2025 (4) TMI 1167 - HC - GST

Short payment of Goods and Service Tax - classification of products of the Petitioner - GST applicable at 12% or 18%? - reply of petitioner not taken into consideration - violation of principles of natuarl justice - HELD THAT - Considering the fact that the reply has been completely ignored by the adjudication authority the impugned order would not be sustainable. The said Order-in-Original clearly records that no reply was filed. The matter is remanded to the adjudicating authority for a fresh hearing - Petition allowed by way of remand.

1. ISSUES PRESENTED and CONSIDERED

The primary legal question considered by the Court was whether the products sold by the Petitioner were liable to Goods and Services Tax (GST) at the rate of 12% or 18%. Additionally, the Court examined the procedural propriety of the impugned Order-in-Original, particularly whether the adjudicating authority erred in concluding that the Petitioner had not filed any reply to the Show Cause Notice (SCN) and had avoided personal hearings, thereby justifying an ex-parte decision against the Petitioner.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Correct GST rate applicable to the Petitioner's products (12% or 18%)

The legal framework governing this issue is the Central Goods and Services Tax Act, 2017 (CGST Act), which mandates the levy of GST at prescribed rates on goods and services. The determination of the correct GST rate depends on the classification of the products under the GST tariff schedule.

The Court did not delve into the substantive merits of the GST rate dispute in the present judgment, as it explicitly stated that it had not examined the merits. This issue was left to be decided afresh by the adjudicating authority after a proper hearing and consideration of the Petitioner's submissions. The Petitioner had contended that the applicable GST rate was 12%, whereas the department alleged short payment on account of application of the 18% rate.

Issue 2: Whether the adjudicating authority erred in holding that the Petitioner did not file any reply to the SCN and avoided personal hearings, thereby justifying an ex-parte order

The relevant legal provisions include Section 169 of the CGST Act, 2017, which mandates that the adjudicating authority shall provide an opportunity of personal hearing to the person against whom a demand is proposed, ensuring compliance with the principles of natural justice.

The adjudicating authority's order recorded that no reply was received from the Petitioner and that personal hearing notices sent by post were returned undelivered with remarks such as "no such person". It was further noted that the Petitioner neither appeared for the personal hearings scheduled on multiple dates nor offered any explanation for their absence. The authority inferred that the Petitioner had deliberately changed addresses to avoid proceedings and held that the Petitioner's conduct amounted to suppression of facts and deliberate avoidance of the proceedings. Consequently, the adjudicating authority accepted the charges ex-parte in favor of the department.

The Petitioner, however, produced evidence that a detailed reply to the SCN was filed well within the prescribed time frame (uploaded on the portal on 2nd September 2024, hard copy served on 3rd September 2024, and emailed on 2nd September 2024). This contradicted the adjudicating authority's finding that no reply was received.

The Court observed that the impugned order was unsustainable as it had ignored the Petitioner's reply and had proceeded on the incorrect premise that no submissions were made. The Court emphasized that the principles of natural justice require that the Petitioner's submissions be considered before passing any adverse order.

The Respondent-CGST Department's counsel contended that the order was appealable and that the Petitioner's reply could be considered at the appellate stage. The Court rejected this argument, underscoring the necessity of the adjudicating authority to consider the reply at the initial stage itself.

The Court also noted the Respondent's failure to obtain instructions and to effectively contest the petition, which contributed to the decision to remand the matter.

Application of Law to Facts: The Court applied the principles of natural justice and procedural fairness, as enshrined in Section 169 of the CGST Act, and found that the adjudicating authority had failed to comply with these requirements by ignoring the Petitioner's timely reply and by wrongly concluding that the Petitioner had avoided proceedings. The Court held that the impugned order was liable to be set aside on this ground alone.

Treatment of Competing Arguments: The Court considered the department's argument that the order was appealable and that the reply could be considered later but rejected it, emphasizing that the adjudicating authority must consider the reply before passing an order. The Court also weighed the Petitioner's evidence of reply submission and found it credible and unrefuted.

3. SIGNIFICANT HOLDINGS

The Court set aside the impugned Order-in-Original dated 6th January 2025, on the ground that the adjudicating authority erroneously recorded that no reply was filed by the Petitioner and proceeded ex-parte without considering the Petitioner's submissions. The Court held:

"Considering the fact that the reply has been completely ignored by the adjudication authority, the impugned order would not be sustainable. The said Order-in-Original clearly records that no reply was filed."

The Court remanded the matter to the adjudicating authority for a fresh hearing, directing that the Petitioner be given at least three dates of personal hearing, with notices communicated through multiple channels including portal upload, email, and mobile number. The adjudicating authority was directed to decide the matter afresh within three months after hearing the Petitioner.

The Court clarified that it had not examined the merits of the GST rate dispute and left open all rights and remedies for the parties. It also allowed the Petitioner to place on record relevant orders from other jurisdictions decided in its favor, for consideration by the adjudicating authority.

Core principles established include the strict adherence to the principles of natural justice under Section 169 of the CGST Act, the necessity for the adjudicating authority to consider replies filed by the noticee before passing any order, and that ex-parte decisions are impermissible where the noticee has in fact filed replies and sought hearings.

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