Personal Hearing Cannot Be Denied Without Assessee Confirmation

Mohini Traders Vs State of U.P. (Allahabad High Court)

Personal hearing cannot be denied without confirming from assessee

The Allahabad High Court recently addressed the issue of whether the revenue department can issue a Show Cause Notice (SCN) without offering an opportunity for a personal hearing to the assessee. In the case of Mohini Traders v. State of U.P. [WRIT TAX No. 551 of 2023 dated May 3, 2023], the court held that the assessing authority is obligated to provide a personal hearing before passing an adverse order, regardless of whether the assessee explicitly requested it.

Facts:

Mohini Traders (“the Petitioner”) was served a Show Cause Notice dated May 20, 2022 (“the SCN”) by revenue department seeking reply within 30 days.

The Revenue department passed an order dated October 21, 2022 (“the Impugned order”) for the tax period April 2018, whereby demand in excess to INR 5 crores has been raised against the Petitioner.

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, the Petitioner contended that it was completely denied opportunity of oral hearing before the revenue department.

Therefore, the revenue department contended that the Petitioner denied opportunity of hearing because he had tick marked the option ‘No’ against the option for personal hearing in the reply to the SCN and submitted through online mode, and thus the Petitioner cannot turn around to claim any error in the Impugned order passed consequently.

The Petitioner relied upon a case of Bharat Mint & Allied Chemicals v. Commissioner Commercial Tax & 2 Ors. [2022] 48 VLJ 325, and on Section 75(4) of the Central Goods and Services Tax Act (“the CGST Act”) and contended that the revenue department was bound to afford opportunity of personal hearing to the Petitioner before he may have passed an adverse assessment order.

Issue:

Whether the Revenue can issue SCN without offering opportunity of being heard?

Held:

The Hon’ble Allahabad High Court in W.T. No. 551 of 2023 held as under:

• Noted that, the stand of the Petitioner may remain unclear unless minimal opportunity of hearing is first granted.
• Directed to issue a fresh SCN to the Petitioner within a period of two weeks.
• Observed that, opportunity of being heard is a must and the principle of natural justice would commend to the Court to bind the authorities to always ensure and provide such opportunity of hearing.
• Held that, 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 appeal stage.
• Set aside the Impugned Order and remanded back the matter to Adjudicating Authority.

Relevant Provision:

Section 75(4) of the CGST Act:

“General provisions relating to determination of tax

75(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. 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 April 2018, whereby demand in excess to Rs. 5 crores has been raised against the present petitioner.

3. Solitary ground being pressed in the present petition is, the only notice in the proceedings was issued to the petitioner on 20.05.2022 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.

4. 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. 6 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.

5. 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 show-cause-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.

6. 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.”

7. 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.

8. 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 25.11.2022, while reply to the show-cause-notice had been entertained on 14.11.2022. 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.

9. 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.

10. Accordingly, the present writ petition is allowed. The impugned order dated 25.11.2022 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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