2025 (1) TMI 398 - HC - GST

Whether order of disallowing credit could be passed by the Competent Authority i.e., Deputy Commissioner, State Tax without hearing the petitioner? - violation of principles of natural justice - HELD THAT - Admittedly, under Rule 86A of the RGST Rules, 2017/the CGST Rules, 2017, the authority competent to disallow debit/block credit is the Commissioner or an officer authorised on his behalf, not below the rank of Assistant Commissioner. The law further requires that such an officer having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible as provided in clauses (a) and (b), may for the reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under Section 49 or for claim of any refund of any unutilised credit. In this case, the notice was given by an authority who was not competent to take decision i.e., Joint Commissioner, whereas, the impugned order has been passed by the Deputy Commissioner, who is a competent authority but who did not give notice, nor heard the petitioner. This prima facie appears to be in utter violation of principles of natural justice - The submission of learned Additional Advocate General that the authority, who gave opportunity of hearing, collected material and forwarded the same to the competent authority fulfills the requirement of principles of natural justice, cannot be accepted at this stage. The action of the respondents in blocking the electronic credit ledger of the petitioner is kept in abeyance and the respondents are restrained from giving effect to decision of blocking credit ledger of the petitioner. List this case for final hearing at motion stage in the last week of November, 2024.

1. ISSUES PRESENTED and CONSIDERED

The core legal question in this judgment is whether the order disallowing credit by the Competent Authority, specifically the Deputy Commissioner of State Tax, could be passed without granting the petitioner an opportunity to be heard.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Whether the order disallowing credit was passed in violation of principles of natural justice due to lack of a hearing opportunity for the petitioner.

Relevant Legal Framework and Precedents:

The case revolves around the interpretation of Rule 86A of the Rajasthan Goods and Services Tax Rules, 2017 (RGST Rules, 2017) and the Central Goods and Services Tax Rules, 2017 (CGST Rules, 2017). According to these rules, the authority competent to disallow debit or block credit is the Commissioner or an officer authorized on his behalf, not below the rank of Assistant Commissioner. The rules require that such an officer must have reasons to believe that the credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible, and these reasons must be recorded in writing.

Court's Interpretation and Reasoning:

The court emphasized that although Rule 86A does not explicitly incorporate the principles of natural justice, the authority vested with the statutory power to decide on debit allowance is obliged to hear the affected person by giving notice. The court found that the notice was issued by the Joint Commissioner, who was not competent to take the decision, while the order was passed by the Deputy Commissioner, who did not provide notice or hear the petitioner. This was deemed a violation of the principles of natural justice.

Key Evidence and Findings:

The petitioner argued that the notice was issued by an unauthorized person, and the Deputy Commissioner, who is the competent authority, did not apply his mind to the petitioner's reply. The Additional Advocate General contended that the Joint Commissioner, after considering the petitioner's reply, forwarded the matter to the Deputy Commissioner, who then uploaded the order on the GST portal.

Application of Law to Facts:

The court applied the principles of natural justice to the facts, noting that the competent authority must provide an opportunity for the affected party to be heard. The court found that this requirement was not met, as the Deputy Commissioner did not hear the petitioner before passing the order.

Treatment of Competing Arguments:

The court rejected the argument of the Additional Advocate General that the forwarding of materials by the Joint Commissioner to the Deputy Commissioner satisfied the principles of natural justice. The court held that the competent authority itself must provide the hearing opportunity.

Conclusions:

The court concluded that the order blocking the electronic credit ledger was passed in violation of the principles of natural justice, as the petitioner was not given an opportunity to be heard by the competent authority.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"Even though the rule in terms does not incorporate principles of natural justice, the authority, who is vested with the statutory power, is competent to take a decision whether debit should be allowed or not, is obliged to hear the affected person by giving him notice."

Core Principles Established:

The judgment reinforces the principle that statutory authorities must adhere to principles of natural justice, even if not explicitly stated in the rules, by providing affected parties an opportunity to be heard before making decisions that impact their rights.

Final Determinations on Each Issue:

The court determined that the action of blocking the electronic credit ledger was to be kept in abeyance, and the respondents were restrained from enforcing the decision to block the credit ledger. The case was scheduled for final hearing in the last week of November 2024, allowing for further submissions from the parties involved.

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