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UNVEILING THE OVERLOOKED PILLAR: NATURAL JUSTICE IN GST ASSESSMENTS UNDER SECTION 73 & SECTION 74 OF CGST ACT, 2017

INTRODUCTION

Having appealed for over 15 business firms in cases involving orders of Determination of Tax (DRC-07) passed under section 73(9) or section 74(9) of the GST Act, my experience reveals a concerning trend. In all these cases, the appellants were deprived of a personal hearing, which is mandatory under section 75(3) before passing adverse orders against them. None of the notices issued to them provided for personal hearings, despite it being mandatory regardless of whether the respondent requested it or not. This article sheds light on the overlooked provision of the right to be heard under the GST Act and its critical importance in ensuring fair and just proceedings.

RIGHT OF PERSONAL HEARING UNDER GOODS AND SERVICE ACT 2017

Section 75 (4) provides for the opportunity of  personal hearing in two conditions: –

1. When the person requests in writing or

2. When any adverse order is contemplated against any person.

This provision is based on the principle of “Audi Alteram Partem” which means to hear both sides. This provision cast a mandatory duty upon the adjudicating authority to provide for a personal hearing before passing any adverse order against the persons. The basic aim of this section is to provide an opportunity to present the matter before the adjudicating authorities and clarify your stand on the discrepancies pointed out in the show cause notices.

ALLAHABAD HIGH COURT ON PRINCIPAL NATURAL JUSTICE & IT STANDS ON SECTION 75(4) OF CGST  

The Hon’ble Allahabad High Court eloquently elucidated the concept of natural justice, emphasizing its pivotal role in ensuring fairness and equity in administrative actions in the case of M/S Swastik Traders Thru. Partner Mr. Ankur Agarwal v. State Of U.P. Thru. Prin. Secy. Institutional Finanace &Ors (MISC. BENCH No. – 19798 of 2019) while setting aside the order passed the Adjudicating Authority without providing the opportunity of hearing under goods and service act.  In the instant case, the Hon’ble court observed that

“Natural justice, often referred to as common-sense justice, embodies principles that are not codified but deeply rooted in the human conscience. It represents the administration of justice in a pragmatic and liberal manner, emphasizing natural ideals and human values. Natural justice seeks to free the dispensation of justice from narrow legalistic considerations, focusing instead on the substantive essence of justice.

The distinction between “natural justice” and “legal justice” is not absolute. Both aim to achieve justice, with natural justice supplementing legal justice whenever the latter falls short. Natural justice seeks to remove unnecessary technicalities, grammatical complexities, or logical loopholes that may hinder justice. It serves to fill the gaps left by formal laws.

In legal contexts, adherence to principles of natural justice, particularly the audi alteram partem rule (the right to be heard), is paramount, especially for quasi-judicial bodies and administrative actions with civil consequences. This principle requires clear and timely notice to the affected party, enabling them to prepare a defence. Failure to provide such notice and opportunity to be heard renders any resulting order invalid.

Natural justice, being a cornerstone of public law, safeguards citizens’ rights, upholding basic values cherished across ages. Embedded in constitutional frameworks, it ensures fairness and justice in administrative actions. The doctrine of natural justice aims not just to secure justice but also to prevent miscarriages of justice, emphasizing good conscience as its essence.”

In the case of Bharat Mint & Allied Chemicals Vs. Commissioner Commercial Tax & 2 Ors. (WRIT TAX No. – 1029 of 2021), the High Court of Allahabad, in its decision on 04/03/2022, emphasized that the Assessing Authority must provide the petitioner with an opportunity for a personal hearing before issuing an adverse assessment order. Failure to afford such a hearing would be in violation of the law and issued a proper instruction under paragraph 20 of the judgement.

“20 .A copy of this order be sent by the Registrar General of this Court to the Commissioner, Commercial Tax U.P. Lucknow who shall ensure that principles of natural justice as contemplated under Section 75(4) of the  CGST/UPGST Act 2017  be followed by Proper Officers/Assessing Authorities in the State of Uttar Pradesh.”

Additionally, in the case of M/S B L Pahariya Medical Store v. State of U.P. and Another (WRIT TAX No. – 981 of 2023), decided on 22/08/2023, the Chief Justice of the High Court of Allahabad reiterated the above judgment from Bharat Mint, stating that once it has been established as a legal principle that an assessee is entitled to a personal hearing before an adverse order is passed, the assessee’s indication of ‘No’ in the column requesting such a hearing would have no legal effect. The court further observed that, especially in cases involving significant civil liabilities, providing even a minimal opportunity for a hearing is essential. The principle of natural justice mandates that authorities always ensure such an opportunity, not only to uphold the rules of natural justice but also to facilitate the issuance of appropriate and well-reasoned orders, serving the interests of justice and enabling a more informed decision-making process at subsequent appeal stages if necessary.

In a subsequent judgment dated 12/02/2024, the Honourable Allahabad High Court in Ms Atlas Cycles Haryana Ltd v. State of Up and Another (WRIT TAX No. – 144 of 2024) (Neutral Citation No. – 2024: AHC:23775-DB), delineated two distinct tests. Upon receiving a notice, the petitioner was only required to file a written reply. Non-compliance with this show cause notice would have resulted in the closure of the opportunity to submit a written reply. However, Section 75 of the Act explicitly states that even in such a scenario, the petitioner retains the right to participate in an oral hearing. This allows the petitioner to contest adverse conclusions at that stage. In essence, the statutory rules of natural justice impose a dual requirement. The first pertains to the submission of a written reply, and the second relates to an oral hearing. Failure to avail oneself of one opportunity does not preclude the other. Both tests must be independently satisfied.

CONCLUSION

In light of the aforementioned judgments and the provision enshrined u/s 75(4), it is imperative that authorities are strictly directed to provide the opportunity of personal hearing to ensure the principles of natural justice are upheld. Additionally, it is essential to provide training to these authorities to enhance their knowledge and understanding of this crucial aspect of the law. This will not only facilitate fairer and more informed decision-making but also strengthen the integrity of the judicial process. Adhering to these principles not only upholds the rule of law but also fosters a system where justice is not only done but is seen to be done.

Author Bio

I am a dedicated Advocate registered with the Bar Council of Allahabad and the Civil Court Gorakhpur, bringing a wealth of experience in various facets of commercial law. My practice primarily revolves around direct and indirect taxation, Trademark law, adept Contract drafting, and handling cheque b View Full Profile

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