Goods & Services Tax (GST) in IndiaNo Adverse Order can be passed without Granting personal Hearing

The Allahabad High Court in K.J. Enterprises v. State of U.P.,[ Writ Tax No. 1544 of 2022, decided on 1-02-2024], held that an adverse order cannot be passed without granting an opportunity of personal hearing to the taxpayer.

FACTS

M/S K.J. Enterprises, (hereinafter referred to as the “Petitioner”) was engaged in the business of job work of scrap, selling and purchasing of iron machinery parts and hardware. The Petitioner, pursuant to the purchases made in March 2018, claimed Input Tax Credit (hereinafter referred to as “ITC”) under Uttar Pradesh Goods and Services Tax Act, 2017 (hereinafter referred to as the “UPGST Act”).

On 24.07.2019, an inspection was carried out at the premises of the Petitioner, and during the inspection, the authority directed the Petitioner to deposit the amount in  Form DRC-03.

A summons on 13.08.2019 was issued on the Petitioner, directing for personal appearance along with requisite documents. A Show Cause Notice (hereinafter referred to as the “SCN”) dated 22.07.2020 was issued on the Petitioner, alleging wrongful availment of ITC by issuing fake invoices by fraud, wilfull misstatement, suppression of material facts etc.

Another notice was issued on 17.09.2020, directing the Petitioner to furnish a reply by 06.10.2020. The Petitioner filed a reply on 01.10.2020. The Deputy Commissioner State Tax (hereinafter referred to as the “Respondent No.3”) rejected the reply of the Petitioner and confirmed a demand of Rs. 6,78,12,667.92/- (Rupees Six Crores Seventy-Eight Lakhs Twelve Thousand Six Hundred Sixty Seven Only) inclusive of penalty and interest vide order dated 10.08.2021(hereinafter referred to as the “Original Order”).

The Petitioner preferred an appeal against the Original Order before the Ld. Additional Commissioner Grade-2, (Appeals), Commercial Tax, Agra (hereinafter referred to as the “Respondent No.2”), but the Original Order was upheld vide Order dated 26.09.2022 (hereinafter referred to as the “Impugned Order”).

Hence, being aggrieved by the Impugned Order, the Petitioner has filed the present Petition.

ISSUES BEFORE THE ALLAHABAD HIGH COURT

1. Whether the present Petition is maintainable as per the provisions of the CGST Act and UPGST Act?

2. Whether an Adjudicating Authority can pass an order without according an opportunity of personal hearing to the Petitioner?

CONTENTIONS OF THE PARTIES

The Petitioner contended that Respondent No.3 as well as Respondent No.2 have failed to accord an opportunity of personal hearing while deciding the matter and therefore, the Original Order as well as the Impugned Order are unsustainable in law.

The Petitioner argued that Section 75(4) of the UPGST Act categorically stated that the Petitioner should have been granted an opportunity of being heard.

The Respondents contended that the present petition was not maintainable as an alternate remedy for filing of an appeal under Section 107 of the CGST Act was available with the Petitioner.

DECISION AND FINDINGS

The Allahabad High Court observed that according an opportunity of a personal hearing is mandatory, especially when an adverse decision is contemplated against a taxpayer.

The High Court relied on Commissioner of Sales Tax, Uttar Pradesh v. The Modi Sugar Mills Ltd., reported in, MANU/SC/0276/1960 and observed that any taxation statute shall be read as per the legislative intent without presuming or assuming the interpretation of the words. Therefore, as per the provisions of Section 75(4) of the UPGST Act, an opportunity of personal hearing shall be mandatorily granted to the Petitioner.

The Court observed that failure to accord an opportunity of personal hearing by the Respondents was a gross violation of principles of natural justice. The Court quashed an set aside the Original Order as well as the Impugned Order and directed the Respondents to accord an opportunity of a personal hearing and then pass a reasoned order within two months.  

AMLEGALS REMARKS

The High Court upheld the legislative intent as well as the principles of natural justice that an opportunity for a personal hearing shall be accorded to a taxpayer, against whom civil consequences are proposed.

Moreover, the legislative mandate of Section 75(4) of the UPGST Act categorically provides for an opportunity for a personal hearing. Furthermore, a taxation statute has to be read as per the legislative intent of the taxation.

– Team AMLEGALS assisted by Ms. Dhwani Tandon