GSTAT: Goods and Services Tax Appellate Tribunal. It’s formation - Why, When and Alternate remedy?

Formation of GSTAT has been a long-driven issue, however, after half a decade of GST implementation, it seems that the momentum of the same is getting pace and a lot of development may be seen in coming 6 months. This is primarily because Hon’ble Union Finance Minister during the 47th GST Council meeting on 28-29th June, 2022 announced the formation of GoM to address various issues raised by the states related to the constitution of GSTAT.

A Group of Ministers (GoM) on GSTAT comprising of 6 members is being constituted on 6-7-2022, to recommend and submit its report for the consideration by the GST Council by 31-7-2022, on necessary amendments required in the GST Laws to ensure that the legal provisions:

· Maintain the right federal balance;

· Are in line with the overall objective of uniform taxation within the country; and

· Are in line with the principles outlined in the judgements of the Courts in relation to various aspects of Tribunal and are legally sustainable.

GoM had its first online meeting on 26-7-2022 and now the physical meeting will be held again on 17-8-2022 to finalize its recommendations on the formation of the GSTAT at the national and state level. The panel had to submit its report by 31-7-2022, but due to some contentious issues related to the number of technical and judicial members in each tribunal, there is a disagreement among members of the panel.

Goods and Services Tax Appellate Tribunal (GSTAT) is the forum of second appeal in GST laws and the first common forum of dispute resolution between Centre and States. The appeals against the orders in first appeals issued by the Appellate Authorities under the Central and State GST Acts lie before the GST Appellate Tribunal, which is common under the Central as well as State GST Acts. Being a common forum, GST Appellate Tribunal will ensure that there is uniformity in redressal of disputes arising under GST, and therefore, in implementation of GST across the country.

Appeals against the orders passed by The Appellate Authority (1st Appellate Authority) or The Revisional Authority can be filed before The Appellate Tribunal (2nd Appellate Authority). The provisions related to the constitution of the Appellate Tribunal and Benches thereof is dealt in section 109 of the CGST Act, 2017. Section 109(2) of the said Act stipulates that the powers of the Appellate Tribunal shall be exercisable by the National Bench and Regional Benches, State Bench and Area Benches.

· National Bench: Section 109(3) of the said Act stipulates that National Bench shall be presided over by the President and shall consist of one Technical Member (Centre) and one Technical Member (State). According to PIB, Government of India, Cabinet dated 23-1-2019, the creation of the National Bench of the GSTAT would amount to one time expenditure of Rs.92.50 lakh while the recurring expenditure would be Rs.6.86 crore per annum.

For Constitution of National Bench of the Goods and Services Tax Appellate Tribunal (GSTAT) at New Delhi, kindly refer Notification No. S.O. 1359(E), dated 13-3-2019.

· Regional Bench: Section 109(4) of the said Act stipulates that Regional Benches shall consist of a Judicial Member, one Technical Member (Centre) and one Technical Member (State).

The initial proposal for setting up four benches for the GSTAT, put forward by the Department of Revenue (DoR), was rolled back and only one national bench was ultimately established. The composition of the bench, in fact, had also been flagged by the Department of Legal Affairs, due to non-inclusion of even a single judicial member.

· State Bench and Area Benches: Section 109(9) of the said Act stipulates that Regional Benches shall consist of a Judicial Member, one Technical Member (Centre) and one Technical Member (State).

For Constitution of State Benches and Area Benches of the Goods and Services Tax Appellate Tribunal (GSTAT), kindly refer Notification No. S.O. 3009(E), dated 21-8-2019 and Notification S.O. 4332(E), dated 29-11-2019.

The below Tables displays the State Bench and Area Benches notified vide aforesaid notifications.

The primary reason in the delay in functioning of the GSTAT is primarily due to its composition wherein the strength of the technical member exceeds the judicial member in the said benches. In this context, there were few petitions filed in the various Hon’ble High Courts challenging vires of sections 109 and 110 of CGST Act, 2017 constituting Appellate Tribunal and qualification, appointment and condition of services of its members and submitted that provisions were violative of doctrine of separation of powers and independence of judiciary. It was held by the Hon’ble Madras High Court in the case of V. Vasanthakumar vs UOI [2018] 97 taxmann.com 82 and another by Revenue Bar Association vs UOI [2019] 109 taxmann.com 375 (Madras)/[2019] 30 GSTL 584 (Madras)[20-09-2019] that the composition of GST Appellate Tribunals is unconstitutional on the ground that number of judicial members must exceed number of technical members. Further, it also concluded that advocates do not have a fundamental right to become judges/judicial members of GSTAT. Another petitioner has challenged the constitutional validity of the said section stating that the composition of Benches is in violation of the judgment of Supreme Court in case of Union of India v. R. Gandhi [2010] 11 SCC 1. Counsel also relied on a decision of Division Bench of Madras High Court in the case of S. Manoharan v. Deputy Registrar 2015 Lab. IC 2580 in which the Court relying on the judgment of Supreme Court in case of R. Gandhi [Supra] held that the larger Bench of Central Administrative Tribunal cannot be formed by including two Administrative members vice one Judicial member. Accordingly, the Hon’ble Gujarat High Court in the case of Pratik Satayanarayan Gattani vs UOI [2018] 93 taxmann.com 115 issued notices to the state government and to the Centre also over non-creation of benches as vires of Central legislation are under challenge. Likewise, a notice to the Attorney General was issued by the Hon’ble Delhi High in the case of Bharatiya Vitta Salahkar Samiti vs UOI [2020] 113 taxmann.com 510.

The Allahabad High Court in the case of Apex Leather v. State of Uttar Pradesh [2022] 136 taxmann.com 243 (Allahabad) dated 9-3-2022, similarly, directed the Uttar Pradesh government to file a status report in July 2019. Further, it stated that in view of alarming situation created due to non-establishing of State Bench and Area Benches of GST Tribunal in the State of Uttar Pradesh, rendering the entire class of dealers remediless under the Act, 2017 from availing statutory remedy of appeal under section 112 of the Act, 2017, we are of the view that under the facts and circumstances and prevailing situation, the matter with regard to the following questions are referred to Larger Bench as a Co-ordinate Bench of High Court cannot sit in appeal over final judgment of another Co-ordinate Bench of equal strength:

(i) Whether by interim order (Awadh Bar Association High Court, Lucknow (supra), directing for not establishing GST Appellate Tribunal for State of Uttar Pradesh without leave of the court, could be passed in conflict with the final judgment dated 9-2-2021 in Writ Tax No. 655 of 2018 passed by the Division Bench?

(ii) Whether under the facts and circumstances of the case and in the interest of dealers in State of Uttar Pradesh under the CGST Act/ U.P.GST Act, 2017, a direction needs to be issued immediately to the respondent No. 4 to notify the State Bench and Area Benches of GST Appellate Tribunal in the State of Uttar Pradesh, within a time bound period so that persons/ dealers may avail statutory remedy of appeal under section 112 of the CGST Act/ U.P. GST Act, 2017 and they may not suffer further?

(iii) Establishment of the State Bench of GST Appellate Tribunal at Prayagraj and its four Area Benches in the State of Uttar Pradesh in terms of the final judgment of the Division Bench Torque Pharmaceuticals (P.) Ltd. (supra) and other 29 connected writ petitions?

In all these cases, problems faced by taxpayers were mentioned and the urgent need to create benches was stressed by petitioners.

According to one of the story covered by Business Standard in https://www.business-standard.com/article/economy-policy/govt-dropped-initial-plan-on-gstat-set-up-proposal-flagged-shows-rti-120013101203_1.html it has been stated that:

"The papers, which were reviewed by Business Standard, are in the form of draft cabinet notes (DCN), inter-ministerial correspondences, file notings and the final cabinet note. They were obtained as a reply to RTI queries filed by transparency activist Venkatesh Nayak. The papers show that in 2018, the Department of Revenue (DoR) framed a proposal for setting up the GSTAT, under which the tribunal would have a National Bench in Delhi and three regional ones in Mumbai, Kolkata and Chennai. After being approved by the finance minister, the DCN was forwarded to Department of Legal Affairs (DoLA), Department of Expenditure (DoE), Dept of Personnel and Training (DoPT), and the Ministry of Housing and Urban Affairs (MoHUA) for their consideration. The DoLA in its response raised a key concern regarding the lack of judicial representation in the GSTAT Bench. It noted, "It is mentioned that the GSTAT will be confronting legal issues concerning jurisdiction, resolution of conflicting views amongst the states inter-se and the Central Government. Hence, in order to equip the Appellate Tribunal with the ability to in-house competent legal advice, it is advisable to consider an officer...as judicial member as proposed in the rules. Doing so will be in accordance with the settled principles of law."

The Department of Revenue (DoR) responded to this saying, "(The) Dept of Revenue is in accordance with section 109 of the CGST Act, which provides that the National Bench of the Appellate Tribunal shall be situated in Delhi and shall be presided over by the President and shall consist of one technical member (from the Centre) and one technical member (from the State)."

In effect, the DoR sidestepped DoLA's concern over the non-inclusion of even a single judicial member in the GSTAT bench.

The fact that DoLA raised concerns over GSTAT's composition becomes essential in light of the fact that nearly a year later, on September 20, 2019, a division bench of the Madras High Court held the structure of the GST appellate tribunal 'unconstitutional'.

In its decision, the bench observed that there should be primacy for judicial members and that technical members cannot exceed judicial members.

No appeal has been filed against the High Court decision so far.

However, by August 2018, the original proposal of one national bench and three regional benches was rolled back. The creation of four benches had been approved by the GST Council in its 21st meeting on July 21, 2018 and a copy had also been sent to the PMO. By October, the revised DCN said that approval for only the Delhi bench has been sought in the initial stage.

In the available documents, 72 pages of which have been held back by the Central Public Information Officer (CPIO) citing Section 8(1)e of the RTI Act, one can neither find a reason for the rollback, nor even a record of the decision.

A possible explanation for the rollback decision is the lack of space for a government accommodation in the metro cities, as noted in the comments made by MoHUA. It is after incorporating the concerns about accommodation that the first recorded decision regarding the rollback has been stated in a file noting.

Nearly a year later, on August 22, 2019, the government notified the creation of state and area Benches. No notification for regional benches has come about yet.

Area benches differ from Regional Benches in one key aspect: they do not have jurisdiction over cases in which the place of supply is an issue. This means area benches do not have the power to adjudicate in disputes involving interstate transactions; only the national and regional benches enjoy such powers.

As of now, taxpayers from across the country have only the bench located in Delhi to approach for such cases."

A PIL in the Supreme Court has sought directions to the Centre for setting up of the Goods and Services Tax Appellate Tribunal, as mandated under the CGST Act, 2017, to avoid hardships caused to litigants and to curb huge backlog of cases.

Hence, the Appellate Tribunal has not been constituted in view of the order by the Hon’ble Madras High Court in case of Revenue Bar Assn. v. Union of India and therefore the appeal cannot be filed within 3 months from the date on which the order sought to be appealed against is communicated. In order to remove difficulty arising in giving effect to the above provision of the Act, the Government, on the recommendations of the Council, has issued the Central Goods and Services Tax (Ninth Removal of Difficulties) Order, 2019 dated 03.12.2019. It has been provided through the said Order that the appeal to tribunal can be made within 3 months (6 months in case of appeals by the Government) from the date of communication of order or date on which the President or the State President, as the case may be, of the Appellate Tribunal enters office, whichever is later.

In the meantime, various representations were received by the CBIC wherein the issue has been decided against the registered person by the adjudicating authority or refund application has been rejected by the appropriate authority and appeal against the said order is pending before the appellate authority. It has been gathered that the appellate process is being kept pending by several appellate authorities on the grounds that the appellate tribunal has been not constituted and that till such time no remedy is available against their Order-in-Appeal, such appeals cannot be disposed. It has been clarified by CBIC vide Circular No. 132/2/2020 – GST dated 18-3-2020 that, as of now, the prescribed time limit to make application to appellate tribunal will be counted from the date on which President or the State President enters office. The appellate authority while passing order may mention in the preamble that appeal may be made to the appellate tribunal whenever it is constituted within 3 months from the President or the State President enters office. Accordingly, it is advised that the appellate authorities may dispose all pending appeals expeditiously without waiting for the constitution of the appellate tribunal.

Though the clarification has been issued still in the absence of formation of GSTAT, it is important to understand whether the taxpayer can invoke the jurisdiction under Article 226 of the Constitution of India, as the alternative remedy of appeal to the Appellate Tribunal is provided under section 109 of the CGST Act, 2017. In this context, it is significant to refer to Para 51 of Appario Retail Private Limited vs Union of India (Telengana) Writ Petition No. 12183 of 2021 dated 28-9-2021 wherein the Hon’ble Telengana High Court while handling the issue of maintainability of Writ Petition has held that though an effective remedy of appeal to the Appellate Tribunal is provided under section 109 of the CGST Act, it is an admitted fact that the said Tribunal has not been constituted, though more than three years have elapsed after the CGST Act has been introduced. Thus, the petitioner cannot be compelled to wait for eternity to agitate its claim seeking refund of the amount to which it is entitled to under the statute and also blocking its funds affecting its cash flows, merely because of existence of (non-functional) alternate forum/remedy on paper, by not invoking the jurisdiction under Article 226 of the Constitution of India. Further, mere existence of alternate remedy is no bar for invoking the jurisdiction under Article 226 of the Constitution of India, when right to carry on business is being impeded, resulting in violation of fundamental right as guaranteed under article 19(1)(g) of the Constitution of India.

Developments in GoM on GSTAT met on 17-8-2022

The GoM met on 17-8-2022 in Bhubaneswar to review the proposed framework. According to one of the reports by the Economic Times dated 20-8-2022, GoM readies report on GSTAT, the following seems to be part of the recommendations:

· The principal bench of the GST Appellate Tribunal (GSTAT) is proposed to be set up in New Delhi, while large states can have up to 5 benches. Now, each state will set its criterion. It has also allowed states to have more than one bench, based on population, or number of registered and active GST users.

· The GoM has agreed with states on relaxing the experience criterion for appointment of technical members. It had been pegged at 25 years in a draft circulated by the GST Council. It recommended an amendment to Section 110 of the Act, replacing the word 'government' with 'state government.' This will allow state governments to relax the experience condition. The existing provision allowed only the Centre to provide relaxations or exemptions in the appointment of members.

· The GoM also recommended that a four-member search and selection committee be set up for the appointment of members to the benches. The selection committee will be headed by either the Chief Justice of India or his representative judge from the top court, along with the president of the GSTAT, a Union government secretary and a state chief secretary.

The following has been reported by The Financial Express:

· Since the appointment has to be done on the recommendations of the search and selection committee, the structure of having national, regional, state and area benches, as proposed in the extant Central GST Act, are no longer required.

· The CGST Act will be modified to provide for all Benches of the same kind with a Principal Bench in New Delhi where the tribunal’s president will sit. The president will distribute the business or transfer cases among Benches.

· According to the eligibility criteria, the technical member from the Centre will be an Indian Revenue Service officer with 25 years of experience while the officer from the state is also required to have 25 years of experience, which can be reduced if no suitable person is found.

· In case there is only one or an odd number of Benches in a state, the technical member/members from the Centre and the state concerned will be on a rotational basis to achieve equity,

Hope the aforesaid helps in understanding the developments made so far in formation of GSTAT and the remedy available for the taxpayers.

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