RAJAT ENTERPRISE vs. STATE OF GUJARAT

C/TAXAP/1184/2018 ORDER DATED: 04/08/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 1184 of 2018 With R/TAX APPEAL NO. 1185 of 2018 ========================================================== RAJAT ENTERPRISE Versus STATE OF GUJARAT ========================================================== Appearance: MR AJAY R MEHTA(8390) for the Appellant(s) No. 1 MR TRUPESH KATHIRIA, AGP for the Opponent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA

Date : 04/08/2022

ORAL ORDER (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.These tax appeals are filed by the assessee challenging two separate orders dated 12.03.2018 passed by Gujarat Value Added Tax Tribunal (For short “the Tribunal”) dismissing the Second Appeals filed by the appellant for want of pre-deposit. 2.For the years 2010-11 and 2011-12, the Page 1 of 12

C/TAXAP/1184/2018 ORDER DATED: 04/08/2022 Assessing Officer passed an order of assessment raising principal tax demand of Rs.38,52,347/-

and

Rs.29,161,30/- respectively under orders dated 28.03.2015 and 28.03.2016 respectively. 3.Aggrieved by the orders, the appellant preferred two appeals before the Appellate Commissioner. He asked the appellant to deposit 20% of the tax by way of pre-deposit, only upon which the appeals would be heard on merits. Since the appellant could not do so, the appeals were dismissed upon which the appellant approached the Tribunal by filing two separate Second Appeals. 4.The Tribunal imposed the condition to pre- deposit the amounts of Rs.8 Lakhs and Rs.6 Lakhs respectively so as to entertain appeals. Since the appellant did not fulfill the condition, both the appeals came to be Page 2 of 12

C/TAXAP/1184/2018 ORDER DATED: 04/08/2022 dismissed only on this ground. 5.Learned advocate Mr. Ajay Mehta for the appellant submitted that the Assessing Officer has made addition only on the ground that registration of the selling dealers were cancelled ab-initio and input tax in relation to such purchases was therefore, denied to the appellant. 6.It was submitted that the registration of the selling dealers were valid when the appellant made purchases and subsequent cancellation retrospectively would not deprive the appellant to avail input tax credit in relation

such

purchases,

more particularly, when the cancellation order of registration of the selling dealers were not supplied by the authority and thereby without providing sufficient opportunity, assessments were completed. Page 3 of 12

C/TAXAP/1184/2018 ORDER DATED: 04/08/2022 7.It was submitted that the appellant who is engaged in the business of reselling of cotton bales was not permitted to avail the benefit of input tax credit by a non speaking order on the aforesaid ground. 8.The appellant therefore, challenged the assessment orders before the appellate authority who imposed the condition of pre- deposit which the appellant could not comply and therefore, First Appeals were also summarily dismissed. It was submitted that the appellant therefore, preferred Second Appeal before the Tribunal which was also dismissed. 9.Learned advocate Mr. Mehta submitted that a prayer was made before the Tribunal to stay the recovery proceedings by admitting the appeal without any pre-deposit. The Tribunal Page 4 of 12

C/TAXAP/1184/2018 ORDER DATED: 04/08/2022 however, considering the submissions of both the sides directed the appellant to deposit Rs. 6,00,000/- against demand of Rs. 29,16,143/- within one month in Second Appeal No.1109/2017 relating to Tax Appeal No.1184/2018 and Rs. 8,00,000/- against tax demand of Rs.38,52,347/- within one month in Second Appeal No.1108/2017 relating to Tax Appeal No. 1185/2018 from the date of order dated 02.02.2018. 10. It was submitted that as the appellant could not deposit the aforesaid amount, both the Second Appeals were ordered to be dismissed. The appellant therefore, has preferred these Tax Appeals. 11. Learned advocate Mr. Ajay Mehta submitted that this Court by order dated 25.10.2018 dismissed both the Tax Appeals considering the decision in case of Madhav Page 5 of 12

C/TAXAP/1184/2018 ORDER DATED: 04/08/2022 Steel Corporation v. State of Gujarat dated 12.12.2013 rendered in Tax Appeal No.742/2013 by observing as under: “5. We may recall the issues before us, which only relate to the question of pre- deposit, pending appeals. In the context of requirement of pre-deposit, the Courts examine undue hardship, which would have both

the

elements

financial difficulties as well as strong prima facie case. Nevertheless

threadbare

minute examination of merits and demerits of the case would not be called for. 6. Broadly stated, the case of the department is that the selling dealers from where the appellant had made purchases were involved in billing activities

due

which

their registrations were cancelled from initial stage. This is a ground on which the Assessing Officer desired to disallow the input tax credit on the assesse’s purchase from such dealers. Prima faice, it appears that the assessee was also put to notice about such proposal. It was in this context that the assessee had represented to the Assessing Officer during the course of the assessment under the communication dated 05.03.2016 taking a stand that mere cancellation of registration of the dealers with backdate would not be sufficient to disallow the tax credit. 7. The question of disallowing the tax Page 6 of 12

C/TAXAP/1184/2018 ORDER DATED: 04/08/2022 credit on cancellation of registration of the dealers with backdate has been examined at length in case of Madhav Steel Corporation (Supra). Certain observations have been made and parameters have been laid down, when and under

what

circumstances

such disallowance can be made and under what circumstances the dealer can still avoid such consequences despite cancellation of selling dealers. At this stage, it is not proper on our part to examine the merits of the disallowance in the present cases. Briefly put, we do not see any reason for reducing the pre-deposit requirement imposed by the Tribunal. 8. Under the circumstances, Tax Appeals are dismissed. However, if the appellant fulfills the pre-deposit requirement, as imposed by the Tribunal, for the said two Assessment Years, latest by 31.12.2018, the Second Appeals would stand restored and the Appellate Commissioner will hear the Appeals on merits.” 12.

The appellant thereafter preferred Misc. Civil Applications for review in both the appeals and this Court by order dated 18.07.2022 allowed the review application and the judgment and order dated 25.10.2018 was recalled considering the overall facts and circumstances to examine the contentions Page 7 of 12

C/TAXAP/1184/2018 ORDER DATED: 04/08/2022 raised by the appellant. 13. Learned advocate Mr. Ajay Mehta for the appellant submitted that without entering into the controversy with regard as to whether the Tribunal has examined prima facie case and undue hardship to the appellant, the appellant is ready to deposit Rs.3,00,000/- in Tax Appeal No.1184/2018 and Rs.5,00,000/- in Tax Appeal No.1185/2018 relating to Second Appeal No. 1109/2017 and Second Appeal No. 1108/2017 respectively and further submitted that the matter may be remanded to the first Appellate Authority to consider the appeals preferred by the appellant challenging the order passed by the Assessing Officer on merits. 14. On the other hand, learned Assistant Government Pleader Mr. Trupesh Kathiria for the respondent State submitted that the Page 8 of 12

C/TAXAP/1184/2018 ORDER DATED: 04/08/2022 Tribunal has already passed the order of depositing of Rs. 6,00,000/- and Rs. 8,00,000/- in the year 2018 which was not complied by the appellant and even the Tax Appeals were also dismissed by this Court giving cogent reasons by not reducing the amount of pre-deposit determined by the Tribunal as the Tribunal exercised its discretion for pre-deposit in the facts and circumstances of the case. 15. Considering the submissions made by both the sides and also the prima facie case canvassed by the appellant which is apparently not considered by the Tribunal while exercising the discretion for determining the amount of pre-deposit to be made for entertaining the appeal under section 73 of the Gujarat Value Added Tax Act,2003, we are of the opinion that for the following reasons, the submissions of learned Page 9 of 12

C/TAXAP/1184/2018 ORDER DATED: 04/08/2022 advocate Mr. Mehta deserves to be accepted in peculiar facts of the case. (i) It appears that the Appellate Commissioner asked the appellant to deposit 20% of tax by way of pre-deposit which was reduced by the Tribunal to Rs. 6,00,000/- and Rs. 8,00,000/- for both the appeals. (ii) The first Appellate Authority or the Tribunal

while

exercising

discretion requiring the appellant to deposit 20% of the tax amount as pre-deposit or the aforesaid amount, did not consider the prima facie case of the appellant. (iii) Prima facie case of the appellant that the input tax credit could not have been automatically denied simply on the ground that the purchases have been made from the dealers whose registration is cancelled ab- Page 10 of 12

C/TAXAP/1184/2018 ORDER DATED: 04/08/2022 initio if the date of purchase precedes the date of cancellation, requires to be taken into consideration. 16. Therefore, without going into the merits of the case and considering the prima facie case of the appellant, both the appeals are disposed of by directing the appellant to deposit Rs.3,00,000/- in Tax Appeal No.1184/2018 and Rs.5,00,000/- in Tax Appeal No.1185/2018 before the respondent authority within a period of six weeks from the date of receipt of this order and the matter is remanded back to the Appellate Commissioner to decide the appeals filed by the appellant on merits on depositing the aforesaid amount by the appellant. 17. It is clarified that this Court has not gone into the merits of the issues as canvassed by the appellant and the Appellate Page 11 of 12

C/TAXAP/1184/2018 ORDER DATED: 04/08/2022 Commissioner is to decide the appeals on merits in accordance with law within a period of 8 weeks from the date of deposit which may be made by the appellant with the respondent authority. 18. Both the appeals are accordingly disposed of.

(N.V.ANJARIA, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 12 of 12