversal or of modification or of affirming the order appealed against and including a speaking or non-speaking one.

b) Once after grant of special leave to appeal, the Supreme Court reverses a decision of High Court, the other decisions relied upon by the High Court in the impugned order also stand overruled by the Supreme Court.

However, it is important to note that the scheme of the relevant provisions under GST laws is different. Section 107(6) of the Central Goods & Services Tax Act, 2017 provides that no appeal shall be filed, unless the Appellant has paid the specified amount of pre-deposit. Similar provisions are made under Section 112(8) of the said Act, as regards appeals to Appellate Tribunal.

The above provisions of the CGST Act mandate that the pre-deposit must be made at or before the filing of appeal, in contrast to the provisions interpreted by Hon'ble Supreme Court, which mandated the fulfilment of the said requirement as a condition of entertainment of appeal. In fact, the manner of online filing of appeals on the portal under GST laws has been designed in such a manner that the mandatory pre-deposit is made before filing of the appeal. The scope of an otherwise interpretation of these provisions, thus, stands whittled down by the above decision of the Supreme Court.

(The views expressed are strictly personal)