2025 (4) TMI 730 - HC - GST

Wrongful availment of Input Tax Credit - seeking rectification of the order dated 30th August 2024 - Section 161 of the Delhi Goods and Service Tax Act 2017 - Opportunity of personal hearing - principles of natural justice - HELD THAT - As per proviso 3 to Section 161 the rectification order if allowed in favour of the Petitioner seeking rectification hearing can be dispensed with. However if the rectification is to be decided adversely affecting the right of the applicant the principles of natural justice have to be followed and a hearing ought to be given if sought. The personal hearing ought to have been afforded to the Petitioner which has not been done. Accordingly the order in rectification application dated 28th February 2025 is set aside. Petition disposed off.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue in this case revolves around the application of Section 161 of the Delhi Goods and Services Tax Act, 2017 (DGST Act), specifically whether the principles of natural justice were adhered to in the rejection of the rectification application filed by the Petitioner. The primary questions considered were:

1. Whether the Petitioner was entitled to a personal hearing before the rejection of their rectification application under Section 161 of the DGST Act.

2. Whether the rejection of the rectification application was in compliance with the statutory requirements under Section 161 of the DGST Act, particularly concerning the presence of an "error apparent on the face of record."

ISSUE-WISE DETAILED ANALYSIS

1. Entitlement to Personal Hearing under Section 161 of the DGST Act

Relevant legal framework and precedents: Section 161 of the DGST Act provides for rectification of errors apparent on the face of the record. The third proviso to this section mandates that if such rectification adversely affects any person, the principles of natural justice, including the right to a hearing, must be followed.

Court's interpretation and reasoning: The Court interpreted the third proviso to Section 161 as necessitating a personal hearing if the rectification decision would adversely affect the applicant. This interpretation aligns with the principles of natural justice, which require that a party be given an opportunity to be heard before an adverse decision is made.

Key evidence and findings: The Petitioner argued that no hearing was provided before the rejection of their rectification application, which they claimed was contrary to the statutory requirements. The Respondent contended that a hearing was unnecessary as the original proceedings had afforded the Petitioner full opportunity.

Application of law to facts: The Court found that the absence of a personal hearing before rejecting the rectification application was a violation of the third proviso to Section 161. The Petitioner had explicitly requested a hearing, and the decision to reject the application without one was deemed procedurally flawed.

Treatment of competing arguments: The Court acknowledged the Respondent's argument regarding the sufficiency of the original proceedings but emphasized the statutory requirement for a hearing in rectification matters that adversely affect the applicant.

Conclusions: The Court concluded that the Petitioner was entitled to a personal hearing before the rejection of their rectification application, and the failure to provide such a hearing warranted setting aside the impugned order.

2. Compliance with Statutory Requirements for Rectification

Relevant legal framework and precedents: Section 161 allows for rectification of errors apparent on the face of the record. The provision requires that such errors be clear and obvious, justifying rectification without extensive investigation.

Court's interpretation and reasoning: The Court noted that the Respondent's order lacked reasoning for rejecting the rectification application, particularly regarding the alleged absence of an error apparent on the record. The Madras High Court's decision in 'Suriya Cement Agency v. State Tax Officer' was cited, highlighting the necessity for clear reasoning in rectification decisions.

Key evidence and findings: The Petitioner claimed that the demand included an amount for which no Input Tax Credit (ITC) was claimed, constituting an error apparent on the record. The Respondent's rejection order did not address this claim with sufficient reasoning.

Application of law to facts: The Court found that the Respondent's order failed to meet the statutory requirement of demonstrating why no error was apparent on the record. The lack of reasoning and the absence of a hearing compounded the procedural deficiencies.

Treatment of competing arguments: The Court considered the Petitioner's claim of an error and the Respondent's assertion of no apparent error. The absence of reasoning in the Respondent's order weighed against their position.

Conclusions: The Court concluded that the rejection of the rectification application was procedurally flawed due to a lack of reasoning and the absence of a personal hearing, necessitating the setting aside of the impugned order.

SIGNIFICANT HOLDINGS

The Court held that the principles of natural justice, as embedded in the third proviso to Section 161 of the DGST Act, require that a personal hearing be afforded to an applicant when a rectification decision is likely to adversely affect them. The Court emphasized the importance of providing clear reasoning in rectification decisions to ensure compliance with statutory requirements.

Verbatim quotes of crucial legal reasoning: "The personal hearing ought to have been afforded to the Petitioner, which has not been done. Accordingly, the order in rectification application dated 28th February, 2025 is set aside."

Core principles established: The necessity of adhering to principles of natural justice in rectification proceedings under the DGST Act, particularly when the decision adversely affects the applicant, and the requirement for clear reasoning in rectification orders.

Final determinations on each issue: The Court set aside the impugned order rejecting the rectification application and directed that a personal hearing be afforded to the Petitioner, with the rectification application to be reconsidered in accordance with the law.