2024 (2) TMI 662 - HC - VAT and Sales Tax

HC waives 30% pre-deposit requirement under Section 63(4) KVAT Act for insolvent holding company

The Karnataka HC waived the 30% pre-deposit requirement under Section 63(4) of KVAT Act for a holding company undergoing corporate insolvency resolution ... Waiver of pre-deposit condition or grant right to appeal subject to a part-deposit or security - usage/lease rental charges are not being paid by the aforesaid holding company i.e., WWIL, which is now before the National Company Law Appellate Tribunal - Section 63(4) of KVAT Act - HELD THAT:- The judgments in Hare Krishna Enterprises Vs. State of Karnataka and others [2023 (3) TMI 1458 - KARNATAKA HIGH COURT] and Bharat Electronics Ltd Vs. State of Karnataka and others [2016 (4) TMI 609 - KARNATAKA HIGH COURT] will clearly indicate that it cannot be said that this Court while exercising its power under Article 226 of the Constitution of India is powerless either to reduce the quantity of pre-deposit or to waive it completely depending on the facts obtaining in the specific cases. Insofar as the judgments relied upon by learned HCGP is concerned, the same were rendered in the facts and circumstances obtaining in the said case and no ratio, much less any principle of law is laid down to the effect that this Court does not have powers / jurisdiction under Article 226 of the Constitution of India to waive / reduce the pre-deposit. Depending on the peculiar / special facts and circumstances of a case, it is always open for this Court to waive / reduce, etc., the pre-deposit condition prescribed under Section 63 (4) of the KVAT Act, especially in the light of the judgment of this Court in Hare Krishna Enterprises’ case and Bharat Earth Movers Limited - In the instant case, the material on record discloses that the petitioner has not earned any revenue for over five years and being a holding company, petitioner is also undergoing corporate insolvency resolution process / proceedings. Further, moratorium has been declared as long back as on 20.02.2018 and there is complete and total financial instability insofar as the petitioner is concerned as is clear from the financial statements produced by the petitioner, which is sufficient to come to the conclusion that the petitioner is not in a position to pay any amount for the purpose of maintaining the appeal, much less pre-deposit of 30% as required under Section 63(4) of the KVAT Act. The cumulative effect of the facts and circumstances narrated and the judgments of this Court in BEML’s case and Hare krishna Enterprises case is sufficient to come to the conclusion that in the peculiar / special facts and circumstances obtaining in the case on hand including the financial distress and inability on the part of the petitioner to make payment of 30% pre-deposit. Petitioner is permitted to maintain and prosecute Sales Tax Appeal No. 400/2018 before the Karnataka Appellate Tribunal, Bengaluru, which is hereby directed to entertain the appeal and pass appropriate orders on merits without insisting for payment of 30% pre-deposit, in accordance with law, as expeditiously as possible - Petition allowed. Issues Involved:1. Nature of sub-stations/switchyards under KVAT Act.2. Non-payment of usage/lease rental charges by holding company.3. Financial hardship and inability to pay pre-deposit.4. Jurisdiction of the Court under Article 226 to waive/reduce pre-deposit.Summary:1. Nature of sub-stations/switchyards under KVAT Act:The petitioner, an infrastructure company, contended that the respondent erroneously classified sub-stations/switchyards as movable property under Section 39(1) of the Karnataka Value Added Tax Act (KVAT Act), thus requiring the petitioner to discharge tax for the 'transfer of right to use goods'. The First Appellate Authority upheld this order, leading the petitioner to appeal before the Karnataka Appellate Tribunal.2. Non-payment of usage/lease rental charges by holding company:The petitioner highlighted that its holding company, WWIL, has not paid usage/lease rental charges due to ongoing corporate insolvency resolution proceedings before the National Company Law Appellate Tribunal (NCLAT). This non-payment has resulted in significant financial hardship for the petitioner, including a negative reserve of Rs. 454 crores and classification as a non-performing asset (NPA).3. Financial hardship and inability to pay pre-deposit:The petitioner argued that it could not pay the 30% pre-deposit required under Section 63(4) of the KVAT Act to prosecute its appeal due to its financial instability. The petitioner sought a waiver or reduction of this pre-deposit, citing several judgments where courts have exercised discretion to waive or reduce pre-deposit requirements in cases of financial hardship.4. Jurisdiction of the Court under Article 226 to waive/reduce pre-deposit:The Court acknowledged that under Article 226 of the Constitution of India, it has the jurisdiction to waive or reduce the pre-deposit requirement in rare and exceptional cases. The Court referred to various judgments, including those of the Delhi High Court and Karnataka High Court, which supported the exercise of such discretion based on the specific facts and circumstances of each case.Judgment:The Court concluded that due to the petitioner's financial distress and inability to make the 30% pre-deposit, the petition deserved to be allowed. The Karnataka Appellate Tribunal was directed to entertain and dispose of the Sales Tax Appeal No. 400/2018 on merits without insisting on the 30% pre-deposit. The order was made clear to be specific to the peculiar facts and circumstances of this case and not to be treated as a precedent.