Prior payment of 25% before entertaining appeal u/s 62(5) of PVAT Act has to be of total tax penalty and interest.

Section 62(5) of Punjab VAT Act provides for a mandatory condition of minimum payment of 25% of the total tax, penalty and interest, if any before any appeal under Punjab VAT Act 2005 is entertained.

Section 62(5) of PVAT Act runs as under:

“No appeal shall be entertained, unless such appeal is accompanied by satisfactory proof of the prior minimum payment of twenty five per cent of the total amount of tax, penalty and interest, if any”

From the plain reading of the above provision it is clear that prior payment of total tax, penalty and interest if any has to be deposited before entertainment of an appeal.

Punjab & Haryana High court in case of M/S Ahluwalia Contracts (P) Ltd vs. State of Punjab VSTI 2010 (Vol. 8) B-597 has held that it is the total amount of tax, penalty and interest  has to be considered and not the additional demand, while calculating 25%  prior minimum payment.

It means that if an additional demand is created in any order under PVAT Act 2005 then while calculating 25% minimum prior payment it’s the total tax penalty and interest  will have to be considered and not just the additional demand.

This can be explained with the following example: 

If as per returns of a person total output tax is Rs. 100 and the ITC adjusted is Rs. 25 and Rs. 75 is tax deposited by him along with his returns. Now if in the assessment proceedings additional demand of Rs. 100 is created, against which an appeal is preferred by such person then he will not be required to deposit any further sum u/s 62(5) since the total tax assessed in his case is Rs. 200 (i.e Total Output Tax +Additional Demand) and Rs. 100( i.e ITC +Tax paid with returns) has already being deposited by such person which is more than 25% of total Tax assessed (i.e Rs. 200). Therefore such person cannot be asked to deposit again 25% of additional demand created.

In a recent case namely M/S New Bharat Rice  Mills vs. State of Punjab [VSTI 2011 (Vol. 10) C-178] wherein the total tax assessed was Rs. 1,70,88,254 and the tax paid and ITC adjusted was Rs. 1,01,99,892 and the additional demand of Rs. 68,88,362 was created in the order by the AETC. When the said order was appealed against before the DETC (Appeals) by depositing Rs 1168000/- , the appeal was rejected by  stating that the amount of 25% of additional demand (i.e Rs. 68,88,362-00) Rs. 17,22,090 was not deposited hence appeal cannot be entertained.

When the matter went in appeal to the tribunal it was held that 25% of total tax interest and penalty has to be considered while considering the satisfaction of condition u/s 62(5), in view of the Ahluwalia case(Supra). Total Tax, Interest and Penalty in the said case was Rs. 1,70,88,254/- and 25% of it comes out to be 42,72,063/- and the ITC and Tax deposited of the dealer was already 1,01,99,892 i.e much more than 25% of total tax hence the appeal cannot be rejected.  

Thus two things come out from above, first is that 25% of total tax, interest and penalty has to be seen and secondly ITC adjusted and Tax paid will also be taken as part of 25% of the amount of total tax, interest and penalty.

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