Supreme Court allows adjustment of protest payments against pre-deposit for appeals under Maharashtra Value Added Tax Act: VVF (India) Limited vs. State of Maharashtra (2021) INSC 722 (03 December 2021)

Date of the Judgment: 03 December 2021
Citation: (2021) INSC 722
Judges: Dr. Dhananjaya Y Chandrachud, J and A.S. Bopanna, J
Can a payment made under protest before an assessment order be considered as part of the mandatory pre-deposit required for filing an appeal under the Maharashtra Value Added Tax Act, 2002? The Supreme Court of India addressed this question in a recent judgment, clarifying the interpretation of Section 26(6A) of the Act. The court held that such payments should indeed be considered, providing relief to taxpayers. The judgment was authored by Dr. Dhananjaya Y Chandrachud, J, with A.S. Bopanna, J concurring.

Case Background

VVF (India) Limited, a company manufacturing oleo-chemicals and personal care products, faced an investigation by the Sales Tax Department between 15 November 2016 and 22 November 2016. Following this, a show cause notice was issued on 22 November 2016, to which the company responded, contesting the proposed tax liabilities. The company made protest payments on 8 December 2016 and 11 January 2017, totaling Rs 3,64,24,388, which included Rs 2,32,37,249 towards tax and Rs 1,31,87,139 towards interest for the Assessment Year 2013-14. Subsequently, on 30 October 2017, another show cause notice was issued regarding penalties.

On 15 April 2017, the Maharashtra Value Added Tax Act, 2002 (MVAT Act) was amended, introducing Sections 26(6A), 26(6B), and 26(6C), which mandated a pre-deposit for filing appeals. An assessment order was passed on 26 December 2017 for the Assessment Year 2013-14 under the Maharashtra Tax on the Entry of Goods into Local Areas Act 2002, demanding Rs 10,44,54,708 in tax, an equal amount as penalty, and Rs 7,09,06,928 as interest, totaling Rs 27,98,36,344. After adjusting the protest payments, the remaining amount payable was Rs 24,34,11,956.

The company filed an appeal against the assessment order, but it was rejected. The Joint Commissioner of Sales Tax (HQ) 1, in a letter dated 4 June 2018, stated that the protest payments could not be considered towards the pre-deposit required under Section 26(6A) of the MVAT Act. The company then filed a petition under Article 226 of the Constitution challenging this letter.

Timeline

Course of Proceedings

The appellant challenged the letter dated 4 June 2018, issued by the Joint Commissioner of Sales Tax (HQ) 1, through a writ petition under Article 226 of the Constitution of India before the High Court of Judicature at Bombay. The High Court dismissed the petition on 8 November 2019, holding that any payment made, even under protest, must be adjusted against the total tax liability. The High Court further stated that the appellant was required to deposit 10% of the total tax demand after adjusting the protest payment, before filing an appeal. This decision was challenged before the Supreme Court of India.

Legal Framework

The core of the dispute revolves around Section 26(6A) of the Maharashtra Value Added Tax Act, 2002, which was introduced by the Maharashtra Act XXXI of 2017. This section mandates a pre-deposit for filing appeals. The relevant portion of Section 26(6A) of the MVAT Act, as quoted in the judgment, reads:

“6A) No appeal against an order, passed on or after the commencement of the Maharashtra Tax Laws (Levy, Amendment and Validation) Act, 2017 (Mah XXXI of 2017), shall be filed before the appellate authority in first appeal, unless it is accompanied by the proof of payment of an aggregate of the following amounts, as applicable,-
(a) in case of an appeal against an order, in which claim against declaration or certificate, has been disallowed on the ground of non-production of such declaration or, as the case may be, certificate then, amount of tax, as provided in the proviso to sub-section (6),
(b) in case of an appeal against an order, which involves disallowance of claims as stated in clause (a) above and also tax liability on other grounds, then, an amount equal to 10 per cent of the amount of tax, disputed by the appellant so far as such tax liability pertains to tax, on grounds, other than those mentioned in clause (a),
(c) in case of an appeal against an order, other than an order, described in clauses (a) and (b) above, an amount equal to 10 per cent. of the amount of tax disputed by the appellant,
(d) in case of an appeal against a separate order imposing only penalty, deposit of an amount, as directed by the appellate authority, which shall not in any case, exceed 10 per cent of the amount of penalty, disputed by appellant.”

The Supreme Court had to interpret the phrase “amount of tax disputed by the appellant” in clauses (b) and (c) of Section 26(6A) of the MVAT Act to determine whether payments made under protest before the assessment order could be considered towards the mandatory pre-deposit.

Arguments

Arguments of the Appellant (VVF (India) Limited):

• The appellant argued that Section 26(6A) of the MVAT Act requires the deposit of 10% of the “amount of tax disputed by the appellant,” not 10% of the tax in arrears.
• The appellant contended that since they disputed the entire tax demand, 10% of the total disputed amount should be considered for pre-deposit, and the amount paid under protest should not be excluded.
• The appellant submitted that the statute does not specify that the protest payment should not be set off against the pre-deposit amount.

Arguments of the Respondent (State of Maharashtra):

• The State argued that the dispute arises only after the assessment order under Section 23 of the MVAT Act.
• The State contended that 10% of the tax demanded in the assessment order must be paid as a condition for filing an appeal.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether amounts deposited under protest prior to an order of assessment can be adjusted against the mandatory pre-deposit required for filing an appeal under Section 26(6A) of the Maharashtra Value Added Tax Act 2002.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authority:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The Supreme Court relied on A.V. Fernandez v. State of Kerala, AIR 1957 SC 657* to emphasize the principle of strict interpretation of taxing statutes. The court stated that a taxing statute must be construed strictly and literally, without any room for intendment. The court held that if the legislature had intended that the protest payment should not be set off against the pre-deposit amount, a provision to that effect would have been made.

What weighed in the mind of the Court?

The Supreme Court emphasized the principle of strict and literal interpretation of tax statutes. The Court noted that Section 26(6A) of the MVAT Act explicitly refers to “the amount of tax disputed by the appellant.” The Court reasoned that the statute does not exclude amounts paid under protest from being considered as part of the pre-deposit. The Court highlighted that if the legislature intended to exclude such payments, it would have explicitly stated so. The court underscored that there is no room for intendment in tax statutes and that the plain and grammatical meaning of the words must be followed.

The Court stated, “A taxing statute must be construed strictly and literally. There is no room for intendment.”

The Court also noted, “The provisions of a taxing statute have to be construed as they stand, adopting the plain and grammatical meaning of the words used.”

Further, the Court observed, “If the legislature intended that the protest payment should not be set off as the deposit amount, then a provision would have to be made to the effect that 10 per cent of the amount of tax in arrears is required to be deposited which is not the case.”

Key Takeaways

• Payments made under protest before an assessment order can be adjusted against the mandatory pre-deposit required for filing an appeal under Section 26(6A) of the MVAT Act.
• The pre-deposit should be calculated as 10% of the tax disputed by the appellant, not 10% of the tax in arrears.
• Taxing statutes must be interpreted strictly and literally, without any room for intendment.

Directions

The Supreme Court set aside the judgment of the High Court of Judicature at Bombay and restored the appeal to the file of the appellate authority. The appellate authority was directed to verify if 10% of the disputed tax amount, as interpreted by the Supreme Court, has been duly deposited by the appellant.

Development of Law

The ratio decidendi of this case is that payments made under protest before an assessment order can be adjusted against the mandatory pre-deposit required for filing an appeal under Section 26(6A) of the MVAT Act. This decision clarifies the interpretation of Section 26(6A) of the MVAT Act, ensuring a fair approach by allowing protest payments to be considered towards the pre-deposit. This judgment provides a clear interpretation of the term “amount of tax disputed by the appellant” in the context of pre-deposit requirements for appeals under the MVAT Act. It establishes that payments made under protest before an assessment order should be considered when calculating the pre-deposit amount. This settles the ambiguity surrounding the treatment of protest payments and aligns with the principle of strict interpretation of tax statutes.

Conclusion

The Supreme Court’s judgment in VVF (India) Limited vs. State of Maharashtra clarifies that amounts paid under protest before an assessment order can be adjusted against the mandatory pre-deposit required for filing an appeal under Section 26(6A) of the Maharashtra Value Added Tax Act, 2002. The court emphasized the principle of strict interpretation of tax statutes and held that the pre-deposit should be calculated as 10% of the tax disputed by the appellant, including payments made under protest. This decision provides significant relief to taxpayers and ensures a fair and literal application of the law.