No Appeal Shall Be Heard Without Disputed Tax Deposit: Bombay High Court Upholds Constitutionality of Section 96(b) of the Cantonment Act, 2006

On September 26, 2024, the Bombay High Court delivered a significant ruling in SGS Infratech Limited SGC Mall v. Union of India & Ors., addressing the constitutionality of Section 96(b) of the Cantonment Act, 2006. The Court upheld the requirement for appellants to deposit the full disputed tax amount before an appeal can be heard, dismissing claims that the provision is arbitrary and unconstitutional under Articles 14 and 19(1)(g) of the Indian Constitution.

The dispute arose when SGS Infratech Limited, operating a shopping mall within the Pune Cantonment Board's jurisdiction, challenged the tax assessment for the triennial period 2011-2014 under the Cantonment Act, 2006. The company contested the provisional tax bills and demand notices issued by the Board, claiming arbitrary determination of the annual ratable value. The petitioner also questioned the constitutional validity of Section 96(b), which mandates that no appeal against tax assessments can be heard unless the disputed tax is deposited annually.

The petitioner sought multiple reliefs, including a declaration that Section 96 of the Cantonment Act is ultra vires and a stay on the tax demands pending a reassessment.

The central legal issue was the constitutional validity of Section 96(b) of the Cantonment Act, 2006. This provision states that no appeal can be entertained unless the disputed tax is deposited before the due date, which the petitioner argued violated the rights to equality (Article 14) and the freedom to conduct business (Article 19(1)(g)).

Petitioner's Arguments: Counsel for the petitioner argued that the pre-deposit condition placed an unreasonable burden on businesses, especially when tax determinations were arbitrary and unjustified. The petitioner claimed that Section 96(b) imposed an unfair and onerous condition on the right to appeal, a fundamental legal safeguard, without allowing any waiver in cases of hardship.

Respondent's Arguments: The counsel for the Cantonment Board contended that the provision was identical to Section 87(b) of the Cantonment Act, 1924, whose validity had been upheld by the Supreme Court in St. Mary’s School v. Cantonment Board. He further argued that tax laws commonly require pre-deposit before an appeal can proceed, and the measure was essential for ensuring timely tax recovery.

The Bombay High Court, in a detailed judgment delivered by Justice M. S. Sonak, reaffirmed the constitutionality of Section 96(b), citing the Supreme Court’s earlier decision in St. Mary’s School and related rulings on similar provisions in municipal tax laws. The Court emphasized that the right to appeal is a statutory right and can be subject to conditions imposed by the legislature.

In rejecting the petitioner’s arguments, the Court noted that requiring the deposit of the disputed tax did not infringe upon Article 19(1)(g) or constitute an unreasonable restriction. The Court pointed out that similar provisions had withstood constitutional challenges in other jurisdictions, underscoring the importance of balancing taxpayer rights with the need for efficient tax collection mechanisms.

“There is no inherent or fundamental right to appeal against tax assessments. Statutory conditions on such rights, including the requirement to deposit disputed amounts, do not violate the Constitution’s equality or freedom of trade clauses.”

The Bombay High Court dismissed the petition, upholding the validity of Section 96(b) of the Cantonment Act, 2006. The Court ruled that the petitioner must comply with the statutory requirement of depositing the disputed tax to avail the right of appeal, affirming that the provision was neither arbitrary nor unconstitutional.

Date of Decision: September 26, 2024

SGS Infratech Limited SGC Mall v. Union of India & Ors.