GST Appeal Is Not From 'Caesar To Caesar's Wife': Rajasthan High Court Directs Taxpayer To Avail Statutory Remedy

The Rajasthan High Court has held that a taxpayer cannot bypass the statutory GST appellate remedy merely on the apprehension that the appellate authority would decide the matter mechanically, observing that an appeal under Section 107 is not an appeal from “Caesar to Caesar's wife”.

The court made the observation while declining to entertain Astemo India Private Limited's challenge to a GST demand of ₹11.19 crore arising from the secondment of Japanese employees.

A Division Bench of Justice Arun Monga and Justice Ashutosh Kumar observed that a writ court cannot assume that a statutory authority would act unlawfully.

It emphasised that the appellate authority under Section 107 is a separate authority, which is required to give reasons for its decision under Section 107(12), and whose order can be further challenged before the GST Appellate Tribunal under Section 112.

"The fear that the appellate authority will not apply its mind is speculative. A writ court cannot assume that a statutory authority will act unlawfully. The appeal under Section 107 is not an appeal from Caesar to Caesar's wife. It lies to a separate authority. That authority must give reasons under Section 107(12). Its order is open to a further appeal before the Tribunal under Section 112", it said.

It observed that if the appellate authority were to decide the matter mechanically, the remedy would lie within the statutory appellate hierarchy.

"...A substantial question of law can then come to this Court under Section 117. If the appellate authority were to decide mechanically, the remedy lies within that very hierarchy. The hierarchy is complete and effective", it said.

The dispute arose from the secondment of Japanese expatriate employees by the overseas group company to Astemo India, a subsidiary of Japan-based Hitachi Astemo Limited.

The Department treated the arrangement as an import of manpower supply services and raised a demand under the reverse charge mechanism for the period July 2017 to March 2023.

The adjudicating authority confirmed IGST of ₹11,19,39,126, denied input tax credit of ₹5,23,25,805, imposed an equal penalty of ₹11,19,39,126 and directed payment of interest.

Astemo India contended that the seconded employees were its own employees and that their services were covered by Entry 1 of Schedule III of the CGST Act, which excludes services by an employee to an employer from the scope of supply.

It submitted that the employees had entered into separate employment contracts with the Indian entity and that tax was deducted at source under Section 192 of the Income Tax Act on their entire salary.

The Department, however, maintained that the overseas company was supplying manpower services to the Indian entity and relied upon the Supreme Court's decision in Northern Operating Systems.

The High Court observed that determining the true nature of a secondment arrangement requires examination of the overall agreement and actual conduct of the parties, including who selected the employees, who paid them, who ultimately bore the salary costs and who exercised control over their work.

The Court held that such factual disputes could not appropriately be resolved by the High Court in writ proceedings on the basis of affidavits and selected documents. The statutory authorities were better equipped to examine the evidence and return findings on these issues.

The Bench also rejected the argument that the proceedings were vitiated because the same officer had issued the show cause notice and passed the adjudication order.

"There is also a difference between a tentative view and a closed mind. An officer who issues a notice forms only a prima facie view. The notice says so in its very name. It calls upon the noticee to show cause. Forming such a view is not prejudgment. It is what the statute requires before any person is called upon to answer. The question is whether the officer kept his mind open to the reply. That is tested by reading the final order, which is exactly what an appellate authority does", it said.

It observed that Sections 74(1) and 74(9) of the CGST Act contemplate the proper officer issuing the notice and thereafter determining the tax, interest and penalty. In the absence of any allegation of personal interest or malice, this alone would not establish bias.

The court reiterated that the CGST Act provides an effective appellate mechanism under which the appellate authority can undertake further inquiry and confirm, modify, or annul the adjudication order. The GST Appellate Tribunal is the final forum for determination of facts, while an appeal to the High Court under Section 117 lies on a substantial question of law.

While declining to entertain the writ petition, the court permitted Astemo India to file an appeal under Section 107 of the CGST Act and the RGST Act against the Order-in-Original.

It directed that an appeal filed within this period shall not be rejected on the ground of limitation and that the time spent in pursuing the writ petition shall be excluded while computing the limitation period.

The court further directed that no coercive steps be taken for recovery of the impugned demand during the 30-day period granted for filing the appeal.

For Petitioner: Senior Advocate Surjit Ghosh, assisted by Advocates Mannat Warich, Jaya Rishi, Harshal Tholia, Vidhi Maheshwari and Monika Paneri.

For Respondent: Advocate Vedant Agarwal, assisted by Advocates Mahi Yadav and Chelsi Agarwal.