CA K. Jitendra Babu

1. It is common experience of trade, industry and professionals to come across stay orders passed by appellate authorities in tax appeals, in a very routine and un-lawful manner, without going into the facts and merits of the case, ordering for deposit of major portion of the disputed demand that shake the faith of the assessees in the redressal mechanism.

2. Most of the hearings on the stay matters, particularly before the 1st appellate authorities who are departmental officers, are only a formality. Stereo-type orders are passed stating that prima facie case is found in favour of the revenue and appellant has not made out case for stay (or complete stay). Even though it is apparent on the face of the assessment order that the demand is totally unlawful, the appellate authorities are not bothered to reject stay petition or order for deposit of substantial part of the disputed demand.

3. Once the stay petition is rejected by the 1st appellate authority, the assessing authority starts pressurizing the assessee for deposit of the disputed demand, without allowing him to exhaust the statutory remedy of filing stay petition before the Tribunal (or 2nd appellate authority), as permitted in general in the tax laws. By the time the assessee approaches the 2nd appellate authority and gets the petition listed for hearing, the assessing authority by all means try to recover the disputed demand either fully or partly. Bank accounts of the assessees are also attached to recover the disputed demands, even before the stay petitions are heard by 2nd appellate authority, thereby defeating the very purpose of providing redressal mechanism of filing stay petition before the 2nd appellate authority.

4. If the disputed demand is recovered by the time the stay petition is heard by the 2nd appellate authority, the purpose of statutory provisions enabling assessees to approach 2nd appellate authority against stay order of the 1st appellate authority is negated. If the assessing authority recovers entire disputed demand before the case is heard by 2nd appellate authority, the hearing before 2nd appellate authority becomes infructuous. In such cases, stay petitions get dismissed by the 2nd appellate authority or High Court as infructuous, since the entire demand has already been recovered by the revenue.

5. In order to mitigate the injustice done to trade and industry and to instill faith in appellate mechanism, there should be clear provisions in the tax laws on stay matters, specifying that no recovery should be done unless and until stay petitions are heard by the appellate authorities/courts.

6. It is a well known fact, which is proved by statistics, that most of the demands raised by tax authorities are set-aside by the higher forums like Tribunal, High Court, Surpeme Court. Most of the demands are upheld by the 1st appellate authorities without much discussion on the factual and legal position of the cases. Therefore justice is expected only at the level of Tribunal or Courts. That being the ground reality, recovery after disposal of the appeal/stay petition by the 1st appellate authorities, who are departmental authorities, is totally inequitable.

7. In order to instill faith in the system, the provisions relating to recovery and disposal of stay petitions should be made equitable, clear and time bound. The provisions should bar assessing authorities from resorting to coercive action, in case the stay petitions filed by assessees are pending before the Tribunal or High Court or Supreme Court. In order to protest revenue interests also, provision should be made in the tax laws for time bound disposal of stay matters by Tribunal, High Court or Supreme Court.

8. Allahabad High Court in a recent judgement in the case of M/s TATA MOTORS LIMITED Vs. COMMISSIONER COMMECIAL TAX, U.P. LUCKNOW held that orders in stay matters should be passed with due application of mind, taking into consideration prima facie merits of the case, balance of convenience, irreparable injury and other relevant facts as held by Hon ‘ble Supreme Court in various cases. The court held that passing cryptic orders in stay matters is highly objectionable. Important observations of the Court are produced hereunder:

It is indeed a deplorable state of affairs and it is high time that the learned Tribunal and the Appellate Authorities under various taxing statutes woke up to the constitutional and statutory obligations imposed upon them to follow the principles of law enunciated by the Supreme Court and by this Court while considering an application for stay of disputed tax liability”.

“Such cryptic recitals both by the First Appellate Authority and the learned Tribunal do not satisfy the requirement of law. The passing of such orders in such a manner are hereby deprecated”.

“Thus, the Supreme Court clarified the matter regarding prima-facie case, thus in a given case if the issue involved has already been adjudicated then it would be a very strong prima facie case in favour of the assessee and subjecting the assessee to tax-liability even in such cases would fall within the ambit of the observations made by the Supreme Court in Benara Valves Ltd (supra) as aforesaid”.

“In nut shell the Sumnum Bonum of the decision is due and proper application of mind to the factual scenario involved in the case keeping in mind the principle of prima facie case, balance of convenience, irreparable injury and other relevant factors discussed hereinabove. The order should disclose such application of mind. Cryptic observations as have been made in the present case, which have been noted in the earlier part of the judgment, do not satisfy these requirements. The passing of interim order in such a manner is highly objectionable”.

9. Judgement of Bombay High Court in the case of M/s. Ventura Textiles Ltd. Vs. Income Tax Officer is worth noting, wherein the court ruled that no coercive action should be taken during the pendency of stay petition. Recovery in such a case would render the Section, enabling the assessees to approach the higher forum for stay, redundant.

Copies of both the judgements are attached herewith for ready reference of readers which will be useful in dealing with their cases of similar nature.

(Author may be contacted

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February 2024