Saini Zarda Store Vs State of U.P. And 2 Others (Allahabad High Court)
In a significant ruling, the Allahabad High Court has set aside an ex-parte Goods and Services Tax (GST) assessment order against Saini Zarda Store, a proprietorship concern. The Court found that the order, which fastened tax liability, interest, and penalty, was invalid due to a lack of proper service of the show-cause notice (SCN) and denial of opportunity for a hearing. The decision underscores the critical importance of due process and principles of natural justice in tax assessments.
Saini Zarda Store had challenged the order, which was subsequently upheld by the Additional Commissioner Grade II (first appellate authority) on August 22, 2024. The petitioner’s primary contention was that the original assessment order, purportedly issued under Section 74 of the GST Act, was entirely ex-parte. The firm asserted that the alleged show-cause notice (GST DRC-01) was never brought to its knowledge, nor was it physically served. The petitioner claimed to have discovered the proceedings only when the final order was uploaded on the GST portal under the “view additional notices and orders” tab, by which time it was too late to file a reply.
The petitioner further stated that the assessment order dated October 6, 2021, was also not communicated via email. Upon becoming aware of the order in March 2024, Saini Zarda Store immediately filed a statutory appeal, which was regrettably rejected by the first appellate authority on grounds of being time-barred. This left the petitioner in a precarious position, effectively denied both the opportunity to present its defense at the assessment stage and the right to appeal due to delayed knowledge.
Learned counsel for the petitioner, Sri Shubham Agrawal, advanced a two-pronged argument:
1. The absence of proper service of the SCN denied the petitioner a fundamental opportunity to put forth its defense and justify its claim for no tax liability on its trading and sale activities under GST.
2. The subsequent rejection of the appeal solely on the grounds of delay, which was a direct consequence of the lack of initial knowledge, rendered the petitioner remediless, thereby violating principles of natural justice.
The counsel additionally argued that no opportunity for a personal hearing was afforded by the Assessing Authority, with the record merely showing “NA” (not applicable). He contended that while non-compliance with a show-cause notice might lead to the closure of opportunity to submit a written reply, it does not extinguish the right to an oral hearing, a crucial aspect often overlooked by authorities.
Judicial Precedents Cited and Applied:
The Allahabad High Court relied heavily on a series of its own Division Bench judgments that had previously addressed similar procedural infirmities in GST assessments:
1. Ola Fleet Technologies Pvt. Ltd. v. State of U.P. and Others (Writ Tax No. 855 of 2024, decided on July 22, 2024): This precedent was cited to underscore the issue of show-cause notices not being properly reflected under the “view notices and orders” tab on the GST Portal, thereby rendering the party defenseless. The Division Bench in Ola Fleet Technologies had acknowledged the valid dispute regarding the non-consideration of various documents and returns that could have been presented in reply to a show-cause notice. It held that even in an ex-parte order, a party under tax liability deserves an opportunity to present its defense. Consequently, the High Court in Ola Fleet Technologies had treated the impugned order itself as a notice, directing the petitioner to submit a reply and the Assessing Officer to pass a fresh order thereafter.
2.Shyam Roshan Transport v. State of U.P. and 2 Others (Writ Tax No. 1756 of 2024, decided on October 21, 2024) and Atul Agrwal v. State of U.P. and 2 Others (Writ Tax No. 1585 of 2024, decided October 18, 2024): These cases further followed the principle established in Ola Fleet Technologies, reinforcing the necessity of providing an opportunity to the assessee.
3. M/s Akriti Food Industry LLP v. State of U.P. and 3 Others (Writ Tax No. 2070 of 2024, decided on December 3, 2024): The Court noted that an identical order was set aside in this recent judgment, signifying a consistent judicial stand on similar procedural lapses.
4. M/s Sai Dham Residency v. State of U.P. and another (Writ Tax No. 1175 of 2024, decided on August 28, 2024): This judgment was specifically highlighted for its emphasis on the right to a personal hearing. The Court in M/s Sai Dham Residency had clearly stated that even if a petitioner fails to reply to a show-cause notice, thereby closing the opportunity for a written reply, they do not lose their right to participate in an oral hearing under Section 75 of the Act. This provision ensures that even in default, a taxpayer has a chance to establish why adverse conclusions should be dropped.
The High Court underscored the overarching legal principle that “nobody should be condemned unheard,” a fundamental tenet of natural justice. It observed that the legislature, by incorporating provisions for notices and hearings in tax statutes, explicitly intended to ensure this fairness.
Furthermore, the Court invoked the strict rule of interpretation applicable to tax statutes, as articulated by the Supreme Court in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and others (2018) 9 SCC 1. In this case, the Supreme Court had unequivocally stated that “taxation statute has to be interpreted strictly because the State cannot at their whims and fancies burden the citizens without authority of law.” This principle reinforces that all procedural prerequisites, such as the opportunity for an oral hearing before a final order, must be scrupulously complied with by the authorities, and cannot be treated as mere “empty formalities.”
High Court’s Decision:
In light of the consistent judicial precedents and the principles of natural justice, the Allahabad High Court found the ex-parte assessment order and the appellate order unsustainable. The Court directed that the original assessment order dated October 6, 2021, be treated as a show-cause notice under Section 74 of the GST Act, 2017.
The petitioner, Saini Zarda Store, has been granted eight weeks from the date of the High Court’s order to submit its reply along with supporting documents to the Assessing Officer/competent authority. Following this submission, the Assessing Officer/competent authority is mandated to give due consideration to the objections and documents and provide an opportunity of hearing. A fresh decision is to be rendered within a further period of four weeks.
The petition was thus disposed of, allowing the assessee a proper opportunity to present its case, thereby rectifying the procedural deficiencies that led to the ex-parte assessment.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
