Facts of the Case

M/s Shiva TexFabs Ltd, engaged in manufacturing yarn from PET bottles and registered under the Punjab Value Added Tax Act, 2005, was assessed for the year 2015-16 after an inspection by the Excise and Taxation Department's Mobile Wing and EIU Wing.

The Assessing Authority, by order dated 25.06.2018, disallowed input tax credit (ITC) of Rs. 51,05,411 on a proportionate basis in respect of purchases from five firms it could not verify through the TINXSYS system, while accepting ITC on purchases from other, verified firms; no penalty or interest was imposed pending further proceedings.

On appeal, the Deputy Excise and Taxation Commissioner (Appeals) required a 15% pre-deposit under Section 62(5) of the Punjab VAT Act, 2005, which the petitioner could not make due to financial distress, resulting in dismissal of the appeal (18.07.2019); a further appeal to the Punjab VAT Tribunal required a 25% pre-deposit and was also effectively dismissed (03.11.2020) when that amount was not deposited within three months.

The petitioner challenged all three orders, citing outstanding loans of about Rs. 855.82 crore as on 31.03.2019 and relying on the Supreme Court's ruling in Tecnimont Pvt. Ltd. v. State of Punjab to argue that genuine financial hardship justified relaxation of the statutory pre-deposit condition. This is a pre-GST Punjab VAT assessment dispute; the reference to GST in the judgment is limited to the department's point that the petitioner was paying GST regularly in cash under the post-2017 regime, cited as evidence it was not, by then, in genuine financial distress.

Issues Involved

  1. Whether the mandatory pre-deposit condition of 25% of the additional demand under Section 62(5) of the Punjab VAT Act, 2005, could be relaxed on grounds of the petitioner's financial hardship.
  2. Whether the petitioner's regular payment of GST in cash under the post-2017 regime showed it was no longer in the financial distress it claimed.

Petitioner's Arguments

  • The petitioner was under heavy debt (outstanding loans of Rs. 855.82 crore as on 31.03.2019) and was using its entire operating surplus to service loan instalments, salaries, and working capital, leaving it unable to make the 25% pre-deposit required for its appeal to be entertained on merits.
  • Reliance was placed on the Supreme Court's ruling in Tecnimont Pvt. Ltd. v. State of Punjab and a Division Bench ruling of the same High Court in M/s Kelmar (India) Exports, where a reduced pre-deposit had been permitted in similar circumstances.
  • The petitioner was willing to make a reduced pre-deposit of 10% instead of the statutory 25% to have its appeal heard on merits.

Respondent's Arguments

  • The Department relied on an affidavit showing the petitioner's turnover and its chart of GST payments made in cash, arguing that the petitioner was not, in fact, in financial difficulty and was regularly paying GST in cash, and was therefore not entitled to the concession earlier granted by the First Appellate Authority.
  • It was argued that the Supreme Court in Tecnimont had upheld Section 62(5) of the Punjab VAT Act as mandatory and had rejected the argument that the Appellate Authority possessed an inherent power to waive it.

Court Order / Findings

  • The Court accepted that the petitioner's balance sheet for 2020-21 was undisputed, and that if forced to pay the full 25% pre-deposit, it would be unable to service its loan instalments; it also noted the petitioner was paying GST regularly in cash and risked losing its GST registration if it had to shut down.
  • It held that the 25% pre-deposit condition should be modified in light of the petitioner's financial hardship, exercising its powers under Article 226 of the Constitution rather than treating Tecnimont as an absolute bar, since Tecnimont itself recognised that genuine hardship could still be addressed through a writ remedy.
  • It disposed of the petition by directing the petitioner to pay 10% of the total demand as pre-deposit, with the Appellate Authority directed to entertain and decide the appeal on merits in accordance with law upon receipt of that amount.

Important Clarification

This is a pre-GST assessment and ITC-disallowance dispute under the Punjab VAT Act, 2005; it does not decide any question under the GST law. The only role GST plays in the reasoning is that the Department pointed to the petitioner's ongoing GST payments (post-2017) as proof it was solvent, and the Court noted the petitioner's GST registration would be at risk if the business had to close — GST facts used as context for a financial-hardship assessment, not as the subject of the ruling.

Sections Involved

  • Punjab Value Added Tax Act, 2005 – Sections 29(3) and 62(5) (assessment and mandatory pre-deposit for appeal)
  • Central Sales Tax Act, 1956 – Section 9(2), read with the assessment
  • Article 226 of the Constitution of India – writ jurisdiction invoked for relaxation of the pre-deposit condition

Decision – In Favour of

Decided substantially in the petitioner's favour on the pre-deposit question — the mandatory 25% pre-deposit was relaxed to 10%, and the appellate authority was directed to hear the appeal on merits; the correctness of the ITC disallowance itself was left to be decided by the Appellate Authority.

Case Details

High Court of Punjab and Haryana at Chandigarh. CWP-2650-2022 with connected CWP-2651-2022 and CWP-2653-2022 (M/s Shiva TexFabs Ltd v. State of Punjab and Others). Neutral Citation No. 2023:PHHC:142334-DB. Coram: Hon'ble Ms. Justice Ritu Bahri and Hon'ble Mrs. Justice Manisha Batra. Date of decision: 03.10.2023.

Link to Download the Order

Click here to view/download the full order

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.