2024 (11) TMI 1166 - HC - GST

Wrongful availment of CENVAT Credit - Seeking refund the excess utilization of ITC along with penalty - petitioner submits that the impugned order is only a copy-paste of the reply given by the petitioner to the show cause notice and the explanation provided therein has not been considered in a reasonable manner - violation of principles of natural justice - principles of audi alteram partem - HELD THAT - The Apex Court in Mrs. Maneka Gandhi v. Union of India and another 1978 (1) TMI 161 - SUPREME COURT laid down the ratio in relation to the principles of audi alteram partem in the doctrine of natural justice holding that ' The court must make every effort to salvage this cardinal rule to the maximum extent permissible in a given case. It must not be forgotten that natural justice is pragmatically flexible and is amenable to capsulation under the compulsive pressure of circumstances . The audi alteram partem rule is not cast in a rigid mould and judicial decisions establish that it may suffer situational modifications. The core of it must, however, remain, namely, that the person affected must have a reasonable opportunity of being heard and the hearing must be a genuine hearing and not an empty public relations exercise.' Coming to the present writ petition in hand, three factors may be highlighted by this Court. Firstly, the impugned order merely copies the reply provided by the petitioner which leads to a conclusion that there was non application of mind by the respondent authority - Secondly, in the reply to the show cause notice, certain documents and reports were sought for by the assessee, which had been relied upon by the authorities. However, without providing the same to the assessee, the authorities proceeded to impose the tax liability and penalty - Thirdly, the explanation provided by the petitioner with regard to the use of the raw materials in the process of the manufacture by the petitioner supported with opinions of the experts were simply brushed aside by the respondent authority, who did not even examine whether the said raw materials had been used in manufacture of the final products which were fabrics - Without having done so and without granting an opportunity of fair hearing to the petitioner, the liability that has been imposed upon the petitioner appears to be patently illegal and without any authority in law. Thus, non production of certain documents to the petitioner that were relied upon by the authorities, coupled with the manner in which no proper opportunity of hearing was granted to the petitioner leads us to the conclusion that severe prejudice has been caused to the petitioner. Ergo, the impugned order cannot be sustained and is liable to be quashed and set aside. The impugned order dated September 12, 2024 is quashed and set aside with a direction upon the respondent authorities to examine the fabrics, provide a copy of the report to the petitioner, grant an opportunity of hearing to the petitioner and thereafter pass a reasoned order in the same - Petition allowed.

Summary

Issues Involved:

1. Wrongful availing of Input Tax Credit (ITC) and refund.
2. Non-compliance with principles of natural justice.
3. Non-provision of documents relied upon by the authorities.
4. Lack of proper hearing and consideration of the petitioner's explanation.

Issue-Wise Detailed Analysis:

1. Wrongful Availing of Input Tax Credit (ITC) and Refund:

The petitioner was accused of wrongfully availing ITC and refund on the purchase of glycerin, fatty acid, and finishing chemical made from perfumery compound. The authorities alleged that these materials were not used in the manufacturing process of the petitioner's business. The petitioner, however, contended that these materials were used as raw materials in the manufacturing process and that the ITC was legally availed. The authorities revised the tax and penalty amount through successive show cause notices, ultimately imposing a demand of Rs. 37,31,642/-.

2. Non-Compliance with Principles of Natural Justice:

The court emphasized the importance of the principles of natural justice, particularly the rule of audi alteram partem, which requires that no person should be condemned unheard. The court noted that the petitioner was not given a fair opportunity to present their case, as the respondents did not consider the petitioner's explanation or the expert opinions provided. The court cited several Supreme Court judgments underscoring the necessity of a fair hearing and the requirement for authorities to act fairly, impartially, and reasonably.

3. Non-Provision of Documents Relied Upon by the Authorities:

The petitioner requested certain documents and reports relied upon by the authorities in their reply to the show cause notice. However, these documents were not provided, which the court found to be a violation of the principles of natural justice. The court highlighted that justice and fair play demand that the sources of information relied upon by the authorities must be disclosed to the assessee to allow them to rebut the same.

4. Lack of Proper Hearing and Consideration of the Petitioner's Explanation:

The court observed that the impugned order was merely a copy-paste of the petitioner's reply, indicating non-application of mind by the respondent authority. The explanation provided by the petitioner regarding the use of raw materials in the manufacturing process, supported by expert opinions, was not considered. The court found that without examining whether the raw materials were used in the manufacture of the final products, the imposition of liability was arbitrary and illegal.

Conclusion:

The court concluded that the impugned order was passed without providing the petitioner a fair opportunity of hearing and without considering the evidence and explanations provided. The non-production of documents and the lack of a proper hearing caused severe prejudice to the petitioner. Consequently, the court quashed and set aside the impugned order dated September 12, 2024. The court directed the respondent authorities to examine the fabrics, provide a copy of the report to the petitioner, grant an opportunity of hearing, and thereafter pass a reasoned order. The writ petition was allowed with these directions.