GST: HC directs revenue to provide opportunity of hearing to ensure natural justice

Mohan Agencies Vs State of U.P. and Another (Allahabad High Court)

Providing opportunity of hearing ensures natural justice and allows Revenue Department to pass appropriate orders

The Hon’ble Allahabad High Court in M/s Mohan Agencies v. State of U.P. And Another [Writ Tax No. 58 of 2023 dated February 13, 2023] has set aside the order passed by the Revenue Department, on the grounds that the opportunity of personal hearing was not given to the assessee, as the same was not opted by the assessee in reply to the Show Cause Notice (“the SCN”). Held that, providing the opportunity of hearing would ensure observance of rules of natural justice and allow the Respondent to pass appropriate and reasoned orders in order to serve the interest of justice and allow a better appreciation to arise at the appeal stage. Remitted the matter back to the Revenue Department.

Facts:

This petition has been filed by M/s Mohan Agencies (“the Petitioner”) challenging the order dated October 21, 2022 (“the Impugned Order”) passed by the Revenue Department (“the Respondent”) for the tax period July, 2017 to March, 2018 whereby, the demand in excess to INR 10 crores was raised against the Petitioner, on the ground that the SCN dated May 13, 2022 was issued to the Petitioner seeking reply wherein, the opportunity of personal hearing was not given.

The Respondent contended that the Petitioner was denied opportunity of hearing because the Petitioner had tick marked the option ‘No’ against the option for personal hearing in the reply to the SCN on September 14, 2022, submitted through online mode.

Issue:

Whether the Petitioner is entitled to get opportunity of personal hearing after declining the same in reply to the SCN?

Held:

The Hon’ble Allahabad High Court in Writ Tax No. 58 of 2023 held as under:

• Analyzed Section 75(4) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) wherein, it is stated that an opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.
• Relied on the earlier judgment of Bharat Mint & Allied Chemicals v. Commissioner Commercial Tax & Ors. [(2022) 48 VLJ 325 dated December 15, 2022] wherein, it was held that a person/assessee is not required to request for opportunity of personal hearing and it is mandatory upon the Assessing Authority to afford such opportunity before passing an adverse order.
• Observed that, once it has been laid down by way of a principle of law that a person/assessee is not required to request for “opportunity of personal hearing” and it remained mandatory upon the Respondent to afford such opportunity before passing an adverse order, the fact that the Petitioner may have signified ‘No’ in the column meant to mark the its choice to avail personal hearing, would bear no legal consequence.
• Stated that, principle of natural justice would bind the Respondent to always ensure to provide such opportunity of hearing and it has to be ensured that such opportunity is granted in real terms.
• Noted that, the stand of the assessee may remain unclear unless minimal opportunity of hearing is first granted and only after providing such opportunity the explanation furnished may be rejected and demand created.
• Held that, providing the opportunity of hearing would ensure observance of rules of natural justice and allow the Respondent to pass appropriate and reasoned orders in order to serve the interest of justice and allow a better appreciation to arise at the appeal stage.
• Set aside the Impugned order.
• Remitted the matter back to the Respondent to issue fresh notice to the Petitioner within two weeks. 

Relevant Provisions:

Section 75(4) of the CGST Act:

“General provisions relating to determination of tax

(4) An opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.”

FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT

1. Heard Sri Vishwjit, learned counsel for the assessee and Sri Ankur Agarwal, learned counsel for the revenue.

2. Pursuant to the earlier order, Sri Ankur Agarwal, learned counsel for the revenue has received written instructions. In absence of any dispute as to fact, the matter has been proceeded with the consent of parties at the fresh stage itself.

3. Challenge has been raised to the order dated 21.10.2022 passed by the Assistant Commissioner, State Tax, Sector-6, Aligarh for the tax period July 2017 to March 2018, whereby demand in excess to Rs. 10 crores has been raised against the present petitioner.

4. Solitary ground being pressed in the present petition is, the only notice in the proceedings was issued to the petitioner on 13.05.2022 seeking his reply within 30 days. Referring to item no. 3 of the table appended to that notice, it has been pointed out, the Assessing Authority had at that stage itself chosen to not give any opportunity of hearing to the petitioner by mentioning “NA” against column description “Date of personal hearing”. Similar endorsements were made against the columns for “Time of personal hearing” and “Venue where personal hearing will be held”. Thus, it is the objection of learned counsel for the petitioner, the petitioner was completely denied opportunity of oral hearing before the Assessing Authority.

5. Relying on Section 75(4) of the U.P. GST Act, 2017 (hereinafter referred to as the ‘Act’) as interpreted by a coordinate bench of this Court in Bharat Mint & Allied Chemicals Vs. Commissioner Commerical Tax & 2 Ors., (2022) 48 VLJ 325, it has been then asserted, the Assessing Authority was bound to afford opportunity of personal hearing to the petitioner before he may have passed an adverse assessment order. Insofar as the assessment order has raised disputed demand of tax about Rs. 10 crores, the same is wholly adverse to the petitioner. In absence of opportunity of hearing afforded, the same is contrary to the law declared by this Court in Bharat Mint & Allied Chemicals (supra). Reliance has also been placed on a decision of the Gujarat High Court in M/S Hitech Sweet Water Technologies Pvt. Ltd. Vs. State of Gujarat, 2022 UPTC (Vol. 112) 1760.

6. On the other hand, learned counsel for the revenue would contend, the petitioner was denied opportunity of hearing because he had tick marked the option ‘No’ against the option for personal hearing (in the reply to the show­cause-notice), submitted through online mode. Having thus declined the opportunity of hearing, the petitioner cannot turn around to claim any error in the impugned order passed consequently.

7. Having hearing learned counsel for the parties and having perused the record, Section 75(4) of the Act reads as under :

“An opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.”

8. We find ourselves in complete agreement with the view taken by the coordinate bench in Bharat Mint & Allied Chemicals (supra). Once it has been laid down by way of a principle of law that a person/assessee is not required to request for “opportunity of personal hearing” and it remained mandatory upon the Assessing Authority to afford such opportunity before passing an adverse order, the fact that the petitioner may have signified ‘No’ in the column meant to mark the assessee’s choice to avail personal hearing, would bear no legal consequence.

9. Even otherwise in the context of an assessment order creating heavy civil liability, observing such minimal opportunity of hearing is a must. Principle of natural justice would commend to this Court to bind the authorities to always ensure to provide such opportunity of hearing. It has to be ensured that such opportunity is granted in real terms. Here, we note, the impugned order itself has been passed on 21.10.2022, while reply to the show-cause-notice had been entertained on 14.09.2022. The stand of the assessee may remain unclear unless minimal opportunity of hearing is first granted. Only thereafter, the explanation furnished may be rejected and demand created.

10 Not only such opportunity would ensure observance of rules of natural of justice but it would allow the authority to pass appropriate and reasoned order as may serve the interest of justice and allow a better appreciation to arise at the next/appeal stage, if required.

11. Accordingly, the present writ petition is allowed. The impugned order dated 21.10.2022 is set aside. The matter is remitted to the respondent no.2/Assistant Commissioner, State Tax, Sector-6, Aligarh to issue a fresh notice to the petitioner within a period of two weeks from today. The petitioner undertakes to appear before that authority on the next date fixed such that proceedings may be concluded, as expeditiously as possible.

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