2025 (8) TMI 1548 - HC - VAT / Sales Tax

Petitioner allowed to file appeals against MVAT levy on royalties within three weeks after compliance with pre-deposit formalities

Merck KGaA Versus State of Maharashtra & Ors.

Merck KGaA Versus State of Maharashtra & Ors. - 2025:BHC - OS:14236 - DB ISSUES PRESENTED AND CONSIDERED 1. Whether the High Court should exercise writ jurisdiction to entertain petitions challenging assessment orders under the MVAT Act where an appellate remedy to the Joint Commissioner under Section 26(1)(b) is available. 2. Whether, in circumstances where the first appellate authority is effectively bound by adverse Tribunal precedent, the High Court may permit direct filing of appeals before the Tribunal (skipping the Joint Commissioner) subject to pre-deposit and other formalities. 3. Whether limitation would be a bar to appeals filed directly before the Tribunal where the High Court permits such departure from the normal appellate route, and what conditions (if any) should be imposed in relation to pre-deposit. 4. Whether the Respondent may enforce tax demands during the period permitted for instituting appeals and pre-deposit compliance. 5. Whether the High Court should decide the merits on questions of characterization of royalty payments as consideration for transfer of right to use trademarks, or leave all substantive contentions open to the Tribunal. ISSUE-WISE DETAILED ANALYSIS Issue 1: Exercise of writ jurisdiction despite availability of statutory first appeal Legal framework: The MVAT Act provides an appellate route to the Joint Commissioner under Section 26(1)(b); ordinarily, availability of an alternative statutory remedy precludes entertainment of writ petitions challenging assessment orders. Precedent Treatment: The Court followed and applied prior decisions (Mestra A.G. and Kellogg Company) which refrained from adjudicating merits and instead facilitated direct access to the Tribunal in specified circumstances. Interpretation and reasoning: The Court recognised the general rule that writ jurisdiction should not normally be exercised where efficacious statutory remedies exist. However, in 'peculiar facts and circumstances' where the first appellate authority is constrained by binding Tribunal precedent, referring a litigant to the first appellate authority would be a mere ritual and would not achieve meaningful relief. In such circumstances the Court may adopt a pragmatic course (consistent with earlier coordinate-bench directions) to permit direct approach to the Tribunal. Ratio vs. Obiter: Ratio - The Court's direction that it may, in exceptional and specified circumstances, permit direct appeals to the Tribunal instead of relegating parties to the first appellate remedy. Obiter - General commentary on the desirability of statutory routes in routine cases. Conclusion: The High Court will not entertain merits of these writs but will allow the exceptional procedural relief of permitting direct appeals to the Tribunal where first appeal would be futile. Issue 2: Permitting direct appeals to the Tribunal when first appeal would be constrained by Tribunal precedent Legal framework: MVAT Act appellate structure (first appeal to Joint Commissioner, further appeal to Tribunal under Section 27). Courts have supervisory jurisdiction but should respect statutory appeal routes. Precedent Treatment: The Court explicitly follows the approach taken in prior orders (Mestra A.G. and Kellogg Company) and notes that the Supreme Court did not disturb the relief and granted similar liberty to approach the Tribunal, with a specified period for filing. Interpretation and reasoning: Where the first appellate authority is 'bound' by a prior Tribunal decision adverse to the assessee such that the first appeal would not be effective, the Court may allow direct appeals to the Tribunal to prevent futile procedural steps. The Court conditions such permission on compliance with statutory pre-deposit and other prescribed formalities, thereby preserving the statutory scaffold while avoiding pointless delay. The Court emphasises that all substantive contentions remain open for adjudication by the Tribunal. Ratio vs. Obiter: Ratio - Permission for direct appeals to the Tribunal is permissible in exceptional circumstances and is conditioned on pre-deposit and formalities; Tribunal to decide merits without raising limitation if appeals filed within the prescribed period. Obiter - Observations on pendency timelines and administrative convenience (e.g., grouping of appeals for common hearing). Conclusion: Direct appeals to the Tribunal were permitted subject to (a) compliance with pre-deposit and prescribed formalities within the time directed, and (b) the Tribunal hearing the appeals on merits without raising limitation if instituted within the prescribed period. Issue 3: Limitation and pre-deposit conditions for permitted direct appeals Legal framework: Statutory pre-deposit requirements govern institution of appeals; limitation rules apply to tribunal appeals but courts may direct non-raising of limitation in exceptional procedural directions. Precedent Treatment: The Court adheres to prior orders which permitted appeals to the Tribunal with an undertaking that limitation would not be raised if appeals were filed within an identified period; the Supreme Court also granted similar liberty for an eight-week period. Interpretation and reasoning: The Court conditions the exceptional procedural dispensation on actual compliance with the pre-deposit requirement and other formalities; where parties show pre-deposit has already been made to the first appellate authority, that amount may be treated as part of the total pre-deposit required for the Tribunal appeal. The Court preserves the statutory pre-deposit regime while preventing limitation objections in the Tribunal provided the appeal is filed within the prescribed timeframe (three weeks in the present order). Ratio vs. Obiter: Ratio - Pre-deposit must be made and limitation shall not be raised by the Tribunal if appeals are instituted within the time stipulated by the High Court; amounts already pre-deposited at the first appellate level can be accounted for. Conclusion: Appeals were permitted only upon compliance with pre-deposit and formalities within a set time; the Tribunal is directed not to raise limitation if the appeals are instituted within that period. Issue 4: Enforcement of tax demands during prescribed period for instituting appeals Legal framework: General principle - tax authorities may recover demands unless restrained by court order; courts may grant interim protection where appeals are instituted or are to be instituted within a short timeframe. Precedent Treatment: Consistent with prior orders, the Court directed that Respondent shall not enforce demands during the period permitted for instituting appeals and completing pre-deposit, subject to the appeals actually being instituted within that period. Interpretation and reasoning: To give effect to the procedural dispensation and to avoid defeating the utility of the relief, the Court suspended coercive recovery during (a) the three-week period allowed for instituting appeals after pre-deposit, and (b) the pendency of the Tribunal appeals if instituted within that period. The protection is conditional: if no appeal is instituted within the period after pre-deposit, normal recovery remedies revive. Ratio vs. Obiter: Ratio - Conditional interim protection from enforcement during the specified period and during pendency of appeals instituted in accordance with the directions. Obiter - None significant beyond conditionality. Conclusion: Respondent must not enforce demands during the three-week compliance period and during the pendency of properly instituted Tribunal appeals; if appeals are not instituted in accordance with directions, Respondent may recover demands as per law. Issue 5: Disposition on merits - whether High Court should decide substantive issue of characterization of royalties Legal framework: Writ jurisdiction permits substantive adjudication, but where statutory appeals are available and parties seek Tribunal adjudication, courts may remit merits to the tribunal in the first instance. Precedent Treatment: Following Mestra A.G. and Kellogg Company, the Court declined to decide substantive tax characterization and left all contentions open for the Tribunal to decide on merits. Interpretation and reasoning: The Court observed that the petitions challenge assessment orders alleging royalties amount to consideration for transfer of right to use trademarks - a substantive tax matter suitable for adjudication by the Tribunal in the first instance, especially given the remedial route being opened to the Tribunal. The Court therefore refrained from addressing merits and left them to the Tribunal while preserving parties' rights to raise all contentions. Ratio vs. Obiter: Ratio - Merits are to be decided by the Tribunal in the first instance; High Court will not pre-empt substantive adjudication when it has granted procedural relief for Tribunal access. Obiter - None material. Conclusion: All substantive contentions including the characterization of royalty payments are left open for the Tribunal's decision; the High Court did not adjudicate the merits.