GST second-appeal blocked by non-functioning Tribunal; recovery and bank garnishee stayed after s.112(8) pre-deposit compliance

Non-constitution and non-functioning of the statutory GST Appellate Tribunal rendered the alternative appellate remedy illusory, and the State could not initiate coercive recovery without making the legislatively conferred right of second appeal effectively available. Permitting recovery in such circumstances was held contrary to the statutory scheme and violative of constitutional fairness. Since the petitioner had substantially complied with the pre-deposit requirement under s.112(8) of the U.P. GST Act, the HC ordered that, subject to deposit of the balance pre-deposit by 30.06.2026 or the date of filing the appeal (whichever earlier), no further recovery pursuant to the impugned adjudication order would be made and bank garnishee proceedings would remain stayed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether, when the statutory second appellate remedy exists but the Appellate Tribunal is not constituted/functional and the filing timelines have been extended by notification and administratively structured by advisory, the tax authorities may lawfully initiate or continue recovery of the disputed demand before expiry of the permitted appeal-filing period.

(ii) Whether interim protection against recovery should be granted on the condition of the taxpayer completing the statutory pre-deposit contemplated for stay of recovery during pendency of the second appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Recoveries during the extended/structured period for filing second appeal when Tribunal is not functional

Legal framework (as discussed by the Court): The Court noted that the statutory right to file a second appeal is provided under Section 112 of the applicable GST enactment, but the Tribunal was not available due to non-constitution/non-functionality. The Court further relied on (a) a governmental notification extending the time up to which appeals may be filed before the Appellate Tribunal for orders communicated within the specified period, and (b) an administrative user advisory prescribing a staggered e-filing window and stating that filing would in any event be available up to the notified outer date.

Interpretation and reasoning: The Court treated the inability to approach the Tribunal as not attributable to the taxpayer. It reasoned that once the statute provides an appellate right, the State must make that remedy meaningfully available before initiating coercive recoveries. In light of the notification extending the appeal-filing timeline and the advisory operationalising filing windows, the Court expressed serious doubt that the administration could proceed to recover the disputed tax during the period in which the second appeal could still be filed. Allowing recovery in such circumstances would be contrary to the statutory scheme, inequitable and plainly unfair, and would also offend the constitutional scheme as articulated by the Court.

Conclusion: The Court ordered that, subject to satisfaction of the pre-deposit condition addressed separately, no further recoveries shall be made pursuant to the disputed adjudication demand until the relevant timeline, and bank garnishee proceedings shall remain in abeyance. The Court also directed the State to obtain and disclose its stand on recoveries and expected issuance of administrative instructions consistent with the notification and advisory; if a contrary stand is taken, reasons were required to be placed on record.

Issue (ii): Conditional interim protection based on completion of statutory pre-deposit for stay during second appeal

Legal framework (as discussed by the Court): The Court noted the statutory pre-deposit requirement under Section 112(8) for obtaining the benefit of protection against recovery during pendency of a second appeal.

Interpretation and reasoning: The Court recorded that the taxpayer had already deposited a substantial part of the required amount but had not yet deposited the full sum contemplated for availing statutory protection. Balancing the taxpayer's inability to access a functional Tribunal with the statutory pre-deposit scheme, the Court granted protection against further recovery, while conditioning that protection upon deposit of the remaining balance within the outer limit linked to the appeal-filing timeline or earlier upon actual filing.

Conclusion: Interim restraint on further recoveries (including keeping bank garnishee proceedings in abeyance) was granted subject to deposit of the balance pre-deposit amount by the earlier of (a) the date of filing the second appeal, or (b) the specified outer date aligned with the extended filing period.

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