Supreme Court Restores VAT Appeal, Holds No Fresh Pre-Deposit Needed Where Earlier Deposit Meets 12.5% Requirement

The Supreme Court has held that the appeal filed by Telangana State Cooperative Marketing Federation Limited against a reassessment order could not be rejected for non-payment of statutory pre-deposit, as the amount already deposited by it in the earlier round of litigation exceeded the 12.5% requirement under the Telangana Value Added Tax Act.

A Bench of Justice Manoj Misra and Justice Ujjal Bhuyan restored the Federation's VAT appeal before the appellate authority, holding that the statutory requirement stood satisfied.

The case arose after the assessing authority disallowed the Input Tax Credit (ITC) of Rs.2.08 crore claimed by the Federation for the period October 2005 to March 2007. Its first appeal was dismissed, but the Telangana VAT Appellate Tribunal, in 2016, remanded the matter for fresh consideration.

Pursuant to the remand, a fresh assessment order dated September 3, 2019 again disallowed ITC of Rs.1.62 crore. The Federation challenged this reassessment before the appellate authority.

In the earlier round of litigation before the Tribunal, the Federation had deposited Rs.81.44 lakh, amounting to 50% of the difference of the tax assessed. This amount was adjusted by the assessing authority against the fresh demand raised under the reassessment order.

However, the appellate authority refused to entertain the appeal against the reassessment order on the ground that the Federation had not made a fresh pre-deposit of 12.5% of the disputed tax, as required under Section 31(1) of the Telangana Value Added Tax Act, 2005. The High Court dismissed the challenge and upheld the rejection of the appeal.

Before the Supreme Court, the Federation contended that the statutory requirement of pre-deposit stood satisfied since the amount deposited in the earlier round itself exceeded 12.5% of the disputed tax in the reassessment.

Accepting the contention, the Court noted that the Federation had disputed the entire tax liability and that the amount already deposited was more than sufficient to meet the statutory threshold.

The court observed:

“In such circumstances, when the appellant disputes the liability to pay the entire difference of tax, and the amount deposited by the appellant already exceeds 12.5% of the difference amount, in our view, the requirement of the second proviso was met and the appeal was not liable to be thrown out for non-compliance of the proviso (2) of Section 31(1) of the Act.”

The bench held that the earlier deposit, made to maintain the initial appeal, would continue to be available for maintaining the appeal against the fresh assessment order passed pursuant to remand and that the High Court erred in holding otherwise.

Setting aside the Telangana High Court judgment, the Court restored the statutory appeal to the file of the appellate authority for a decision on merits.

On the issue of penalty arising from the reassessment, the Court quashed the penalty proceedings, but left it open to the authorities to impose penalty afresh depending on the outcome of the appeal.

For Petitioner: AOR Prasanna S., Advocates. Injila Muslim Zaidi, Adv, Maamidi Ashish Reddy, Apoorva Singh,Prasanna

For Respondent: AOR Devina Sehga, Advocate Yatharth Kansal.