At present, most of the sales tax/value added tax enactments have a provision which requires an assessee to deposit the entire amount of tax or a portion of the disputed tax, as an “admission fee” before filing appeal. An assessee, therefore, can enter the office of the appellate authorities only if the “admission fee” is paid at the entrance, as otherwise, the assessee will be bodily and forcibly thrown out.
The High Courts, in the following cases, have upheld the validity of such provisions which requires a dealer to pay a certain percentage of disputed tax as a condition precedent for filing of appeal:
The Orissa High Court in the decision reported in (2012) 54 VST 1 (Jindal Stainless Limited Vs. State of Orissa) had upheld the validity of section 77(4) of the Orissa Value Added Tax Act, 2004, which required a dealer to pay 20% of the tax or interest in dispute for the purpose of admission of appeal. The High Court had relied on the following decisions of the Supreme Court, namely, (1) Vijay Prakash D. Mehta & Jawahar D. Mehta Vs. Collector of Customs (Preventive), Bombay (1989) 72 STC 324 (SC), (2) Kondiba Dagadu Kadam V. Savitribai Sopan Gujar AIR 1999 SC 2213, (3) Gujarat Agro Industries Co. Ltd Vs. Muncipal Corporation of the City of Ahmedabad (1999) 4 SCC 468, (4) Har Devi Asnani V. State of Rajasthan (2011) 6 Supreme Court 596, for upholding the validity of the provision.
The Kerala High Court in the decision reported in (2011) 37 VST 567 (Hindustan Petroleum Corporation Limited Vs. Assistant Commissioner, Special Circle II, Commercial Taxes, Ernakulam) confirmed the order of the Learned Single Judge in (2011) 37 VST 565 (Hindustan Petroleum Corporation Limited Vs. Assistant Commissioner, Special Circle II, Commercial Taxes, Ernakulam), who had upheld the validity of section 17D(5) of the Kerala General Sales Tax Act, 1963. The said provision provided that appeals against the assessment orders issued under the fast track method shall lie within 45 days to the Sales Tax Appellate Tribunal and no such appeal shall lie unless the dealer has paid the entire tax amount. The Kerala High Court had relied on the decisions of the Supreme Court reported in (1999) 4 SCC 468 (Gujarat Agro Industries Co. Ltd Vs. Muncipal Corporation of the City of Ahmedabad) and (2008) 4 SCC 720 (Government of Andhra Pradesh Vs. Smt. P. Laxmi Devi. The learned Single Judge Kerala High Court had dismissed the writ petition on the ground that the validity of section 17D was upheld by the Kerala High Court in (2008) 2 KLT 511 (Viani Papers Vs. Fast Track Team) and the decision of the Apex Court in (2009) 22 VST 529 (Ravi Gupta Vs. Commissioner of Sales Tax). The High Court in the Viani Papers case does not seem to have considered the validity of section 17D(5) of the Act at all as the challenge was to the correctness of the assessment order only.
The Madras High Court, in the decision reported in (2008) 11 VST 782 (K.M. Corporation and another Vs. The State of Tamil Nadu) had upheld the validity of sections 31 and 31A of the Tamil Nadu General Sales Tax Act, 1959, which required the dealer to pay 25% of the disputed tax at the time of filing of appeal for the purpose of admissibility of the appeal.
In (2000) 119 STC 138 (D.V.C.Bukaru Cooperative Stores Limited Vs. State of Bihar), the Patna High Court upheld the validity of section 45(3) of the Bihar Finance Act, 1981, which required the assessee to pay 20% of the assessed tax before admission of appeal as such an amount was not exorbitant and does not impose any onerous or unreasonable condition on the right of appeal. In (2001) 122 STC 382 (Emerald International Limited Vs. State of Punjab), the Full Bench of the Punjab and Haryana High Court was considering the validity of provision which required the assessee to pay the entire amount of assessed tax but, however, the statutory authorities were given the power to dispense with the deposit. The Full Bench upheld the validity of the provisions.
There can be no dispute to the proposition that the right of appeal is a statutory right. Being a statutory right, it is open to the legislature to impose conditions for exercise of the right of appeal. The question is regarding the reasonability of conditions imposed by the legislature for exercising the right of appeal. Can the legislature impose such conditions which makes the right of appeal illusory? The answer has to be in the negative only. With respect, in the above decisions, the court did not consider whether the conditions imposed in exercising the right of appeal was onerous or not. The Madras High Court referred to the decision of the Supreme Court in AIR 1980 SC 2097 but did not answer the question as to whether the conditions imposed for exercising the right of appeal were reasonable or not.
The decisions referred to by the various courts are explained as follows:
The Apex Court in (2009) 22 VST 529 (Ravi Gupta Vs. Commissioner of Sales Tax)- which was relied on by the Kerala High Court - was not considering the validity of any provision similar to section 17-D of the Kerala Act. The Apex Court was laying down the principles to be followed by statutory authorities while passing orders on the stay applications and hence cannot be regarded as a binding precedent.
In AIR 1975 SC 1234 (The Anant Mills Co. Ltd. Vs. The Muncipal Corporation of City of Ahmedabad) (A decision rendered by a bench of 4 Judges), it was held as under:
”We fail to understand as to why the legislature while granting the right of appeal cannot impose conditions for the exercise of such right. In the absence of any special reasons there appears to be no legal or constitutional impediment to the imposition of such conditions. Such conditions merely regulate the exercise of the right of appeal so that the same is not abused by a recalcitrant party and there is no difficulty in the enforcement of the order appealed against in case the appeal is ultimately dismissed. It is open to the legislature to impose an accompanying liability upon a party upon whom a legal right is conferred or to prescribe conditions for the exercise of the right. Any requirement for the discharge of that liability or the fulfillment of that condition in case the party concerned seeks to avail of the said right is a valid piece of legislation and we can discern no contravention of article 14 in it”.
The aforesaid principle was once again stated, with a rider, by the Apex Court in AIR 1980 SC 2097 (Nand Lal and another Vs. State of Haryana)(A decision rendered by a bench of 5 Judges). The Apex Court had held at para 19 of the report as follows:
“It is well settled by several decisions of this Court that the right of appeal is a creature of a statute and there is no reason why the legislature while granting the right cannot impose conditions for the exercise of such right so long as the conditions are not onerous as to amount to unreasonable restrictions rendering the right almost illusory”.
Thus, the Supreme Court while upholding the general principle regarding the right of appeal being a statutory right and hence conditions can be imposed for exercising the right of appeal, had however, held that the conditions imposed must not be unreasonable rendering the right of appeal almost illusory. In the case before the court, the Apex Court specifically considered the question whether the conditions imposed for exercising the right of appeal was onerous or not, and finally upheld the validity of the provision after giving a specific finding that the conditions imposed were not onerous. The provision was upheld not because the legislature had the freedom to impose conditions for exercising the right of appeal but because the Court found that the conditions imposed were not unreasonable or onerous in nature.
In (1988) 72 STC 324 (SC); AIR 1988 SC 2010 (Vijay Prakash D. Mehta Vs. Collector of Customs [Preventive], Bombay), the Apex Court, while construing section 129A and 129E of the Customs Act, held that the right of appeal is neither an absolute nor an ingredient of natural justice the principles of which must be followed in all judicial and quasi-judicial adjudications. The right to appeal is a statutory right and it can be circumscribed by the conditions in the grant. It is important to note that under section 129E of the Customs Act, the Commissioner (Appeals) and the Tribunal had been specifically granted the power to dispense with the payment of predeposit pending appeal.
In AIR 1992 SC 2279 (Shyam Kishore and others Vs. Municipal Corporation of Delhi), the court specifically held that the Apex Court in AIR 1975 SC 1234 and AIR 1988 SC 2010 had no occasion to consider what the position would be if the conditions placed on the right of appeal were unduly onerous or such as to render the right of appeal totally illusory.
The principles stated in AIR 1980 SC 2097 was applied and kept in mind by the Apex Court while considering the validity of section 17(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 in 2004 (2) CTC 759 (Mardia Chemicals Ltd. Vs. Union of India). This principle was stated once again by the Apex Court in the decisions reported in 2007 (5) SCALE 452 (Dilip S. Dahanukar Vs. Kotak Mahindra Co. Ltd.,). A Full bench of the Madras High Court in the decision reported in (1996) 100 STC 1 (The State of Tamil Nadu Vs. E.P. Nawab Marakkadi) had taken the view that “the right of appeal is a creature of statute and it is governed by the conditions attached to it as long as those conditions are reasonable and valid.
In AIR 1999 SC 1818 (Gujarat Agro Industries Co. Ltd., Vs. The Muncipal Corporation of the city of Ahmedabad), the Apex Court, while laying down the general principle regarding the right of appeal, did not consider either the decision of the Apex Court in Nandlal’s case or the question whether the conditions are reasonable or not. The court simply held at para 10 that “any challenge to its constitutional validity on the ground that onerous conditions have been imposed and right to appeal has become illusory must be negatived”. The principle stated by a bench of 5 Judges has not been considered or applied by the bench of 2 Judges.
In (2008) 4 SCC 720 (Government of Andhra Pradesh Vs. Smt. Laxmi Devi). The Apex Court was considering the validity of section 47A of the Indian Stamp Act as amended by A.P.Act 8/98 which required the payment of 50% of the deficit stamp fees as a condition precedent for a reference to the Collector. The High Court had declared the provision to the unconstitutional. The decision of the High Court was reversed by the Apex Court. The Court held that the provision was aimed at plugging the loopholes for quick realization of stamp duty. The Court referred to the decisions reported in AIR 1999 SC 1818 (Gujarat Agro Industries Co. Ltd., Vs. The Muncipal Corporation of the city of Ahmedabad), AIR 1988 SC 2010 (Vijay Prakash D. Mehta Vs. Collector of Customs [Preventive], Bombay) and AIR 1975 SC 1234 (The Anant Mills Co. Ltd. Vs. The Muncipal Corporation of City of Ahmedabad) but not the decision of the Court rendered by a bench of 5 judges in AIR 1980 SC 2097 (Nand Lal and another Vs. State of Haryana. With respect, the court did not consider the question whether the conditions imposed for exercising the right of appeal/reference was reasonable or not. Of course, the Court held that the assessee can also file a writ petition under article 226 of the Constitution of India challenging the demand if the same was arbitrary.
How to determine whether the conditions imposed for exercising the right of appeal is reasonable or not? This is a very important question which offers no easy answer. In (1954) 5 STC 115 (Himmatlal Harilal Mehta Vs. The State of Madhya Pradesh), the court was considering the vires of Explanation II to section 2(g) of C.P. and Berar Sales Tax Act, 1947. One of the contentions raised was that writ was not maintainable in view of availability of alternative remedy. The court held that the remedy provided by the Act was of an onerous and burdensome character as before the appellant can avail of it, he is required to deposit the whole amount of tax. Identical principles has been stated in (1953) 4 STC 114 (Hoosein Kasam Dada [India] limited Vs. The State of Madhya Pradesh).
In today’s commercial world, the laws relating to revenue must be balanced without favoring the departmental authorities or the dealers. The laws imposing conditions regulating the right of appeal have been place for nearly a decade if not more. It is high time the Governments constitute a committee/panel of experts to find out whether such conditions have enriched the coffers of the Government or of the people working in the Government. The existing laws relating to recovery of tax, like attachment of bank accounts, movable and immovable properties, garnishee proceedings are sufficient enough to recover the arrears of tax from a defaulting dealer. The Government must see to that such provisions are promptly applied rather than putting conditions for exercising the right of appeal. Will such conditions not result in “killing the goose which lays the golden eggs”?
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