Since its inception in 2017, India’s Goods and Services Tax (GST) system has seen numerous changes aimed at improving tax administration and compliance. However, a significant issue has arisen due to delays in establishing the Goods and Services Tax Appellate Tribunal (GSTAT): the mandatory 20% pre-deposit requirement for appealing tax orders. This provision has sparked debate over whether it imposes an unjust financial burden on taxpayers.
Key Points of Concern
1. Legal Framework for Appeals and Pre-Deposit:
Under Section 112 of the Central Goods and Services Tax Act, 2017 (CGST Act), taxpayers have the right to appeal against orders issued by the appellate authority within three months of communication. To file this appeal, they must pay 20% of the disputed tax amount as a pre-deposit. This payment is supposed to stay the recovery of the remaining amount until the appeal is resolved. However, with the GSTAT not yet operational, taxpayers face considerable difficulties.
2. Delay in GSTAT Constitution:
Justice (Retd.) Sanjay Kumar Mishra took office as the GSTAT President on May 6, 2024. Although the GSTAT is expected to start on September 1, 2024, the Finance Bill 2024 proposes an amendment to Section 112, extending the appeal period to three months from either the communication date or a government-notified date, whichever is later. This amendment aims to address delays and adjust the timeframe for filing appeals.
3. Circular No.224/18/2024-GST and Its Implications:
The CBIC’s Circular No.224/18/2024-GST, dated July 11, 2024, introduces a procedure requiring taxpayers to pay the 20% pre-deposit and submit an undertaking to stay recovery proceedings. Critics argue that this Circular imposes pre-deposit requirements before the appeal period has even begun, placing an additional burden on taxpayers.
Critical Analysis
**1. Unjust Financial Burden on Taxpayers:
The mandatory 20% pre-deposit requirement, before the GSTAT is functional, creates an undue financial strain on taxpayers. This policy forces them to make substantial payments without the option to appeal, exacerbating their financial difficulties.
**2. Potential Overreach of Executive Authority:
The Circular’s stipulation that failure to pay the pre-deposit will be seen as a lack of intention to appeal seems to exceed the provisions of Section 112. This could lead to premature recovery actions, infringing on taxpayers’ statutory rights and creating further legal and financial challenges.
**3. Judicial Precedents and Legal Principles:
Past judicial decisions, such as the Bombay High Court’s ruling in UTI Mutual Fund v. ITO and the Punjab and Haryana High Court’s decision in PML Industries Ltd. v. CCE, emphasize that recovery proceedings should not commence before the appeal period expires. These rulings underscore the principle that taxpayers should have the opportunity to appeal without facing premature recovery actions.
**4. Administrative and Legal Remedies:
Given the legal framework and precedents, the Circular’s provisions may be subject to legal challenge. Taxpayers could contest the Circular’s validity before a High Court, arguing that the premature pre-deposit requirement and subsequent recovery actions violate principles of natural justice and fairness.
Conclusion
The imposition of a 20% pre-deposit requirement in the absence of a functioning GSTAT raises significant concerns about fairness and taxpayer burden. While intended to streamline procedures, the Circular’s enforcement of pre-deposit before the appeal period begins may be deemed unjust and legally problematic. Until the GSTAT is fully operational, the government should reconsider these requirements to ensure fairness and procedural integrity for taxpayers. Legal challenges to the Circular could be essential to protect taxpayer rights and uphold established judicial principles.
