Facts of the Case

The petitioner, Godrej & Boyce Mfg. Co. Ltd., approached the High Court of Kerala being aggrieved by the fact that the State Tax Appellate Tribunal had not been constituted in the State of Kerala under the CGST/SGST Act, due to which the petitioner was unable to avail the statutory appellate remedy contemplated under Section 112 of the CGST/SGST Act.

The underlying proceedings arose from a transaction supported by a tax invoice dated 29 May 2018 and an e-way bill dated 1 June 2018. A notice dated 2 June 2018 had been issued under Section 129(3) of the GST Act.

For release of the goods, the petitioner furnished a bank guarantee of Rs. 2,68,288/-. Subsequently, an order dated 5 December 2018 was passed imposing penalty.

The petitioner preferred a statutory first appeal under Section 107 of the SGST Act against the penalty order. However, by order dated 30 July 2022, the appellate authority confirmed the order imposing penalty, and the said appellate order was communicated to the petitioner on 20 September 2022.

The petitioner contended that the proceedings arose from a technical default and that the demanded amount was already secured through the bank guarantee furnished by it.

The petitioner further submitted that, in similar cases, the first appellate authority had granted relief to other companies and specifically referred to an appellate order dated 7 March 2022 in GSTA No. 24/2022, on the file of the Joint Commissioner (Appeals), State Goods and Services Tax Department, Kerala, Palakkad.

Since the GST Appellate Tribunal had not been constituted, the petitioner was unable to pursue the further statutory remedy under Section 112 and therefore approached the High Court.

 Issues Involved

  1. Whether the petitioner could be prejudiced by invocation or encashment of the bank guarantee when the statutory GST Appellate Tribunal had not been constituted and the remedy under Section 112 was consequently unavailable.
  2. Whether interim protection should be granted against invocation of the bank guarantee until the petitioner obtains a practical opportunity to approach the GST Appellate Tribunal after its constitution.
  3. Whether the expiry of the statutory period for filing an appeal under Section 112(1) should deprive the petitioner of protection when the very appellate forum contemplated under the statute had not been constituted.
  4. Whether the petitioner should be required to keep the bank guarantee alive as a condition for protection against its invocation.
  5. What should be the duration of protection after constitution of the State Tax Appellate Tribunal.

 Petitioner’s Arguments

The petitioner submitted that:

  • The State Tax Appellate Tribunal had not been constituted in Kerala, thereby making it impossible to avail the statutory remedy under Section 112 of the CGST/SGST Act.
  • The proceedings against the petitioner arose from a technical default.
  • The petitioner had already furnished a bank guarantee for the demanded amount, and therefore the revenue’s interest stood secured.
  • In similar cases, the first appellate authority had already granted relief to other companies.
  • Reliance was placed on the appellate order dated 7 March 2022 in GSTA No. 24/2022, passed by the Joint Commissioner (Appeals), State Goods and Services Tax Department, Kerala, Palakkad.
  • In the absence of a functioning appellate tribunal, the petitioner should not suffer adverse consequences through invocation of the bank guarantee before being afforded an effective opportunity to pursue the statutory appellate remedy.

 Respondent’s Arguments

The learned Senior Government Pleader submitted that:

  • Since the State Tax Appellate Tribunal had not been constituted, the encashment of the bank guarantee furnished by the petitioner could be kept in abeyance.
  • Such protection should remain conditional upon the petitioner keeping the bank guarantee alive for the required period.
  • It was also submitted that the period for preferring an appeal before the Tribunal had already expired in terms of Section 112(1) of the CGST/SGST Act.

Thus, while the respondents pointed out the expiry of the appeal period, the State also accepted that invocation of the bank guarantee could be deferred subject to continuation of the guarantee.

 Court Order / Findings

The High Court considered the facts and circumstances of the case and specifically took note of the fact that the State Tax Appellate Tribunal had not been constituted in terms of Section 112 of the CGST/SGST Act.

The Court disposed of the writ petition with the following directions:

  1. The bank guarantee furnished by the petitioner shall not be invoked for a period of three months from the date on which the State Tax Appellate Tribunal is constituted.
  2. The above protection is conditional upon the petitioner keeping the bank guarantee alive for the said period.
  3. Upon constitution of the State Tax Appellate Tribunal, it shall be for the petitioner to seek appropriate relief from the Tribunal.
  4. The petitioner shall not be entitled to the benefit of the High Court’s judgment after expiry of three months from the date on which the Tribunal is constituted.

Accordingly, the High Court preserved the petitioner’s position during the period in which the statutory appellate forum was unavailable, while simultaneously protecting the revenue by requiring the bank guarantee to remain alive.

 Important Clarification

1. Protection Was Not an Unconditional Stay

The High Court did not permanently restrain the department from invoking the bank guarantee. The protection was specifically linked to the non-constitution of the State Tax Appellate Tribunal and was subject to a defined time limit.

2. Three-Month Period Runs from Constitution of the Tribunal

The Court directed that the bank guarantee should not be invoked for three months from the date on which the State Tax Appellate Tribunal is constituted.

Therefore, the operative period of protection was connected with the future constitution of the Tribunal and not merely with the date of the High Court judgment.

3. Bank Guarantee Must Be Kept Alive

The protection granted by the Court was expressly conditional upon the petitioner keeping the bank guarantee alive for the relevant period.

If the petitioner failed to maintain the guarantee, the foundation of the conditional protection granted by the Court would not remain satisfied.

4. Petitioner Must Approach the Tribunal After Its Constitution

The judgment does not grant final relief against the underlying tax or penalty demand. The Court expressly clarified that after constitution of the Tribunal, the petitioner must seek appropriate relief from that forum.

5. Protection Automatically Ends After Three Months

The Court made it clear that the petitioner would not be entitled to continue claiming the benefit of the judgment beyond three months from the date of constitution of the State Tax Appellate Tribunal.

6. Revenue Interest Remained Secured

The direction balanced the competing interests of both sides. The petitioner was protected from immediate invocation of the guarantee during the absence of the statutory appellate forum, while the revenue remained secured because the petitioner was required to keep the bank guarantee alive.

 Sections Involved

Section 112 of the CGST/SGST Act – Appeals to Appellate Tribunal

Section 112 concerns the statutory remedy of appeal before the Appellate Tribunal. The central grievance in the writ petition was that the petitioner could not effectively avail this remedy because the State Tax Appellate Tribunal had not been constituted.

The High Court’s protection was fundamentally based on this practical absence of the statutory appellate forum.

Section 112(1) of the CGST/SGST Act

The respondents specifically contended that the time for preferring an appeal to the Tribunal had already expired in terms of Section 112(1).

Despite this submission, the Court took note of the non-constitution of the Tribunal and protected the bank guarantee for the stipulated period, subject to its being kept alive.

Section 129(3) of the GST Act – Notice in Detention Proceedings

The case record shows that a notice dated 2 June 2018 had been issued under Section 129(3) of the GST Act in connection with the underlying proceedings.

Section 107 of the SGST Act – First Statutory Appeal

The petitioner had already availed the first appellate remedy under Section 107 against the penalty order dated 5 December 2018. The appellate authority subsequently confirmed the penalty order by its order dated 30 July 2022.

Link to download the order - https://mytaxexpert.co.in/uploads/1783491748_1438compressed.pdf

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