Facts of the Case

M/s Mahalaxmi Traders, a proprietary concern represented by its proprietor, challenged an appellate order dated 18.06.2025 passed by the Joint Commissioner of Commercial Taxes (Appeals), Belagavi, and consequential recovery proceedings initiated by the Deputy Commissioner of Commercial Taxes (Audit-2) freezing its bank account. The dispute traced back to a demand confirmed under FORM GST DRC-07 dated 20.01.2024. Since the Central Goods and Services Tax Act, 2017 Appellate Tribunal has still not been constituted, the petitioner could not avail the second-appeal remedy under Section 112 and approached the Karnataka High Court at Dharwad seeking interim protection while offering to deposit 20% of the disputed tax liability, inclusive of the amount already paid at the first-appeal stage.

Issues Involved

  1. Whether a taxpayer can obtain the protection ordinarily available under Section 112(9) of the CGST Act when the GST Appellate Tribunal has not yet been constituted.
  2. Whether recovery proceedings and a bank account freeze can continue despite the taxpayer's willingness to deposit the statutorily prescribed pre-deposit amount.
  3. What interim arrangement the High Court should craft to substitute for the tribunal-stage deeming fiction under Section 112(9).

Petitioner's Arguments

  • Submitted that the petitioner was willing and able to deposit an amount equivalent to 20% of the disputed tax liability, in line with Section 112(8) of the CGST Act.
  • Argued that had the Tribunal been functional, this deposit would have automatically triggered the deeming stay of recovery under Section 112(9), and the petitioner should not be denied this benefit merely because the Tribunal is not yet constituted.
  • Contended that the bank account freeze, in these circumstances, was causing undue hardship and ought to be lifted upon compliance with the pre-deposit condition.

Respondent's Arguments

  • The Joint Commissioner of Commercial Taxes (Appeals) and the Deputy Commissioner of Commercial Taxes (Audit-2) did not seriously contest the legal position on pre-deposit under Section 112(8) and (9).
  • The Additional Government Advocate appearing for the respondents did not oppose an arrangement permitting deposit before the first appellate authority pending constitution of the Tribunal.

Court Order / Findings

  • The Court agreed that the petitioner's request was consistent with Sections 112(8) and 112(9) of the CGST Act, and that the only impediment was the non-constitution of the Tribunal.
  • Held that a taxpayer cannot be deprived of the substantive benefit of the deeming stay fiction under Section 112(9) merely because the Tribunal remains non-functional, and the High Court could mould relief accordingly.
  • Directed that the petitioner deposit 20% of the disputed tax liability with the first appellate authority, to be held in trust until the Tribunal is constituted.
  • Clarified that once the deposit is made, the deeming fiction under Section 112(9) would come into play, resulting in withdrawal of the attachment on the petitioner's bank account.

Important Clarification

  • Non-constitution of the GST Appellate Tribunal cannot be allowed to defeat a taxpayer's statutory right to stay of recovery upon making the prescribed pre-deposit.
  • High Courts can mould interim relief to substitute for tribunal-stage protections where the Tribunal is not yet functional, by directing deposit with the first appellate authority.
  • The 20% pre-deposit (inclusive of amounts already paid at the first-appeal stage) is sufficient to trigger the recovery stay, pending eventual filing before the Tribunal.

Sections Involved

  • Section 112(8), CGST Act, 2017 – prescribes the mandatory pre-deposit for filing a second appeal before the Appellate Tribunal.
  • Section 112(9), CGST Act, 2017 – deems recovery proceedings for the balance amount to be stayed once the pre-deposit is made.

Decision – In Favour of

Disposed of in favour of the petitioner, with the assessee permitted to deposit 20% of the disputed tax liability with the first appellate authority in lieu of the Tribunal, resulting in withdrawal of the bank attachment upon compliance.

Case Details

  • Court: High Court of Karnataka, Dharwad Bench
  • Case No.: Writ Petition No. 105607 of 2025 (T-RES)
  • Coram: Hon'ble Mr. Justice Suraj Govindaraj
  • Date of Order: 17 September 2025

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