Goods & Services Tax (GST) in IndiaUpholding Natural Justice: Personal Hearing Mandate Under Section 75(4) Of CGST/MGST Act

The Bombay High Court, in the case of  Mauli Sai Developers Private Limited v. Union of India, [WRIT PETITION (L) NO.38399 OF 2022 decided on 22.01.2024], emphasized the essential requirement of providing a personal hearing as mandated by Section 75(4) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”), regardless of whether the taxpayer has formally requested one in writing. This is especially pertinent when there is consideration of issuing an adverse order.

FACTS

Mauli Sai Developers Private Limited (hereinafter referred to as “Petitioner”) is a construction company selling flats and complexes. They’re registered under the Central Goods and Services Tax Act, 2017 (hereinafter referred as “CGST”) and Maharashtra Goods and Services Tax Act, (hereinafter referred as (“MGST”). The Deputy Commissioner (hereinafter referred as “Respondent No.3”) notified in December 2020 that the Petitioner’s audit was to be conducted in terms of Section 65 of the CGST/MGST Act. The Petitioner requested an extension for audit preparation in January 2021 and submitted all necessary documents by January 2021. State Tax officers visited in March 2021, and the Petitioner responded to audit findings in February 2022.

Following this, Respondent No.3 issued a Show Cause Notice in April 2022, alleging the Petitioner didn’t pay CGST/MGST on flats for slum dwellers and wrongly claimed Input Tax Credit (ITC). The amount demanded was Rs. 20,02,16,288/-. (inclusive of interest and penalty).

The Petitioner replied preliminarily in July 2022 and provided a detailed response in August 2022. However, Respondent No.3 passed an order in September 2022 without giving the Petitioner a personal hearing, demanding the mentioned amount.

Therefore, the petitioner filed this Writ Petition, invoking Article 226 of the Constitution of India, in which the petitioner requests the quashing of the said Order dated 8th September 2022 issued by Respondent No.3.

ISSUES BEFORE THE DELHI HIGH COURT

1. Whether under Section 75(4) of the CGST/MGST department is bound to give a personal hearing to the person chargeable with tax or penalty?

CONTENTIONS OF THE PARTIES

The Petitioner contends that the Order issued by Respondent No.3 on 8th September 2022 contravenes the stipulations outlined in Section 75(4) of the CGST/MGST Act and infringes upon the principles of natural justice due to the absence of a personal hearing granted to the Petitioner prior to the issuance of the aforementioned Order.

The Respondents primarily contended that there was no obligation to provide the Petitioner with a personal hearing since the Petitioner did not formally request one. Consequently, Respondent No.3 was deemed justified in issuing the Order dated September 8, 2022, without affording the Petitioner a personal hearing, relying instead on the Petitioner’s filed responses and the documented evidence on record.

DECISION AND FINDINGS

Upon careful consideration of the arguments presented by both parties and a thorough examination of the relevant documents, it is evident from the language of Section 75(4) that even in instances where the individual liable for tax or penalty has not expressly sought a personal hearing, the tax authority is obligated to provide one when contemplating an adverse decision against said individual. In the present case, the Order dated September 8, 2022, rendered a decision unfavorable to the Petitioner. Consequently, Respondent No.3 was mandated to grant a personal hearing to the Petitioner before issuing the aforementioned Order, irrespective of whether the Petitioner formally requested such a hearing.

Given these circumstances, the absence of a personal hearing for the Petitioner prior to the issuance of the Order dated September 8, 2022, constitutes a violation of the principles of natural justice and is evidently inconsistent with the provisions outlined in Section 75(4) of the CGST/MGST Act.

This Hon’ble Court finds support in previous rulings by the Division Bench of this Court in cases such as Kuehne Nagel Private Limited Vs. The State of Maharashtra & Ors. (Writ Petition No. 15210 OF 2023) and Hydro Pneumatic Accessories India Pvt. Ltd. Vs. The Assistant Commissioner of State Tax, Muland West & Anr. (Writ Petition (L) No. 33343 of 2023), in which one of our esteemed colleagues, Justice G. S. Kulkarni, presided. Hence, the High quashed and set aside the Impugned Order dated 8th September 2022 passed by Respondent No.3.

AMLEGALS REMARKS

The judgment in the case of Mauli Sai Developers Private Limited v. Union of India emphasizes the paramount importance of upholding principles of natural justice within the framework of taxation laws. The Bombay High Court’s ruling reaffirms that the right to a personal hearing, as enshrined in Section 75(4) of the CGST/MGST Act, is not contingent upon a formal request from the taxpayer but is an inherent entitlement when there’s a possibility of an adverse order. By emphasizing this fundamental aspect, the court ensures fairness and transparency in tax proceedings, safeguarding the interests of taxpayers and upholding the rule of law. In quashing the impugned order and setting aside the decision of Respondent No.3, the High Court reaffirms its commitment to preserving the principles of natural justice and ensuring due process in administrative actions. This judgment serves as a significant precedent, not only in clarifying the obligations of tax authorities but also in upholding the rights of taxpayers, thereby fostering trust and equity in the taxation system.

– Team AMLEGALS assisted by Mr. Samarth Sheth (Intern)