Court sets aside pre-deposit orders, allows petitions under Gujarat VAT Act. Remands for fresh consideration, grants stay on recovery.

The court allowed both petitions, setting aside the orders demanding pre-deposits for admitting Second Appeals under the Gujarat Value Added Tax Act, 2003. The court remanded the matters for fresh consideration, accepting the petitioners' residential property as security for the pre-deposit. Recovery of the demand raised in assessment orders was stayed pending the final appeal decision. The court stressed the importance of providing the petitioners with a fair opportunity to contest the disallowance of input tax credit on its merits.

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Issues Involved
1. Validity of the pre-deposit requirement for admitting Second Appeals under the Gujarat Value Added Tax Act, 2003.
2. Disallowance of input tax credit due to retrospective cancellation of the vendor's registration certificate.
3. Alleged violation of principles of natural justice in the assessment process.
4. Financial hardship and closure of business by the petitioners.

Detailed Analysis

1. Validity of the Pre-Deposit Requirement
The core issue in both petitions was whether the Gujarat Value Added Tax Tribunal's orders demanding pre-deposits for admitting Second Appeals were justified. The petitioners argued that the pre-deposit amounts were exorbitant and imposed undue financial hardship. The court observed that the petitioners had a strong prima facie case, referencing the decision in Shree Bhairav Metal Corporation v. State of Gujarat, which held that input tax credit (ITC) cannot be disallowed based on retrospective cancellation of the vendor's registration without giving the purchaser an opportunity to prove the genuineness of transactions.

2. Disallowance of Input Tax Credit
The petitioners contended that the disallowance of ITC was based solely on the retrospective cancellation of the registration certificate of their vendor, M/s H.L. Enterprise, without any allegations or proof of non-genuine transactions. They cited Section 11(5)(mmmm) of the Gujarat Value Added Tax Act, 2003, and relevant case law, including State of Maharashtra v. Suresh Trading Company and Meet Traders v. State of Gujarat, to argue that ITC should not be disallowed retrospectively. The court agreed, noting that the disallowance was not substantiated by evidence of non-genuine transactions and was thus in breach of principles of natural justice.

3. Violation of Principles of Natural Justice
The petitioners argued that the assessment orders violated principles of natural justice as they were not provided with a copy of the order cancelling the vendor's registration certificate, nor were they given an opportunity to rebut the adverse allegations. The court found merit in this argument, referencing Shree Bhairav Metal Corporation and other similar judgments, and concluded that the assessment orders were unsustainable due to procedural lapses.

4. Financial Hardship and Closure of Business
The petitioners highlighted their financial hardship and the closure of their business, arguing that they could not afford the pre-deposit amounts. They proposed offering the residential property of one of the partners as security instead. The court considered this proposal reasonable, given the petitioners' financial condition and the strong prima facie case. It directed that the residential property be treated as security towards the pre-deposit for admitting the appeals and staying recovery until the final disposal of the appeals.

Conclusion
The court allowed both petitions, setting aside the impugned orders demanding pre-deposits. It remanded the matters to the first appellate authority to decide afresh, treating the petitioners' residential property as security for the pre-deposit. The recovery of the demand raised under the assessment orders was stayed until the final decision of the appeals. The court emphasized that the petitioners should be given a fair opportunity to contest the disallowance of ITC on merits.

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