2025 (4) TMI 1149 - HC - GST

Challenge to adjudication orders passed by the respondent under the KGST Act for assessment year 2018-19 - difference/ discrepancy between the GSTR-7 and GSTR 3B - HELD THAT - A perusal of the material on record including the impugned orders will indicate that it is an undisputed fact that the petitioner did not respond/reply to the show cause notice and the impugned ex-parte orders have been passed without hearing the petitioner. Under these circumstances in view of the specific assertion on the part of the petitioner that his inability and omission to submit the reply to the show cause notice and participate in the proceedings was due to bona fide reasons unavoidable circumstances and sufficient cause by adopting a justice oriented approach and in order to provide one more opportunity to the petitioner it is deemed just and appropriate to set aside the impugned orders and remit the matter back to the respondent for reconsideration afresh in accordance with law by issuing certain directions. The matter is remitted back to the respondent for reconsideration afresh in accordance with law bearing in mind the aforesaid Circular bearing No. 183/15/2022-GST dated 27.12.2022 - petition allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this writ petition are:

(a) Whether the impugned adjudication orders dated 18.03.2024 passed by the respondent under the KGST Act for assessment year 2018-19, based on alleged discrepancies between GSTR-7 and GSTR-3B returns, are liable to be quashed on grounds of procedural infirmity and non-consideration of relevant Circulars.

(b) Whether the petitioner is entitled to a declaration that supply of pure services to the Forest Department is exempt from KGST/CGST liability under Notifications No. 11/2017 and 12/2017 Central Tax (Rate) dated 28.06.2017.

(c) Whether the impugned ex-parte orders passed without hearing the petitioner violate principles of natural justice, particularly when the petitioner alleges bona fide reasons and sufficient cause for non-submission of reply to the show cause notice.

(d) Whether the matter requires remand for fresh adjudication in accordance with law, including consideration of Circular No. 183/15/2022-GST dated 27.12.2022 issued by the Central Government.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (c): Validity of the impugned ex-parte adjudication orders and procedural fairness

Relevant legal framework and precedents: The KGST Act mandates that before passing an adjudication order under Section 73 (relating to recovery of tax not paid or short paid), the assessing authority must provide the assessee an opportunity to be heard, ensuring adherence to the principles of natural justice. The issuance of a show cause notice and the opportunity to reply are essential procedural safeguards. Precedents emphasize that ex-parte orders without hearing the party are vitiated unless the party wilfully abstains from participation.

Court's interpretation and reasoning: The Court observed that the petitioner did not submit any reply to the show cause notice dated 30.01.2024, and the impugned orders were passed ex-parte. However, the petitioner asserted that the failure to respond was due to bona fide reasons and unavoidable circumstances amounting to sufficient cause. The Court adopted a justice-oriented approach, recognizing that procedural fairness necessitates providing the petitioner an opportunity to be heard before adverse orders are passed.

Key evidence and findings: The material on record confirmed the discrepancy between GSTR-7 and GSTR-3B returns, which triggered the proceedings. The petitioner's non-response was undisputed, but the petitioner's explanation of sufficient cause was accepted as a ground for reconsideration. The Court also noted that the impugned orders failed to consider Circular No. 183/15/2022-GST dated 27.12.2022, which could have bearing on the matter.

Application of law to facts: Given the failure to afford the petitioner an opportunity to reply and the non-consideration of relevant Circulars, the Court found the impugned orders legally unsustainable. The Court set aside the orders and remitted the matter for fresh adjudication, directing the authorities to provide a reasonable opportunity to the petitioner to submit a reply and be heard.

Treatment of competing arguments: The respondents contended that the petitioner failed to exercise due diligence and thus the ex-parte orders were justified. The Court, however, prioritized procedural fairness and the petitioner's claim of sufficient cause over the respondents' submission, emphasizing the need to avoid miscarriage of justice.

Conclusion: The impugned ex-parte orders are quashed for non-compliance with natural justice and procedural safeguards. The matter is remanded for fresh consideration after affording the petitioner an opportunity to participate.

Issue (b): Exemption of supply of pure services to the Forest Department under Notifications No. 11/2017 and 12/2017 Central Tax (Rate)

Relevant legal framework and precedents: The petitioner sought declarations that supply of pure services to the Forest Department is exempt from KGST/CGST under the specified Notifications dated 28.06.2017. These Notifications prescribe exemptions for certain categories of supplies, including those made to government departments or authorities.

Court's interpretation and reasoning: The Court noted the petitioner's claim for exemption but did not undertake detailed adjudication on the substantive exemption issue in the present proceedings. Instead, the Court indicated that the issue would be open for consideration afresh by the respondent authorities during the remand proceedings, ensuring compliance with the relevant Notifications and Circulars.

Key evidence and findings: The record did not reflect any substantive consideration of the exemption claims in the impugned orders, which were primarily focused on tax discrepancies and procedural defaults.

Application of law to facts: Since the matter is remanded for fresh adjudication, the exemption claims are to be examined in light of the relevant Notifications and Circulars, with an opportunity to the petitioner to present evidence and submissions.

Treatment of competing arguments: The respondents did not specifically dispute the exemption claims in the present petition but relied on the procedural default to uphold the orders. The Court's order preserves the petitioner's right to have the exemption issue adjudicated on merits.

Conclusion: The exemption claims remain open for fresh adjudication and are not finally decided in this order.

Issue (d): Consideration of Circular No. 183/15/2022-GST dated 27.12.2022

Relevant legal framework and precedents: Circulars issued by the Central Government under GST laws provide clarifications and procedural guidance which are binding on authorities and assessees. Non-consideration of relevant Circulars can vitiate adjudication orders.

Court's interpretation and reasoning: The Court observed that the impugned orders did not consider the Circular No. 183/15/2022-GST dated 27.12.2022, which was relevant to the issues under adjudication. The Court held that the respondents must take the Circular into account during the fresh adjudication.

Key evidence and findings: The Circular was on record and specifically referred to by the petitioner in submissions but was ignored in the impugned orders.

Application of law to facts: The failure to consider the Circular rendered the impugned orders incomplete and legally defective. The remand order explicitly directs the authorities to bear the Circular in mind.

Treatment of competing arguments: The respondents did not dispute the applicability of the Circular but relied on procedural grounds to uphold the orders.

Conclusion: The Circular must be considered afresh by the authorities during the remand proceedings.

3. SIGNIFICANT HOLDINGS

The Court held:

"It is an undisputed fact that the petitioner did not respond/reply to the show cause notice and the impugned ex-parte orders have been passed without hearing the petitioner. Under these circumstances, in view of the specific assertion on the part of the petitioner that his inability and omission to submit the reply to the show cause notice and participate in the proceedings was due to bona fide reasons, unavoidable circumstances and sufficient cause, by adopting a justice oriented approach and in order to provide one more opportunity to the petitioner, I deem it just and appropriate to set aside the impugned orders and remit the matter back to the respondent for reconsideration afresh in accordance with law by issuing certain directions."

Core principles established include:

(i) Adherence to principles of natural justice is mandatory before passing adjudication orders under the KGST Act; ex-parte orders without hearing are vitiated unless wilful non-participation is established.

(ii) Bona fide reasons and sufficient cause for non-submission of reply must be considered to prevent miscarriage of justice.

(iii) Relevant Circulars issued by competent authorities must be considered in adjudication proceedings, failing which orders are liable to be set aside.

(iv) Remand for fresh consideration with directions to afford opportunity to the petitioner and consider all relevant materials is appropriate remedy in such cases.

Final determinations on each issue are:

- The impugned orders dated 18.03.2024 are set aside for non-compliance with natural justice and non-consideration of relevant Circular.

- The matter is remitted for fresh adjudication in accordance with law, including consideration of Circular No. 183/15/2022-GST dated 27.12.2022.

- The petitioner is granted opportunity to submit reply and be heard on 28.04.2025