Voluntary Deposit Under Section 73(5) Can Be Considered As Mandatory Pre-deposit For Filing An Appeal

Facts of the Case: –

• The Petitioner is carrying on business of bullion trading in the name of Chamunda Bullion. As stated by the petitioner, on 19th April 2022 Respondent No. 3 had blocked the amount of Input Tax Credit (ITC) lying in the electronic credit ledger. During the course of the search, a statement of the Petitioner was recorded and the Petitioner deposited under protest a sum of Rs. 1 Crore on 25th April 2022 and 26th April 2022.
• A show cause notice was issued to the petitioner and later an Order-in-Original dated 29^th August, 2022 was passed raising a tax demand of Rs. 7,32,73,629/- against the Petitioner for the period 2021-22.
• Being aggrieved of the said order, the Petitioner filed an appeal against the said order and requested the Appellate-Authority to adjust the sum of Rs. 1 Crore deposited under protest on 25^th April 2022 and 26^th April 2022 as a pre-deposit for the appeal proposed to be filed. However, the request of adjustment towards the pre-deposit under Section 107(6) to file an appeal came to be rejected by the Appellate Authority.
• The Petitioner being aggrieved by the said Appellate order has moved the interim application in this petition praying for a direction to the Respondents to consider the deposit of Rs. 1 Crore as sufficient compliance of Section 107(6) of the CGST/MGST Act and for a further direction to accept the appeal filed by the Applicant/Petitioner.

Petitioner’s Contention: –

• It was submitted on the behalf of the petitioner that the sum of Rs. 1 Crore was paid “under protest” without their being any demand on the day when the deposit was so made and the respondents are not justified in retaining the same. Moreover, the respondents are demanding a sum equal to 10% as pre-deposit for filing an appeal without adjusting the said deposit.
• On the behalf of the petitioner, reliance was placed on the decision of Vinod Metal Vs. State of Maharashtra (2023) 9 Centax 178 (Bom.), to submit that in an identical fact situation, this Court has held that the deposit made ‘under protest’ should be considered as pre-deposit under Section 107(6) of the CGST Act.
• With respect to blocking of credit, it was submitted that the period of one year under Section 83 has expired and, therefore, by operation of law, the said blocking ceases to have effect as per Section 83(2) of the CGST/MGST Act.

Respondents’ Contentions: –

• On the other side, it was submitted on the behalf of the respondents that the amount of deposit of Rs. 1 Crore under protest is a voluntary deposit and, therefore, the same cannot be permitted to be treated as pre-deposit under Section 107(6) of the CGST/MGST Act.
• That the deposit was made voluntarily and the order sought to be challenged in appeal is under Section 74 and, therefore, the decision in the case of Vinod Metal (supra) is not applicable.
• With respect to blocking of credit, it was submitted that that they have not blocked the credit and, therefore, the prayer made by the Petitioner is misconceived.

Held: –

• The Hon’ble Court after considering the submissions made, facts of the case and the provisions of the law applicable, found that Insofar as the deposit of Rs. 1 Crore on 25th April 2022 and 26th April 2022 is concerned, the said deposit has been made “under protest” as evident from the challans.
• There was no demand against the petitioner on the date of deposit and therefore, the retention of the said amount by the Respondents is without authority of law. As the Respondents can retain only that amount which is against the demand raised and admittedly on the date of the deposit, there was no such demand.
• Subsequently, an Order in Original 29th August 2022 was passed raising demand against the petitioner. The Petitioner while filing the appeal against the said order, requested the Appellate-Authority to adjust the said sum of Rs. 1 Crore as compliance under Section 107(6) of the CGST/MGST Act.
• With the above observations, it was the opinion of the Hon’ble Court that the prayer made for adjustment as pre-deposit for maintainability of appeal by the Petitioner is justified and same is squarely covered by the decision of this Bench in the case of Vinod Metal (supra), wherein in a similar situation, this Court has observed that voluntary deposit made “under protest” cannot be excluded from considering it as a part of pre-deposit for filing an appeal before the Appellate Authority.
• The Hon’ble Court considering the submissions made on the behalf of the respondents that ‘In this case the order was passed under Section 74, however, in the case of Vinod Metals, the order was passed under Section 73(5), found that the issue before us is not that under which section the deposit order was passed, but as to whether a deposit made “under protest” without their being any demand can be retained and whether the request of the Petitioner to treat such amount as a pre-deposit for the purpose of Section 107(6) of the CGST/MGST Act needs to be granted. And in our view, the said issue is squarely covered by the decision in the case of Vinod Metal (supra).
• It was found by the Hon’ble Court that there is much substance in the contentions raised on the behalf of the Petitioner. There cannot be two opinions, that any procedural rule or technical requirement cannot defeat the availability of a remedy of an appeal, made available to the assessee under a substantive statutory provision nor can such remedy be rendered illusory. When it comes to right of an appeal, as guaranteed by a statutory provision, such right needs to be made effective and meaningful. It cannot be frustrated by shackles of complex procedural formalities.
• It was found that the Petitioner in the present case, in no manner disputing that the Petitioner is required to comply with the provisions of sub-section (7) of Section 107 of the CGST Act, in filing the appeal. However, the question raised by the Petitioner is that for fulfilment of such condition, the amount of tax, which is voluntarily deposited by the Petitioner, under protest under sub-section (5) of section 73 of the CGST Act, permitted to be considered for the purposes of a pre-deposit for compliance of sub-section (6) of section 107 of the CGST Act.
• The Hon’ble Court was of the opinion that such request for the Petitioner is not something, which is opposed to law, inasmuch as, on a holistic reading of section 73 of the CGST Act, it can be said that an amount deposited under sub-section (5) section 73 of the CGST Act is not an amount, which is deposited in pursuance of any demand or any assessment order.
• The amount deposited is certainly a voluntary deposit and which is subject to all the contentions of the assessee. Also, such deposit would be accounted in the event of any the liability of the assessee to pay tax, and would be integral to the assessment. Thus, when it comes to the compliance of sub-section (6) of section 107 of the CGST Act, namely, the mandatory payment of the tax, being a condition precedent, in terms of the section 107 of the CGST Act, in our opinion the principle as laid down in Supreme Court in VVF (India) Ltd. (supra) would become applicable considering that the provisions of the CGST Act on pre-deposit are not too different from the provisions of the MVAT act, which fell for consideration of the Supreme Court.”
• With respect to blocking of input tax credit, it was found that the respondents have stated that they have not blocked the input tax credit and, therefore, the issue does not arise for our consideration in the light of the said statement made by the Respondents. In any view of the matter, the input tax credit is contended to have been blocked on 19th April 2022 and the period of one year expires on 19th April 2023, hence, by operation of law as per Section 83(2) of the CGST/MGST Act, the said attachment ceases to exists.

The Hon’ble Court with the above findings and observations, disposed of the writ petition with the direction to Respondent to consider the sum of Rs. 1 Crore as pre-deposit for the purpose of Section 107(6) of the CGST/MGST Act and the appeal be decided on merits.  Further, the input tax credit alleged to have been blocked vide order dated 19^th April 2022 stands defreezed by operation of law.  The Appellate-Authority shall decide the appeal filed by the Petitioner within a period of four months from the date of uploading of the present order.

To read the complete judgment 2023 Taxo.online 1411