2025 (7) TMI 1130 - HC - GST

Appellate Authority cannot dismiss appeal without notice when petitioner uses ITC for Section 107(6) pre-deposit requirement

Navnit Motors Pvt. Ltd. Versus Commissioner of CGST & Central Excise, (Appeals-III), Mumbai & Anr.

The Bombay HC set aside the Appellate Authority's order dismissing petitioner's appeal for non-compliance with Section 107(6) CGST Act's pre-deposit ... Utilization of ITC for making pre-depsoit - Dismissal of Petitioner’s appeal on the basis of using Input Tax Credit (ITC) to pay the 10% pre-deposit was not permitted and does not satisfy the requirements of Section 107(6) of the Central Goods and Services Tax Act, 2017 - neither was any notice given nor was the Petitioner heard on the issue of alleged non-compliance with the requirement of pre-deposit - violation of principles of natural justice - HELD THAT:- The Appellate Authority made the impugned order without giving any notice to the Petitioner about the proposal to non-suit the Petitioner on the ground of alleged non-compliance with the provisions of Section 107(6) of the CGST Act concerning pre-deposit. Since the jurisdictional High Court in Oasis Realty [2022 (10) TMI 42 - BOMBAY HIGH COURT] had already taken the view that ITC can be utilised for making such a pre-deposit, the least that was expected of the Appellate Authority was to put the Petitioner on notice. Since this was not done, it is satisfied that there was a breach of principles of natural justice, and on this ground, the impugned order deserves to be set aside. If the Appellate Authority had read the decision of the Patna High Court in its entirety, surely, the Appellate Authority would have realised that its jurisdictional High Court had taken a view contrary to that of the Patna High Court. The Appellate Authority was not at all justified in ignoring the decision of its jurisdictional High Court and following the decision of the Patna High Court in Flipkart Internet Pvt. Ltd. [2023 (12) TMI 419 - PATNA HIGH COURT] - The observations in the Patna High Court’s decision on the issue with which we are concerned have been stayed by the Hon’ble Supreme Court. The fact that such a stay was granted ex-parte does not diminish its binding authority. This Court cannot ignore this stay order, though the Appellate Authority in this Court has chosen to ignore the same. The impugned order dated 18 March 2025 set aside and the Petitioner’s appeal restored to the file of the Appellate Authority - appeal disposed off. ISSUES: Whether Input Tax Credit (ITC) can be utilised to make the 10% pre-deposit required under Section 107(6) of the Central Goods and Services Tax Act, 2017 (CGST Act) for filing an appeal. Whether the Appellate Authority's dismissal of an appeal without issuing notice on alleged non-compliance with pre-deposit requirements violates the principles of natural justice. Whether the decision of the Appellate Authority ignoring the jurisdictional High Court's binding decision and following a conflicting decision of another High Court is legally permissible. Whether the stay order issued by the Supreme Court on certain paragraphs of the Patna High Court's decision affects the validity of the Appellate Authority's reliance on that decision. Whether the provisions of Section 49(4) of the CGST Act and Rule 86(2) of the CGST Rules preclude utilisation of ITC for pre-deposit payments. RULINGS / HOLDINGS: The Court held that the Appellate Authority's order dismissing the appeal on the ground that ITC cannot be used for the 10% pre-deposit under Section 107(6) of the CGST Act is contrary to the binding decision of the jurisdictional High Court in Oasis Realty, which held that ITC can be utilised for such pre-deposit. The Appellate Authority's failure to issue any notice to the appellant before non-suiting on the ground of non-compliance with the pre-deposit requirement constitutes a breach of the principles of natural justice, warranting setting aside of the impugned order. The Appellate Authority was not justified in ignoring the binding decision of the jurisdictional High Court and instead relying on the Patna High Court's conflicting decision in Flipkart Internet Pvt. Ltd., especially when the Supreme Court had stayed the relevant paragraphs of the Patna High Court's order. The Supreme Court's ex-parte stay of paragraphs 77 and 78 of the Patna High Court's decision has binding authority and must be respected, notwithstanding the pendency of further proceedings. The provisions of Section 49(4) of the CGST Act and Rule 86(2) of the CGST Rules were duly considered by the jurisdictional High Court in Oasis Realty, and do not preclude the use of ITC for pre-deposit payments under Section 107(6). RATIONALE: The Court applied the statutory framework under the CGST Act, particularly Section 107(6) relating to pre-deposit for appeals, Section 49(4) governing utilisation of electronic credit ledger balances, and Rule 86(2) of the CGST Rules. The Court relied on the binding precedent set by the jurisdictional High Court in Oasis Realty, which interpreted the CGST provisions to allow utilisation of ITC for pre-deposit, and emphasized the importance of judicial discipline requiring subordinate authorities to follow binding High Court decisions. The Court found the Appellate Authority's reliance on the Patna High Court's contrary decision inappropriate, especially since the Supreme Court had stayed the relevant observations in that decision, thereby limiting its precedential effect. The Court underscored the fundamental principle of natural justice requiring notice before non-suiting a party on grounds of non-compliance, and held that failure to provide such notice justifies interference with the impugned order. The Court declined to reconsider or refer the Oasis Realty decision to a larger bench, noting that the Supreme Court is seized of the issue, thus indicating a doctrinal stability pending apex court determination.