Madras
High Court Upholds Taxpayer’s Right: Procedural Lapse Cannot Deny Appeal in GST
Case
By Yogesh Verma (CS/LLB) / 2 min read / GST Case Law
Introduction
The Indian Goods and Services Tax (GST) regime is built on
the principles of transparency, compliance, and fairness. However, certain
procedural requirements can sometimes become roadblocks for taxpayers, leading
to unjust consequences. One such case was M/s. AR Foundations Pvt. Ltd. v.
The Appellate Deputy Commissioner (ST) – Chennai II, where the Madras
High Court had to decide whether a pre-deposit made through Form GST
DRC-03 could be considered valid for filing an appeal, despite the
introduction of a new form, Form GST DRC-03A.
The case highlights the importance of substantive justice
over procedural technicalities and reaffirms that a mere technical lapse
should not result in the denial of a taxpayer’s fundamental right to appeal.
This article provides an in-depth analysis of the case, including its
background, legal arguments, court findings, and implications for taxpayers.
Case Details
- Case
Name: M/s. AR Foundations Pvt. Ltd.
v. The Appellate Deputy Commissioner (ST) – Chennai II
- Case
Number: W.P. No. 34020 of 2024
- Court: High Court of Judicature at Madras
- Date
of Order: 06.02.2025
- Presiding
Judge: Hon’ble Mr. Justice Krishnan
Ramasamy
Background of the Case
M/s. AR Foundations Pvt. Ltd., a company based in Chennai,
filed an appeal against an order-in-original dated 26.07.2024 before the
Appellate Deputy Commissioner (ST) – Chennai II. However, the appeal
was rejected, with the respondent claiming that the required pre-deposit
was not made in the correct format.
Under Section 107(6) of the CGST Act, 2017, an
appellant must deposit 10% of the disputed tax amount as a pre-condition
for filing an appeal. The petitioner had duly made this pre-deposit on 19.03.2024
using Form GST DRC-03, but due to a technical issue, the appeal was
filed on 20.03.2024.
However, the department introduced Form GST DRC-03A via
Notification No. 12/2024-CT on 10.07.2024, which was meant specifically for
pre-deposit payments. The respondent refused to accept the petitioner’s appeal,
arguing that the pre-deposit should have been made via the new form
(DRC-03A), instead of DRC-03.
The petitioner approached the Madras High Court,
contending that the rejection was arbitrary and contrary to the clarifications
issued in Circular No. 224/18/2024-GST, dated 11.07.2024, which stated that
payments made through Form GST DRC-03 could be adjusted against pre-deposits.
Legal Issues Involved
The case primarily revolved around two key legal questions:
1.
Whether a
pre-deposit made through Form GST DRC-03 before the introduction of Form GST
DRC-03A can be considered valid?
2.
Whether
procedural lapses should override a taxpayer’s substantive rights, particularly
their right to appeal?
The court had to examine the legislative intent and
purpose behind the pre-deposit requirement—whether it was merely a
procedural formality or a substantive obligation designed to ensure financial
commitment from the appellant.
Arguments Presented by the
Petitioner
The petitioner, represented by Ms. J. Vamini (for Mr. K.
Vaitheeswaran), made the following submissions:
1.
Valid
Pre-Deposit: The pre-deposit was voluntarily
made on 19.03.2024 through Form GST DRC-03, which was the only available
mechanism at the time. The payment was specifically intended for appeal
purposes.
2.
Circular
No. 224/18/2024-GST: The petitioner cited this circular
issued by the Central Board of Indirect Taxes and Customs (CBIC), which
clarified that payments made through Form GST DRC-03 can be adjusted towards
pre-deposits under Sections 107 and 112 of the CGST Act.
3.
Technical
Issue with the GST Portal: The
appeal could not be filed on 19.03.2024 due to portal-related issues,
and it was filed the very next day.
4.
No Misuse
of Funds: The amount of Rs. 5,02,780/-,
which was more than the required 10% pre-deposit of Rs. 2,36,738/-, was
still lying in Form GST DRC-03, proving that the intention was genuine and compliant.
5.
Violation
of Natural Justice: The rejection of the appeal on mere
procedural grounds deprived the petitioner of their statutory right to appeal,
which is a violation of natural justice.
Arguments by the Respondent
The respondent, represented by Mr. V. Prashanth Kiran,
Government Advocate, argued:
1.
Incorrect
Form Used: The pre-deposit should have
been made through Form GST DRC-03A, not DRC-03, as per the new rule
introduced on 10.07.2024.
2.
Excess
Payment Raised Suspicion: The
petitioner deposited more than the required 10% amount, leading the
department to suspect that it was meant for some other liability, not the
appeal.
3.
Department’s
Right to Enforce Compliance: The GST
law mandates strict compliance with procedural requirements, and failure
to do so justifies the rejection of the appeal.
Findings of the Court
The Madras High Court examined the case in light of CBIC’s
Circular No. 224/18/2024-GST and the CGST Act, 2017 and found that:
1.
The
Circular Clearly Allows Adjustments:
o The CBIC circular explicitly states that Form GST
DRC-03 payments can be adjusted towards pre-deposits, which validates
the petitioner’s payment.
2.
Procedural
Lapse Should Not Deny Justice:
o The court held that mere procedural requirements should
not override the substantive right to appeal, especially when the taxpayer
had already complied with the financial obligation.
3.
No
Verification Was Conducted by the Respondent:
o Despite seven adjournments, the department did not
verify the petitioner’s claim that the amount was indeed a pre-deposit.
4.
Pre-Deposit
Made in Good Faith:
o The court found that the payment was made voluntarily and
specifically for the appeal, and no fraudulent intent was involved.
5.
Taxpayer’s
Right to Appeal Must be Protected:
o Rejection of the appeal violated the principles of
natural justice and defeated the legislative intent of the pre-deposit
requirement.
Court’s Judgment
Based on these findings, the Madras High Court passed the
following orders:
1.
The
rejection order dated 26.07.2024 was set aside.
2.
The
petitioner’s appeal was restored,
and the amount paid via Form GST DRC-03 was considered a valid pre-deposit.
3.
The
respondent was directed to process the appeal on merits and issue a final order after granting the petitioner a
proper hearing.
4.
No costs
were imposed.
Implications of the Judgment
1.
Strengthens
Taxpayer Rights: The ruling reinforces the
importance of protecting taxpayer rights, ensuring that procedural errors
do not lead to denial of justice.
2.
Provides
Clarity on Pre-Deposit Mechanism:
It establishes Form GST DRC-03 payments as valid for pre-deposits,
preventing arbitrary rejections.
3.
Emphasizes
the Role of Circulars: CBIC circulars must be followed
by tax authorities, ensuring consistency in tax administration.
4.
Encourages
Fair and Just Tax Administration:
The judgment discourages tax officers from adopting rigid and unjust
interpretations of procedural requirements.
Conclusion
The Madras High Court’s decision in this case sets an
important precedent for tax disputes involving procedural compliance. By
ruling in favor of substantive justice over technical formalities, the
court safeguarded the fundamental right to appeal under GST law.
This case highlights the necessity for tax authorities to
adopt a balanced approach, ensuring that procedural formalities do
not become a tool to deny justice.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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