Writ Remedy: Delayed Appeal Permitted on Condition of 25% Pre-Deposit; Rectification Order Doesn’t Reset Limitation

Writ Remedy: Delayed Appeal Permitted on Condition of 25% Pre-Deposit; Rectification Order Doesn’t Reset Limitation

Issue

Whether a taxpayer can be permitted to file a statutory appeal against an assessment order after the expiry of the limitation period, particularly when the delay was occasioned by pursuing a rectification application that resulted in a partial reduction of dues, and where the admitted tax liability has already been discharged.

Facts

• Assessment Period: 2021-2022.

• Original Proceedings: A Show Cause Notice (SCN) in Form GST DRC-01 was issued proposing tax, interest, and penalty. The petitioner failed to reply, leading to an ex-parte order confirming the proposals.

• Voluntary Payment: The petitioner subsequently made voluntary payments of the admitted tax liability through Form GST DRC-03.

• Rectification Application: The petitioner filed a rectification application under Section 161.

• Rectification Order: An order was passed on 14.08.2023, which:

  • Reduced the dues (likely accounting for the payments made).

  • Recorded that the benefit of reduced penalty (under Section 74(5)) was not available because the payment was not made within 30 days of the notice.

  • Noted that interest on the belated admitted tax had not been remitted.

• The Lapse: The petitioner failed to file a statutory appeal under Section 107 within the prescribed limitation period (3 months + 1 month) from the original/rectification order.

• Writ Petition: The petitioner approached the High Court seeking permission to file an appeal to contest the remaining liability (primarily penalty), arguing that the tax was paid.

Decision

• The Madras High Court ruled in favour of the assessee (on the procedural aspect).

• Scope of Dispute: The Court noted that the substantive dispute was now limited to the liability of penalty for the belated payment of admitted tax, as the primary tax liability had been discharged.

• Conditional Relief: Acknowledging the petitioner’s right to a fair hearing on the penalty issue, the Court exercised its writ jurisdiction to bypass the statutory limitation bar.

• Directions:

  • The petitioner was permitted to file a statutory appeal before the Appellate Authority within 30 days.

  • Condition: This permission was subject to the petitioner depositing 25% of the disputed tax amount (penalty/interest) along with the interest component.

  • Mandate to Appellate Authority: Upon compliance with the deposit condition, the Appellate Authority was directed to decide the appeal on merits without referencing the limitation period (i.e., treating the appeal as timely).

Key Takeaways

• High Court’s Discretion on Limitation: While Section 107 imposes a strict timeline for appeals (which the Appellate Authority cannot extend beyond one month), the High Court under Article 226 can condone longer delays to ensure substantive justice, especially when tax is already paid.

• Cost of Condonation (25% Pre-Deposit): To balance the equity, High Courts often impose a higher pre-deposit condition (e.g., 25% instead of the statutory 10%) for allowing time-barred appeals.

• Rectification and Limitation: A rectification order generally merges with the original order only to the extent of the rectification. It does not necessarily grant a fresh full window for appeal on issues not subject to rectification, which is why writ intervention was needed here.

• Penalty on Belated Payment: The core dispute—whether penalty under Section 74 applies when tax is paid belatedly but before adjudication—remains a matter of merit to be decided by the Appellate Authority.