HC Quashes Order: AO Mistakenly Treated Imported Bone Meal as Timber

Jose Bone Products Vs Assistant Commissioner (ST) (Madras High Court)

Introduction: The recent judgment by the Madras High Court in the case of Jose Bone Products vs. Assistant Commissioner (ST) sheds light on a significant dispute related to the Goods and Services Tax (GST). The petitioner, engaged in the business of supplying bone meal, challenged an order issued by the 1st respondent, demanding GST on imported goods. The crux of the matter lies in the misconception that the bone meal was wrongly considered as imported timber.

Detailed Analysis: The petitioner contended that they never imported any materials and solely operated in the bone meal business. The 1st respondent issued a notice, seeking details of allegedly imported goods, and subsequently passed an order on 13.10.2021 without affording the petitioner an opportunity for a personal hearing. Another notice dated 12.07.2022 demanded tax for the value of the purportedly imported goods.

The petitioner argued that the 1st respondent misunderstood their business, wrongly assuming timber importation. Despite the notice, the petitioner’s claim of exemption from VAT duty for bone meal was overlooked. The Madras High Court noted a violation of natural justice as the order was passed without a personal hearing, contrary to Section 75(4) of the Goods and Services Tax Act, 2017.

The court, recognizing the misconception in the impugned order, emphasized that any order should follow a personal hearing. In light of the erroneous assumption about timber importation, the court set aside the order dated 13.10.2021. The attached notice issued based on this order was lifted.

Conclusion: The Madras High Court’s decision serves as a reminder of the importance of adherence to principles of natural justice in tax matters. The case highlights the need for accurate understanding of business operations before passing tax orders. The court directed the 1st respondent to grant the petitioner an opportunity to file a reply and to pass appropriate orders after providing a personal hearing within three months from the date of the order. This judgment underscores the significance of fairness and due process in GST proceedings.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

This writ petition has been filed challenging the impugned order passed by the respondent on 13.10.2021.

2. The case of the petitioner is that the petitioner is in the business of supplying bone meal and they had not at all imported any goods. Under these circumstances, the 1^st respondent had issued a notice dated 14.07.2015, wherein they had asked for the details of the imported goods from the petitioner. Thereafter, prior to the filing of reply, the impugned order dated 13.10.2021 was passed by the respondent without providing any opportunity of personal hearing to the petitioner. Further, a prior notice dated 12.07.2022 was also issued by the 1^st respondent, whereby they demanded the tax amount for the value of the imported goods, which is said to have been furnished by the petitioner to the Customs Department.

3. The learned counsel for the petitioner would submit that the petitioner is only in the business of selling bone meal and they had not at all imported any materials. Hence, he would submit that the ₁st respondent had wrongly understood as if the petitioner had imported timber and other products and demanded the tax amount by virtue of the prior notice. Further, the 1^st respondent had passed the aforesaid impugned order without providing any opportunity of personal hearing to the petitioner. Hence, he would submit that the said impugned order has been passed in violation of principles of natural justice and the same is liable to be set aside.

4. In reply, the learned counsel for the 1^st respondent would submit that in spite of the service of notice, the petitioner had not appeared before the 1^st respondent and hence, the impugned order came to be passed. Further, she would submit that if any order is passed by this Court, the same may be complied with by the 1^st

5. Heard the learned counsel for the petitioner and the ₁st respondent and also perused the materials available on record.

6. In the present case, it appears that the petitioner is in the business of supplying bone meal and they had not at all imported any materials at any point of time. However, the notice was issued by the ₁st respondent as if the petitioner had imported timber and the said information is said to have been obtained by the 1^st respondent from the Customs Department. Further, according to the 1^st respondent, the petitioner had received the show cause notice and they had not filed any reply for the said notice.

7. This Court is of the view that even assuming that the petitioner had received the notices and not filed any reply, the 1^st respondent is supposed to have provided the opportunity of personal hearing to the petitioner before the passing of impugned order, which is mandated in terms of Section 75(4) of the Goods and Services Tax Act, 2017 and the same has not been done in the present case.

8. Further, the contention of the petitioner is that the supply of bone meal is exempted from the VAT duty and hence, he is not liable to pay any tax amount. However, the notice was issued by the respondent under the wrong assumption that the petitioner had imported timber. Thereafter, the impugned order was also passed, in violation of principles of natural justice, without providing any opportunity of personal hearing.

9. Therefore, this Court is of the considered view that any order has to be passed only after providing an opportunity of personal hearing. Further, in the present case, the petitioner had passed the impugned order under the misconception that the petitioner had imported timber, which is totally contrary to the business of the petitioner. Hence, for the interest of justice, the impugned order is liable to be set aside.

10. Accordingly, the impugned order dated 13.10.2021 is set aside. The attachment notice dated 02.08.2022, which was issued based on the said impugned order, shall stand lifted. While setting aside the said order, this Court remits the matter back to the 1^st The ₁st respondent is directed to grant time to the petitioner for filing reply and pass appropriate orders after providing the opportunity of personal hearing within a period of 3 months from the date of receipt of copy of this order.

11. With the above directions, this writ petition is disposed of. No cost. Consequently, the connected miscellaneous petition is also closed