2025 (9) TMI 805 - HC - GST

Demand under Section 16(2)(c) limited to Rs.7,07,060; appeal under Section 107 permitted with pre-deposit by 31 Oct 2025

Manoj Kumar Akhria Proprietor Of M/s Shubham Enterprises Versus Union Of India And Ors.

The HC held that the demand under Section 16(2)(c) of the CGST Act is limited to Rs. 7,07,060/-. The impugned order dated 18 Feb 2025 is appealable and ... Maintainability of petition - availability of alternative remedy - appealable order or not - Input Tax Credit (ITC) claimed from cancelled dealers - challenge to Section 16(2)(c) of the Central Goods and Service Tax Act, 2017 - HELD THAT:- It is correct that, insofar as demand under Section 16(2)(c) of the CGST Act is concerned, the same is only Rs. 7,07,060/- out of the entire demand. The impugned order dated 18th February, 2025 passed by the Office of Sales Tax Officer Class II/AVATO, is an appealable order and the Petitioner ought to avail of its appellate remedy under Section 107 of the CGST Act. Let the said appeal be filed by 31st October, 2025 along with the requisite pre-deposit. If the same is filed by 31st October, 2025, then the appeal shall not be dismissed on the ground of limitation and shall be adjudicated on merits - Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the impugned order raising a tax demand for Financial Year 2020-21 is amenable to challenge before this Court under Articles 226/227 when an appellate remedy exists under Section 107 of the CGST Act. 2. Whether Section 16(2)(c) of the CGST Act (disallowance of Input Tax Credit claimed from cancelled dealers, return defaulters and tax non-payers) is liable to be specially adjudicated by this Court in the present petition or should be left to the appellate authority, particularly given that only a minor portion of the total demand arises under that provision. 3. What is the legal effect of an existing judicial determination in a related petition (W.P. (C) No. 6293/2019) on the portion of the demand that arises from ITC claimed from cancelled dealers, and whether that determination binds the adjudicating appellate authority in the present matter. 4. Whether the appeal against the impugned order should be permitted to be filed despite limitation, and what directions are appropriate regarding pre-deposit and adjudication. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Availability of statutory appellate remedy under Section 107 of the CGST Act and propriety of writ proceedings. Legal framework: The CGST Act provides an appellate remedy against orders passed by tax authorities (Section 107). Constitutional writ jurisdiction under Articles 226/227 is subject to the existence of an efficacious alternate remedy. Precedent Treatment: The Court relied on established principles that where a statutory appeal is available and effective, writ jurisdiction should not be exercised to supplant the appellate process, absent exceptional circumstances (these principles were accepted and applied; no attempt was made to overrule them). Interpretation and reasoning: The impugned order is an appealable order within the meaning of Section 107. The Court held that the proper forum to challenge the factual and legal findings in the order is the appellate authority created by the CGST Act. There were no exceptional circumstances shown that would justify retention of writ jurisdiction to decide the merits in the first instance. Ratio vs. Obiter: Ratio - Orders appealable under the CGST Act should be challenged before the statutorily prescribed appellate forum; writ jurisdiction should not ordinarily be exercised to bypass such remedy. This principle directly controls disposal of the petition. No obiter on alternate exceptional circumstances was necessary. Conclusion: The petition cannot be allowed to proceed to finally decide the merits of the impugned order; the appropriate remedy is to file an appeal under Section 107 of the CGST Act. Issue 2 - Challenge to Section 16(2)(c) of the CGST Act in respect of ITC from cancelled dealers/return defaulters/tax non-payers and scope of the present petition. Legal framework: Section 16 of the CGST Act governs entitlement to Input Tax Credit; sub-section (2)(c) addresses ineligibility where credit is availed from cancelled registrants, return defaulters, or tax non-payers. Adjudication of entitlements under s.16 is typically a matter of tax adjudication subject to statutory appeals. Precedent Treatment: The Court acknowledged that a similar constitutional challenge to the provision has been raised in a related matter (W.P. (C) No. 6293/2019). The present Court did not undertake a fresh constitutional scrutiny of s.16(2)(c), but recognised that any determination in the related petition would be binding insofar as it concerns the same question. Interpretation and reasoning: The Court observed that only a small portion of the impugned demand (Rs. 7,07,060/-) arises under Section 16(2)(c). Given availability of the appellate remedy and the existence of pending adjudication in a related challenge, the Court refrained from deciding constitutional validity or entitlement on merits. The Court treated the question as suitable for appellate adjudication and indicated that any binding outcome in the related petition would govern the corresponding part of the demand here. Ratio vs. Obiter: Ratio - When a statutory appeal is available and a substantially similar constitutional challenge is pending in another matter, the correct course is to remit issues of entitlement under s.16(2)(c) to the appellate authority, subject to the binding effect of the related judicial determination. Obiter - The Court noted the numerical insignificance of the s.16(2)(c) component relative to the total demand, but this observation is ancillary. Conclusion: The challenge to Section 16(2)(c) is not adjudicated in the writ petition; the portion of demand attributable to that provision must be determined by the appellate authority, and is to be governed by the outcome of the related writ (W.P. (C) No. 6293/2019) insofar as that outcome is binding. Issue 3 - Binding effect of the related judicial determination and interplay with appellate adjudication. Legal framework: Principles of precedent require that judicial determinations in a case between parties on a like question will bind the adjudicator in subsequent proceedings to the extent applicable, subject to parties and issues. Precedent Treatment: The Court treated the decision in the related writ as determinative for the question of ITC claimed from cancelled dealers to the extent the issues are common. The Court did not re-examine or overrule the related decision. Interpretation and reasoning: The Court held that insofar as the demand arises from ITC claimed from cancelled dealers, the outcome of the related petition shall bind the adjudication in the present matter. However, the adjudication on all demands remains subject to the appellate authority's full consideration on merits, except that the appellate authority must take the related judgment into account and give effect to it where applicable. Ratio vs. Obiter: Ratio - A prior judicial determination on the same issue (relating to cancelled dealers) will bind the appellate adjudication in later proceedings between the same legal questions; the adjudicatory authority must apply that determination when adjudicating the corresponding portion of demand. This is an operative directive. No obiter beyond this principle was used. Conclusion: The appellate authority must adjudicate all demands on merits, but must apply the binding determination from the related petition to the extent it covers the same issue regarding cancelled dealers. Issue 4 - Directions regarding filing of appeal, pre-deposit, limitation and final disposal. Legal framework: The CGST appellate regime contemplates filing of appeals within limitation and often prescribes pre-deposit conditions; courts may grant directions to facilitate adjudication on merits in appropriate circumstances. Precedent Treatment: The Court exercised its equitable discretion to permit filing of the statutory appeal within a prescribed timeframe and to protect the appeal from being dismissed on limitation grounds if compliance is met within that timeframe. Interpretation and reasoning: To ensure that the statutory appellate remedy is effectively available and the matter is decided on merits, the Court directed that the appeal be filed by a specified date along with the requisite pre-deposit. The Court explicitly directed that if the appeal is filed by that date, it shall not be dismissed on limitation and shall be adjudicated on merits, thereby removing procedural impediments to appellate adjudication. Ratio vs. Obiter: Ratio - The Court's direction permitting filing of the appeal by a fixed date with pre-deposit and protecting it from dismissal on limitation is an operative order intended to preserve the appellant's appellate rights and ensure merits adjudication. This is binding as between the parties in this matter. The specific date selected is procedural and not a precedent. Conclusion: The appellant is permitted to file the appeal by the specified date with the requisite pre-deposit; if so filed within that timeline, the appellate authority shall not dismiss the appeal on limitation grounds and shall adjudicate the appeal on merits. Cross-references 1. Issues 1 and 2 are interlinked: the availability of Section 107 appeal (Issue 1) determines that the substantive challenge to Section 16(2)(c) (Issue 2) should be heard by the appellate authority rather than this Court. 2. Issues 2 and 3 are linked: the appellate authority's adjudication of the s.16(2)(c) component must take into account and give effect to the related judicial determination (Issue 3). 3. Issue 4 operationalizes Issues 1-3 by providing a procedural pathway to ensure the matters are adjudicated on merits before the appropriate forum.