[Patna HC] Appellate Authorities Under GST Must Decide Appeals on Merits, Not Technicalities

Introduction

In a significant judgment concerning the responsibilities of appellate authorities, the Hon’ble High Court of Patna examined the dismissal of an appeal under the Bihar Goods and Services Tax Act, 2017 (‘Bihar GST Act’) due to the appellant’s inability to produce certain documents. In M/s Silverline v. Deputy Commissioner, State Tax[i], the Court held that appellate authorities must decide appeals on the merits and provide reasoned decisions, regardless of procedural lapses by the appellant. This decision highlights the importance of ensuring substantive justice while addressing the challenges of efficient case management.

Brief Facts

• M/s Silverline (‘Petitioner’) is a proprietorship firm operating in Patna, Bihar, through its proprietor, Mrs. Nishi Kumari. The firm filed an appeal under s. 107 of the Bihar GST Act against an order passed by the Deputy Commissioner, State Tax, Patna City West Circle.

• The appeal was filed within the statutory timeline prescribed under the Bihar GST Act. However, during the appellate proceedings, the Petitioner was unable to produce certain documents necessary to substantiate its case, despite being granted multiple opportunities by the appellate authority.

• The appellate authority dismissed the appeal without adequately examining the grounds raised in the memorandum of appeal and or conducting a merit-based inquiry.

• Aggrieved by the dismissal, the Petitioner approached the High Court under Article 226 of the Constitution of India, arguing that the appellate authority had abdicated its statutory duty by failing to adjudicate the appeal on merits.

Issues Raised

• Whether the appellate authority under s. 107 of the Bihar GST Act failed to discharge its obligation to decide the appeal on the merits and issue a reasoned order.

• Whether the failure of the Petitioner to produce documents discharged the appellate authority of its duty to consider the grounds raised in the memorandum of appeal.

Held

• The High Court set aside the order passed by the appellate authority. It directed the restoration of the appeal, instructing the appellate authority to fix the next hearing and thereafter dispose of the matter within three months from the last hearing. The Court expressly mandated a reasoned, speaking order addressing all grounds, irrespective of the Petitioner’s presence or absence, while also directing the Petitioner to cooperate in ensuring timely adjudication.

• The Court highlighted that ss. 107(8) to 107(12) of the Bihar GST Act impose a statutory obligation on the appellate authority to examine the appeal on merits, consider the grounds raised in the appeal memorandum, conduct further inquiry, if necessary, to render a just decision.

• Referring to the earlier decision in Purushottam Stores v. The State of Bihar & Ors.[ii], the Court reiterated that appellate authorities are mandated to adjudicate on merits, even in cases where the appellant is absent or fails to submit relevant documents. In the cited decision, the High Court had relied upon established jurisprudence from the Supreme Court’s judgment in CIT v. S. Chenniappa Mudaliar[iii], highlighting that appellate authorities have an inherent duty to examine the correctness of departmental orders irrespective of procedural defaults by appellants.

• Accordingly, the Court held that the dismissal of the appeal by the appellate authority amounted to an abdication of its statutory responsibility under ss. 107(8) to 107(12) of the Bihar GST Act and laid down that even in ex-parte proceedings, the appellate authority was duty-bound to evaluate the grounds of appeal and pass a reasoned order thereof.

Our Analysis

The current case demonstrates the judiciary’s commitment to ensuring substantive justice over procedural technicalities. By mandating appellate authorities to adjudicate appeals on merits, even in cases of non-prosecution or procedural lapses, the decision emphasizes their statutory obligations under the GST Act.

The judgment addresses an important gap, especially significant in the context of GST litigation. The GST Appellate Tribunals (‘GSTATs’), established to streamline the resolution of GST disputes and reduce the burden on higher judicial forums, must adhere strictly to the principles of merit-based adjudication to enhance taxpayer trust and legal certainty. It is evident that GSTATs provide an essential layer in the dispute resolution mechanism, and their timely and merit-based functioning directly impacts the ease of doing business in the country.

However, this approach has practical limitations. As per recent reports[iv], despite the establishment of GSTATs, several tribunals across India remain non-functional or understaffed due to administrative delays and the full functionality of GSTATs is likely delayed until late 2025. Another source[v] reported in 2023 that although digital filing and hybrid hearings have been introduced to facilitate efficiency, the limited operational tribunals hinder the speedy disposal of cases.

Consequently, while the Court’s mandate safeguards against arbitrary dismissals and procedural unfairness, practical challenges persist, particularly in managing appeals efficiently with the limited number of functional GSTSTs. This practical bottleneck could unintentionally encourage litigants to strategically delay proceedings, knowing that their appeals will mandatorily require full merit-based consideration, irrespective of procedural defaults.

Therefore, while judicial emphasis on merit-based adjudication is vital to uphold fairness and taxpayer confidence, addressing the operational shortcomings of GSTATs remains equally critical to ensure that justice is not only substantive but also swift and effective.

End Notes

[i] 2024 SCC OnLine Pat 7278 dated 21.10.2024

[ii] CWJC No. 4349 of 2023.

[iii] [1969] 1 SCC 591

[iv] Arup Roychoudhury, GST Appellate Tribunal (GSTAT) delays: Full setup may only happen in late 2025, BUS. STANDARD, Jan. 15, 2025, https://www.business-standard.com/economy/interviews/gst-appellate-tribunal-gstat-delays-2025-setup-125011500605_1.html.

[v] Explained: GST Appellate Tribunal Goes Live – Check details on Digital Filing, Hybrid Hearings & more, CNBC-TV18, Nov. 14, 2023, https://www.cnbctv18.com/economy/explained-gst-appellate-tribunal-goes-live-check-details-on-digital-filing-hybrid-hearings-more-19594451.htm.

Authored by Nitish Solanki, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.