Supreme Court clarifies pre-deposit condition for VAT appeals: M/S. S.E. Graphites Private Limited vs. State of Telangana (2019)

Date of the Judgment: 10 July 2019

Citation: (2019) INSC 646

Judges: A.M. Khanwilkar, J. and Ajay Rastogi, J.

Can an appeal be rejected if the tax amount is deposited after the limitation period for filing the appeal, but before the appeal is considered by the Appellate Authority? The Supreme Court addressed this crucial question in a batch of appeals concerning the interpretation of pre-deposit conditions under the Andhra Pradesh and Telangana VAT Acts. The core issue revolved around whether the requirement to produce proof of payment of tax dues should be strictly tied to the limitation period for filing the appeal or if it could be fulfilled before the appeal is actually considered by the appellate authority. The bench comprised Justices A.M. Khanwilkar and Ajay Rastogi, with the judgment authored by Justice Khanwilkar.

Case Background

The case involves multiple appeals filed by various assessees against orders passed by the Appellate Authority, which had rejected their appeals for non-compliance with the pre-deposit conditions mandated by the APGST Act, 1957, AP VAT Act, 2005 and Telangana State VAT Act, 2005. These conditions required the appellants to produce proof of payment of admitted tax dues and a percentage of the disputed tax amount before their appeals could be admitted. The assessees argued that they had deposited the required amounts, albeit after the limitation period for filing the appeal had expired, but before the appeal was actually considered by the Appellate Authority. The High Court had dismissed their writ petitions, relying on a previous decision that tied the deposit requirement to the appeal filing limitation period.

Timeline:

Legal Framework

The Supreme Court examined the following provisions of the APGST Act, 1957 and AP VAT Act, 2005:

• Section 19 of the APGST Act, 1957: This section deals with appeals against orders passed by authorities under the Act. It stipulates a 30-day period for filing appeals, with a possible 30-day extension for sufficient cause. The second proviso states that an appeal shall not be admitted unless the dealer produces proof of payment of admitted tax and 12.5% of the difference between the assessed and admitted tax.
• Section 21(2) of the APGST Act, 1957: This section concerns appeals to the Appellate Tribunal. It specifies a 60-day period for filing appeals, with a possible 60-day extension for sufficient cause. It also includes a proviso that no appeal against the order passed under Section 19 shall be admitted unless it is accompanied by satisfactory proof of the payment of fifty per cent of the tax as ordered by the Appellate Deputy Commissioner under section 19.
• Section 31 of the AP VAT Act, 2005: This section is similar to Section 19 of the APGST Act, dealing with appeals to the Appellate Authority, with similar conditions regarding time limits and pre-deposit of tax. The second proviso states that an appeal shall not be admitted unless the dealer produces proof of payment of admitted tax and 12.5% of the difference between the assessed and admitted tax.
• Section 33(2) of the AP VAT Act, 2005: This section is similar to Section 21(2) of the APGST Act, concerning appeals to the Appellate Tribunal and includes a proviso that no appeal against the order passed under Section 31 shall be admitted unless it is accompanied by satisfactory proof of the payment of fifty per cent of the tax, penalty, interest or any other amount as ordered by the appellate authority under section 31.

The court noted that similar provisions exist in the Telangana State Acts.

Arguments

Appellants’ Submissions:

• The appellants argued that the second proviso of Section 19 and Section 31 of the respective Acts does not specify a time limit for producing proof of payment.
• They contended that the requirement to produce proof of payment should be interpreted as a condition to be fulfilled before the appeal is considered for admission, not necessarily at the time of filing the appeal.
• The appellants relied on the Supreme Court’s decision in M/s. Innovatives Systems vs. State of Andhra Pradesh [Civil Appeal No.2230/2015], which they argued had impliedly overruled the High Court’s decision in Ankamma Trading Company (supra).
• They also cited Ranjit Impex vs. Appellate Deputy Commissioner and Anr. [(2013) 10 SCC 655], where a similar provision under the Tamil Nadu VAT Act was interpreted to mean that the proof of payment had to be produced when the appeal is taken up for consideration, not at the time of filing.
• The appellants emphasized the distinction between filing an appeal and the appeal being “entertained” or “admitted” on merits.
• They argued that the right to appeal should not be unduly restricted by a strict interpretation of the second proviso.

Respondent-State’s Submissions:

• The respondent-State supported the High Court’s view in Ankamma Trading Company (supra), arguing that the payment must be made within the limitation period for filing the appeal, including any condoned delay.
• They argued that the second proviso is mandatory, and failure to comply with it renders the appeal defective.
• The State contended that the decision in M/s. Innovatives Systems (supra) was passed in the specific facts of that case and did not explicitly overrule Ankamma Trading Company (supra).
• The State relied on M/s. Lakshmi Rattan Engineering Works Ltd. Vs. Asst. Commr. Sales Tax, Kanpur & Anr. [(1968) 1 SCR 505], to argue that an appeal cannot be entertained unless accompanied by proof of payment.
• The State also cited Narayan Chandra Ghosh Vs. UCO Bank and Ors. [(2011) 4 SCC 548], to argue that there is an absolute power to entertain an appeal under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, unless the condition precedent is fulfilled.

Submissions of Parties

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section, but the core issue can be summarized as:

1. Whether the second proviso of Section 19 and Section 31 of the respective Acts, which mandates the production of proof of payment of tax dues, requires such proof to be submitted at the time of filing the appeal, or if it can be submitted before the appeal is taken up for consideration by the Appellate Authority.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

The Court also considered the following legal provisions:

• Section 19 of the APGST Act, 1957
• Section 21(2) of the APGST Act, 1957
• Section 31 of the AP VAT Act, 2005
• Section 33(2) of the AP VAT Act, 2005

Judgment

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

How each authority was viewed by the Court?

• Ankamma Trading Company (supra): The Supreme Court held that this decision was impliedly overruled by the decision in M/s. Innovatives Systems (supra).
• M/s. Innovatives Systems (supra): The Supreme Court followed this decision, noting that it had impliedly overruled Ankamma Trading Company (supra).
• Ranjit Impex (supra): The Supreme Court relied on this decision to support its interpretation of the relevant provisions.
• M/s. Lakshmi Rattan Engineering Works Ltd. (supra): The Supreme Court distinguished this case, stating that it does not contradict the view that the proof of payment can be produced before the first hearing of the appeal.
• Narayan Chandra Ghosh (supra): The Supreme Court distinguished this case, stating that the second proviso under consideration does not require payment of tax dues at the time of filing, institution or presentation of the appeal.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The literal interpretation of the second proviso, which does not specify a time limit for producing proof of payment.
• The distinction between filing an appeal and the appeal being considered for admission.
• The need to avoid unduly restricting the right to appeal.
• The implied overruling of Ankamma Trading Company (supra) by the Supreme Court’s earlier decision in M/s. Innovatives Systems (supra).
• The interpretation of similar provisions in Ranjit Impex (supra).

The court emphasized that the proviso is not a pre-deposit requirement at the time of filing but a prerequisite for the consideration of the appeal.

Fact:Law Ratio

Logical Reasoning

Key Takeaways

• The requirement to produce proof of payment of tax dues under the second proviso of Section 19 and Section 31 of the respective Acts is not tied to the limitation period for filing the appeal.
• The proof of payment can be submitted before the appeal is taken up for consideration by the Appellate Authority for the first time, either for condonation of delay or for admission on merits.
• Appellate Authorities cannot reject appeals solely on the ground that the payment was made after the limitation period for filing the appeal, provided it was made before the first hearing for consideration.
• The Supreme Court’s decision in M/s. Innovatives Systems (supra) impliedly overruled the High Court’s decision in Ankamma Trading Company (supra).
• Appellate Authorities must take up every appeal for consideration within 30 days of filing to prevent misuse of this interpretation.

Directions

The Supreme Court directed that:

• Appellate Authorities must take up every appeal for consideration for admission on merits or for condonation of delay within 30 days of its filing. This is to prevent unscrupulous litigants from delaying the process.

Development of Law

Ratio Decidendi: The Supreme Court held that the second proviso of Section 19 and Section 31 of the respective Acts does not require the proof of payment of tax dues to be submitted at the time of filing the appeal. It can be submitted before the appeal is taken up for consideration by the Appellate Authority for the first time. This interpretation clarifies that the requirement is a pre-requisite for the consideration of the appeal, not for filing it.

Change in Law: This judgment clarifies the position of law by stating that the decision in Ankamma Trading Company (supra) stands impliedly overruled by the decision in M/s. Innovatives Systems (supra). It also sets a precedent that the pre-deposit condition can be fulfilled before the first hearing of the appeal, and not necessarily at the time of filing.

Conclusion

The Supreme Court’s judgment in M/S. S.E. Graphites Private Limited vs. State of Telangana & Ors. clarifies the interpretation of pre-deposit conditions under the APGST Act, 1957 and AP VAT Act, 2005, and Telangana State VAT Act, 2005. The Court held that the requirement to produce proof of payment of tax dues is not tied to the limitation period for filing the appeal but can be fulfilled before the appeal is considered for admission or condonation of delay. This decision provides relief to assessees who may have missed the filing deadline but made the payment before their appeal was considered by the Appellate Authority. The Court also directed that all appeals must be taken up for consideration within 30 days of filing to prevent misuse of this interpretation.