VIOLATIONS OF PRINCIPLES OF NATURAL JUSTICE IN GST CASES

[Mr. M. GOVINDARAJAN]

Non service of notice

The Department, before issuing any order in tax matters, shall invariably issue a show cause notice to the assessee and to confirm its delivery to the assessee. At present the show cause notices are uploaded in the GST portal. Most of the trade people find not time to see the portal or not having much knowledge in the access of the portal. In such a scene there is a possibility of non-filing of reply to the show cause notice.

In M/S. SRI SHIVSAKTHI MERCANTILE PRIVATE LIMITED, REPRESENTED BY ITS DIRECTOR, MR. VINOD KOTHARI VERSUS THE ASSISTANT COMMISSIONER (ST) , CHENNAI, THE BRANCH MANAGER, AXIS BANK, CHENNAI - 2024 (11) TMI 331 - MADRAS HIGH COURT, as per the provisions of Rule 86B if the turnover of a Company exceeds a sum of Rs. 50 lakhs, the said Company shall avail 99% of the Input Tax Credit (‘ITC’ for short) available in their electronic credit ledger. On the other hand, since the petitioner is paying more than a sum of Rs. 1 lakh as income tax from the FYs 2019-2020 onwards, the aforesaid restrictions will not be applicable to the petitioner and hence, the petitioner had availed 100% of the ITC available in their electronic credit ledger. Without considering the said aspect, the 1st respondent had uploaded the show cause notice for reversing the 1% of ITC.  The 1st respondent has uploaded the notices in the GST Online Portal. The petitioner was not aware of this notice. Hence he did not file reply to the said show cause notice. However, the Assessing Officer issued order confirming the demand as shown in the show cause notice. The Department requested the High Court to remit the matter back to the respondent, subject to the payment of 10% of the disputed amount by the petitioner. The High Court was of the view that the impugned order was passed in violation of principles of natural justice since it is just and necessary to provide an opportunity to the petitioner to establish their case on merits.  The High Court set aside the order and remanded the matter to the Assessing Officer. The High Court offered an opportunity to the petitioner to file its objections on the show cause notice and the Assessing Officer to consider the same and decided the issue after giving a reasonable opportunity of being heard to the petitioner.

Reasoned order

It is trite law that when any quasi-judicial order, which results in adverse consequences, must be made in compliance with the principles of natural justice. Reasoning is the heart-beat of every conclusion, absence of reason would vitiate the proceedings.

In TVL. VM & CO., REP. BY ITS PARTNER M. PARTHASARATHI VERSUS THE STATE TAX OFFICER, RAMANATHAPURAM. - 2024 (11) TMI 462 - MADRAS HIGH COURT, the petitioner was issued a show cause notice. The same was replied by the petitioner. But the Assessing Officer did not consider the said reply along with the documents produced by the petitioner but the Assessing Officer passed the impugned order on 12.07.2024. The petitioner field a writ petition before the High Court. The High Court observed that the impugned order does not reflect any reasoning. What is stated therein is that the reply is not acceptable and documents are not filed. The Assessing Officer has not dealt with the objections of the petitioner at all. The High Court was of the view that the impugned order suffers from the vice of being a non-speaking order and thus violates principles of natural justice. The High Court set aside the order. The High Court directed the petitioner to file his objections on the assessment order treating the same as show cause notice and the Assessing Officer to proceed with the matter in accordance with law and also complying with the principles of natural justice.

Opportunity of personal hearing

In SMT SAVITA VERSUS UNION OF INDIA AND 4 OTHERS - 2024 (11) TMI 338 - ALLAHABAD HIGH COURT, the petitioner filed a writ petition before the High Court on receipt of the notice from the Department. The High Court heard the parties and noticed the allegations of fraud. The High Court directed the petitioner to approach the Department and it was kept open for the petitioner to be confronted with all documents, oral statements etc., which may be relied on before the adjudicating authority and to allow appropriate opportunity to cross-examine the witnesses on whose statements, adverse inference is proposed to be drawn. The petitioner approached the respondents and sought documents. Pursuant to the said demand made, the document/ information was supplied on 30.07.2024. However, without providing any further opportunity and in violation of the directions issued by the High Court in the previous writ petition, the order impugned was passed.

Despite supply of documents on 30.05.2024, no further date of hearing was fixed by the authority and within 15 days of supply of the documents, the order impugned dated 16.08.2024 was passed. The High Court further observed that it is apparent that after supply of the documents, the petitioner was not afforded any further opportunity of hearing, the directions issued by this Court in its order dated 30.05.2024, have not been followed and the finding which has been recorded pertaining to the fraud, is ipse dixit.

The High Court quashed the impugned order and remanded the matter back to the Joint Commissioner (Adjudication) with directions to provide an opportunity of hearing, follow the directions given by this Court in its order dated 30.05.2024 and deal with the issue of fraud, as alleged by the petitioner appropriately and pass a fresh order.

In ALPHA SECURITY INSTRUMENTS (INDIA) PVT. LTD. REP. BY ITS AGM (ACCOUNTS I & E). VERSUS DEPUTY COMMERCIAL TAX OFFICER, THIRUVALLUR - 2024 (11) TMI 333 - MADRAS HIGH COURT, the respondent issued a show cause notice in Form DRC-01 dated 27.12.2023, for the year 2018-19, wherein, the respondent demanded reversal of ITC availed by the petitioner, on the ground that the petitioner had availed ITC from tax payer, who did not pay tax on outward supply made to the petitioner. The petitioner filed a reply on 16.04.2024 in Form GST DRC-06. The Assessing Officer, without affording any opportunity of personal hearing to the petitioner, passed the impugned order, thereby, confirming the proposals contained in the show cause notice. The High Court held that it is mandatory on the part of the Assessing Officer to provide an opportunity of hearing to the assessee before passing any adverse order, whereas, in the present case, no such opportunity was granted to the petitioner before confirming the demand made in the show cause notice, therefore, the impugned order is not only against the provisions contemplated under the Section 75 (4) of CGST Act but also suffers from violation of principles of natural justice. Therefore, the High Court set aside the order. The High Court remanded the matter to the Assessing Officer and further directed to issue a clear 14 days’ notice, thereby, affording an opportunity of personal hearing to the petitioner and after considering the reply that has already been filed by the petitioner and hearing the petitioner in full, shall decide the matter in accordance with law.

Order beyond the scope of show cause notice

The show cause notice forms the foundation of the order and an order, which traverses beyond the show cause notice, results in violation of principles of natural justice inasmuch as the party is denied an opportunity to put forth his case.

In M/S. SRI KALEESWARI STORES, REPRESENTED BY ITS PARTNER, R. VENKATESHWARAN. VERSUS THE ASSISTANT COMMISSIONER, THE STATE TAX OFFICER (ST) , THANJAVUR. - 2024 (11) TMI 334 - MADRAS HIGH COURT, the High Court, in this petition, observed that insofar as the primary dispute, viz., discrepancy between GSTR-2A and GSTR-3B, which constitutes about 90% of the tax liability, the same is made in violation of principles of natural justice, inasmuch as the impugned order of adjudication traverses beyond the show cause notice. The High Court quashed the order. The High Court directed the petitioner to deposit the tax liability in respect of other three issues, viz., denial of ITC on discounts, finance charges and depreciation, within a period of 4 weeks from the date of receipt of a copy of this order. Then the impugned order of assessment shall be treated as show cause notice and the petitioner shall submit its objections in respect of all the four issues, along with supporting documents/material, within a period of 4 weeks from the date of receipt of a copy of the order of the High Court. If any such objections are filed, the same shall be considered by the Department and orders shall be passed in accordance with law after affording a reasonable opportunity of hearing to the petitioner. If the above deposit is not paid or objections are not filed within the stipulated period, i.e., four weeks from the date of receipt of a copy of this order, the impugned order of assessment shall stand revived.