The Karnataka High Court in a recent decision[1] interpreted Section 107, CGST Act, 2017 and adopted a literal interpretation of Section 107(6)(b) to hold that it only mentions that the remaining amount of tax in dispute needs to be deposited before filing an appeal excluding fee, penalty and fee. Since the provision does not mention interest, fine or fee, the same cannot be read into the provision to create an onerous burden on the assessee before admitting its appeal.
Facts and Arguments
The facts of the case are brief: the petitioner’s appeal before the appellate authority was rejected on the ground that the condition prescribed under Section 107, CGST Act, 2017 had not been fulfilled. Section 107(1) states that any decision or order passed under CGST Act, CGST Act or UTGST Act by an adjudicating authority may be appealed by a person to such Adjudicating Authority as may be prescribed. Section 107(6) states that no appeal shall be filed under sub-section (1), unless the appellant has paid –
- in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him; and
- a sum equal to ten per cent of the remaining amount of tax in dispute arising from the said order, subject to a maximum of twenty-five crore rupees, in relation to which the appeal has been filed: (emphasis added)
The petitioner argued that it was disputing the entire amount confirmed in the confiscation order and under Section 107(6)(b), the tax in dispute would only include the tax component and not the interest, fee and fine. The appellant authority erred in not admitting its appeal by stating that 10% of the entire amount needs to be deposited and not 10% of the tax in dispute. The petitioner approached the Karnataka High Court via a writ seeking appropriate directions.
The Revenue Department had a meek reply and argued that the petitioner was virtually trying to defeat the provision of appeal under Section 107. The Revenue Department argued that since the petitioner was disputing the entire amount, it was obliged to deposit 10% of the entire amount and not 10% of the tax.
High Court Adopts Strict Interpretation
The Karnataka High Court gave three broad reasons for agreeing to the petitioner’s arguments:
First, the High Court cited Section 107(6) and observed that there was a statutory basis for asserting that the petitioner should only deposit 10% of the disputed tax before filing an appeal. The High Court noted that the interpretation also aligned with the legal principle that penalties are consequent to determination of tax liability.
Second, it observed that if the statute provides that a thing has to be done in a particular manner, it should be done only in that manner. (para 8) Adopting the principle of strict interpretation of tax statutes, the High Court observed that the terms fine, fee, penalties were not used in Section 107(6)(b), but only the term ‘disputed tax’ was used, and the provision should be interpreted as per the words mentioned in it. The High Court added that the isolation of the term ‘a sum equal to ten per cent of the remaining amount of tax’ reflected legislative design and an intention to limit the pre-deposit requirement to only 10% of the disputed tax amount.
Third, the High Court noted that the presumption is that the legislature has not made any mistake and the language employed is the determinative factor in ascertaining legislative intent. If there is any omission or defect in the provision, the Courts cannot correct it.
Conclusion The Karnataka High Court in the impugned case adopted a reasonable approach and appreciably adhered to the principle of strict interpretation of tax statutes to rule in favor of the petitioner. The High Court’s decision is clearly and unequivocally supported by the language of the provision. In fact I would argue further and recommend and in similar cases where the appellate authority takes such stance which is obviously and clearly against the written text, Courts should consider levying a penalty or costs for forcing the assessee’s hand to approach the High Court merely to get its appeal admitted.
[1] M/S Tejas Arecanut Traders v Joint Commissioner of Commercial Taxes TS-686-HCKAR-2023-GST.