The GST Appellate Tribunal (GSTAT), Hyderabad Division Bench, Court-II, has held that a First Appellate Authority (FAA) cannot condone delay in filing a GST appeal beyond the outer statutory limit prescribed under Section 107(4) of the CGST Act.
However, in a significant common order, the Tribunal declined to interfere with the orders under challenge because the Department had already implemented those orders by restoring the taxpayers’ GST registrations and allowing them to resume business.
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The respondents/assessee were registered taxpayers whose GST registrations had been cancelled after they allegedly failed to furnish their monthly GSTR-3B returns continuously for six months. The cancellation proceedings were initiated under Rule 21(h) read with Rule 22(3) of the CGST Rules and Section 29(2)(c) of the CGST Act.
Following cancellation, the taxpayers did not file applications for revocation within the prescribed period. They subsequently approached the First Appellate Authority under Section 107 of the CGST Act after expiry of both the normal appeal period and the additional period within which delay could ordinarily be condoned.
The FAA nevertheless condoned the delay and allowed the appeals, relying, among other decisions, upon judgments of the Telangana High Court in Southern Enterprises v. State of Telangana and Chenna Krishnama Charyulu Karampudi v. State of Telangana.
The Department challenged these orders before the GSTAT, contending that the FAA had exceeded its statutory jurisdiction.
The Department submitted that Section 107(1) provides three months for filing an appeal against an order, while Section 107(4) permits the appellate authority to condone delay only for a further period of one month where sufficient cause is established.
The Department contended that once the aggregate statutory period had expired, the FAA had no jurisdiction to entertain the appeal or condone any further delay. The Department argued that reliance on High Court orders passed under Article 226 could not enlarge the statutory powers of the FAA.
The Department relied upon several judicial precedents, including the Supreme Court’s decisions in Assistant Commissioner (CT), LTU, Kakinada v. Glaxo Smith Kline Consumer Health Care Limited and Singh Enterprises v. Commissioner of Central Excise, Jaipur. It argued that a statutory appellate authority must operate strictly within the jurisdiction granted by legislation.
The GSTAT accepted the Department’s contention on the first legal issue.
The Tribunal distinguished between the extraordinary constitutional jurisdiction exercised by a High Court under Article 226 and the limited statutory jurisdiction of a First Appellate Authority.
It observed that a High Court, while exercising constitutional jurisdiction, may mould relief in an appropriate case notwithstanding statutory limitations. However, such constitutional powers cannot automatically be transferred to or exercised by a statutory appellate authority.
The Tribunal specifically held that the FAA is a creature of the statute and is bound by the limits prescribed under Section 107 of the CGST Act. The judgments of the Telangana High Court relied upon by the FAA did not establish that the FAA possessed an inherent power to condone delay beyond the outer limit under Section 107(4).
Accordingly, the Tribunal held that the FAA had travelled beyond its statutory jurisdiction by condoning the inordinate delay. It described the exercise as an assumption of jurisdiction that was not available to the authority and held that the consequential orders entertaining and allowing such appeals were legally unsustainable.
The GSTAT noted that those High Court proceedings involved the exercise of extraordinary jurisdiction under Article 226 and were decided on the facts and circumstances of those cases. According to the Tribunal, the relief granted by a constitutional court could not be treated as a general proposition enlarging the jurisdiction of the FAA under Section 107(4).
The Tribunal stressed that the ratio of a judgment must be distinguished from the relief moulded by a constitutional court in the peculiar circumstances of a particular case.
It consequently concluded that the FAA should have confined itself to the statutory limitation contained in Section 107(4) and could not invoke equity or substantial justice to assume a power that had not been granted by the legislature.
Despite reaching this conclusion, the Tribunal found another crucial factor that changed the practical outcome of the Department’s appeals.
After the FAA passed the impugned orders, the Department itself acted upon those orders and restored the GST registrations of the concerned taxpayers. The taxpayers thereafter resumed their businesses, filed pending returns and discharged tax liabilities and other applicable dues.
The Tribunal observed that the Department’s implementation of the orders had altered the legal and commercial position of the taxpayers.
The Tribunal therefore held that the Department could not simply seek annulment of the orders after having implemented them and restored the registrations.
The Tribunal highlighted the practical consequences that would arise if the Department’s appeals were allowed at that stage.
It noted that restoration of the registrations had enabled the taxpayers to resume business and undertake genuine commercial transactions. If the registrations were again cancelled, including retrospectively, it could affect transactions undertaken during the intervening period.
The Tribunal also noted that such a development could have implications for genuine input tax credit availed by recipients of supplies from the concerned taxpayers, despite those recipients having committed no default.
The Tribunal ultimately held that, even though the FAA had exceeded its jurisdiction in condoning the delay, the Department’s subsequent conduct prevented the Tribunal from granting any effective relief.
The GSTAT observed that the Department had restored the registrations and treated the impugned orders as operative. Having implemented those orders, it could not simultaneously seek their annulment without addressing the consequences flowing from the restoration.
Consequently, the Tribunal held that the Department’s appeals had become infructuous and that no effective relief could be granted. The appeals were therefore disposed of as not maintainable.
The GSTAT also made strong observations regarding the manner in which the Department proceeded.
It recorded that the Departmental authorities displayed serious negligence on more than one occasion. If the Department believed that the FAA had exceeded its jurisdiction, it should have promptly approached the jurisdictional High Court for appropriate relief. Alternatively, if it accepted the correctness of the FAA’s orders, it should have acted consistently with that position.
Instead, the Department first implemented the orders by restoring the registrations and subsequently challenged the very orders that it had acted upon.
The Tribunal further noted that a substantial period had elapsed between the impugned orders and the departmental appeals. It observed that a simple verification of the registration status would have revealed that the registrations had already been restored.
The Department had also argued that the taxpayers had failed to comply with Rule 23 of the CGST Rules concerning revocation of cancellation.
The Tribunal rejected this objection, observing that the common portal did not practically permit the taxpayers to file revocation applications after the prescribed period had elapsed. In those circumstances, the taxpayers could not be faulted for pursuing the alternative statutory remedy of appeal under Section 107.
The Tribunal held that failure or inability to comply with Rule 23 could not extinguish the statutory right to challenge cancellation through an appeal where such remedy was otherwise available.
The taxpayers had also challenged the cancellation proceedings on the ground of violation of natural justice.
They contended that the show-cause notices and orders did not provide sufficient particulars regarding the tax periods for which returns were allegedly not filed and did not disclose the foundational material supporting cancellation. They also argued that merely uploading documents on the GST portal, without effective communication, did not provide a meaningful opportunity of defence.
The Tribunal found considerable merit in this contention. However, since it had already reached its conclusions regarding limitation and the subsequent restoration of registrations, it considered that remanding the matters would serve no practical purpose.
The Tribunal therefore did not conclusively decide the natural justice issue and left it open for determination in an appropriate case.
The GSTAT’s order draws an important distinction between the statutory limitation governing appeals before the FAA and the consequences of subsequent administrative action by the Department.
The Tribunal clearly held that the FAA cannot condone delay beyond the outer limit prescribed under Section 107(4) of the CGST Act merely by relying on High Court orders passed in exercise of Article 226 jurisdiction.
At the same time, the Tribunal held that where the Department has already implemented such an order, restored the taxpayer’s registration and allowed the taxpayer to resume business, a subsequent departmental challenge may become incapable of yielding effective relief.
Thus, the common order ultimately preserves the restored registrations in the cases before the Tribunal, not because the FAA possessed jurisdiction to condone delay beyond Section 107(4), but because the Department had already acted upon the FAA’s orders and the resulting circumstances rendered its appeals infructuous.
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