On 7th October 2020, a Division Bench of the Delhi HC including Hon’ble Justice Sanjeev Narula and Hon’ble Justice Manmohan heard the case of M/S. Ikea Trading (India) Pvt Ltd v. Commissioner of Trade and Tax via video conferencing.
By way of this appeal under Section 81 of the Delhi Value Added Tax Act, 2004, the Appellant was seeking interference of the Court in respect of the Stay Order passed by the Delhi VAT Appellate Tribunal whereby the Appellant had been directed to deposit 10% of the disputed tax demand and interest along with 5% of the disputed tax involved in the appeal pending before it, for the year 2008-09.
Facts of the Case
The Appellant was engaged in local procurement and export of home furnishing products like carpets, dhurries, fabrics, plastic articles, lamps, soft toys, etc. It was conferred the status of a 4-Star Export House by the Government of India and had obtained registration under the Delhi VAT Act, 2004 to meet its statutory compliances.
During the disputed period, the Appellant purchased products from several domestic vendors situated outside the State of Delhi against Form H in terms of Section 5(3) and 5(4) of the Central Sales Tax Act, 1956 and exported the same to its group companies outside India. All such sales and purchases were outside the tax net in terms of Section 6(1) of the Central Sales Tax Act, 1956. However, the Value Added Tax Officer (VATO), Export-Import Cell, Department of Trade and Taxes, Govt. of NCT of Delhi, being the Assessing Authority, issued default assessment notices dated 14.09.2012, for tax, interest and penalty for the disputed period.
Contentions of the Appellant
Mr Sahu, learned senior counsel for the Appellant, contended that the Appellant had a strong prima facie case in its favour. He urged that it could be easily demonstrated that the demand raised in the assessment proceedings is wholly misconceived and unsustainable in law.
Mr Sahu next submitted that the VATO had wrongly imposed on the tax deficiency determined by him. The penalty under taxation law can be imposed only when the assessee has deliberately concealed material particulars to defraud the revenue, which cannot be delineated in the present case.
Mr Sahu contended that since the Appellant had a strong prima facie case and the demanded amount was ex-facie liable to be set-aside in the appeal, insistence on pre-deposit was unjust and inequitable.
Contentions of the Respondent
Mr Ramesh Singh, learned standing counsel appearing on behalf of the respondent, contended that the impugned order was well-reasoned and equitable and called for no interference. He stressed that pre-deposit provisions were to be interpreted strictly based on their wording. He placed reliance on the case of State of Haryana v. Maruti Udyog & Ors, (2000) 7 SCC 348 in support of his argument.
Mr Singh further argued that the proviso in question did not use the terms ‘hardship’ or ‘undue hardship’ caused to the Appellant, which indicated that the merits of the dispute were not relevant. He placed reliance on the case of Bongaigaon Refinery and Petrochem Ltd. v. Collector of Central Excise, 1994 (69) ELT 193 in support of his contention.
He further submitted that even assuming the assessee had a good prima facie case, the same was not a sufficient justification for granting an order of dispensation of pre-deposit, as there was no balance of convenience in favour of the assessee.
Court’s Analysis
The Court referred to ITO v. M.K. Mohammed Kunhi, [1969] 71 ITR 815 (SC), in the context of Income Tax proceedings, which held that the Appellate Tribunal should stay the recovery of tax, where a strong prima facie case is shown.
The Court opined that if a Tribunal finds that there is a very strong prima facie case made out in its favour should the Tribunal consider whether to grant a stay and dispense with the pre-deposit in terms of Section 76(4) of the Delhi Value Added Tax Act, 2004 which reads as:
“No appeal against an assessment shall be entertained by the Appellate Tribunal unless the appeal is accompanied by satisfactory proof of the payment of the amount in dispute and any other amount assessed as due from the person”.
The Tribunal should also be mindful of the consequences that would follow from an order that required the Assessee to deposit the whole or part of the demanded amount.
Court’s Decision
The appeal was allowed and the impugned order was set aside. The Tribunal should decide the application under Section 76(4) of the Act afresh after affording the opportunity to both the parties for hearing. The tribunal should also examine the question of the financial hardship of the Appellant.
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