Case Law Details
Khani Khyatigrasta Gramya Committee Vs Commissioner of Commercial Tax & GST and another (Orissa High Court)
In a significant ruling, the Orissa High Court addressed the legality of an ex parte order under the Central Goods and Services Tax Act, 2017 (CGST Act) and Odisha Goods and Services Tax Act, 2017 (OGST Act). The case, Khani Khyatigrasta Gramya Committee vs. Commissioner of Commercial Tax & GST, challenged the validity of a tax demand order issued to the petitioner without a proper hearing. The court’s decision highlights the importance of adhering to principles of natural justice in tax proceedings.
The petitioner, Khani Khyatigrasta Gramya Committee, a registered taxpayer under the CGST/OGST Act, contested an order dated January 31, 2023, demanding tax, interest, and penalty. The order was issued under Section 73 of the CGST/OGST Act, directing the petitioner to pay the due amount within three months or face recovery proceedings under Section 79.
The petitioner, involved in transporting iron ore to Rungta Mines Limited, had regularly filed GST returns and complied with statutory requirements. However, discrepancies were noticed in the tax filings for the period from July 2017 to March 2018. A notice under Section 61 of the Act was issued on October 20, 2022, alleging understatement of tax liabilities.
Failure to Provide Personal Hearing
One of the primary issues raised by the petitioner was the denial of a personal hearing, a fundamental component of the natural justice principle. The notice issued under Section 61 lacked details about the date, time, and venue for personal hearing, which were marked as “NA.” This omission meant the petitioner was not given an opportunity to present their case or explain the discrepancies.
The Orissa High Court emphasized that personal hearings are mandatory under Section 75(4) of the GST Act, particularly when adverse decisions are being made. The court noted that the absence of a personal hearing violated the principles of natural justice and rendered the order invalid.
Application of Reverse Charge Mechanism
The court also addressed the issue of the Reverse Charge Mechanism, where the recipient of the service (Rungta Mines Limited) is responsible for paying the tax. The petitioner argued that the tax had already been paid by the recipient, making the demand for additional tax under Section 73 unjustified.
The court acknowledged that the Reverse Charge Mechanism was correctly applied in this case. Since the tax was paid by Rungta Mines Limited, the petitioner was not liable to pay again. The failure to consider this aspect further illustrated the oversight in the assessment process.
Judicial Precedents
The petitioner cited several cases to support their argument, including decisions from the Supreme Court and other High Courts. In M/s. Godrej Sara Lee Ltd. v. The Excise and Taxation Officer, the apex court reinforced the necessity of adhering to natural justice principles even if an alternative remedy is available. Similarly, decisions from the Allahabad High Court in cases such as M/s. B.L. Pahariya Medical Store v. State of U.P. and M/s. Mohini Traders v. State of U.P. highlighted that personal hearings are crucial before passing adverse orders.
Conclusion
The Orissa High Court’s decision in Khani Khyatigrasta Gramya Committee vs. Commissioner of Commercial Tax & GST underscores the importance of following due process in tax assessments. The court’s ruling reaffirms that personal hearings are a necessary part of the adjudication process and must be provided to ensure fairness and adherence to natural justice principles. By quashing the ex parte order, the court has reinforced the need for proper procedural conduct in tax-related disputes and the correct application of tax provisions.
FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT
The petitioner, by way of this writ petition, seeks to quash the ex parte order dated 31.01.2023 under Annexure-1 passed under Section 73 of the Central Goods and Services Tax Act, 2017/Odisha Goods and Services Tax Act, 2017 (CGST/OGST Act), by which it has been directed to pay the due amount of tax, interest and penalty within three months from the date of service of the order, failing which recovery proceeding will be initiated against it as per Section 79 of said Act.
2. The factual matrix of the case leading to filing of this writ petition is that “Khani Khyatigrasta Gramya Committee”, the petitioner herein, deals with transportation of Iron Ore to Rungta Mines Limited, holding valid GSTIN 21AABAK1223111ZQ and files GST return regularly. As per the provisions, the GST returns are being filed in every month. As usual, in terms of Sections 37 and 39 of the OGST Act, the petitioner filed monthly GSTR-3B and GSTR-1 for months of July, 2017 to March, 2018. But a notice dated 20.10.2022 was issued to the petitioner under Section 61 of the OGST/CGST Act, 2017 alleging understatement of liability declared in GSTR-3B in comparison to the outward supply statement reflected in GSTR-1 of the Act.
2.1 In exercise of the powers conferred by Sub- section (3) of Section 9 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, notified the Reverse Charge Mechanism, by which CGST/SGST will have to be paid directly by the receiver of service instead of the supplier. According to the said statutory provisions, Rungta Mines Limited paid the CGST/OGST for the transportation services supplied by the petitioner and availed by the Rungta Mines Limited. But without considering the entire aspects of the matter, without verifying the records and without due application of mind, opposite parties passed an order on 31.01.2023 under Section 73 of the OGST Act, 2017 demanding tax, which is not liable to pay by the petitioner as per the Reverse Charge Mechanism provided under the Act, since the tax towards CGST/OGST had already been paid by the receiver of the GTS service, i.e., Rungata Mines Limited. That apart, such order dated 31.01.2023 has been passed in gross violation of the principle of natural justice, compliance of which is fundamental to every proceedings under the aforesaid Act and Rules. If the order dated 31.01.2023 (Annexure-1) is allowed to stand, there would be payment of double tax, which is not the aim, object and intention of the taxing provision. The most significant feature of the matter is that Section 75(4) of the GST Act, 2017 makes it clear that in cases, where an adverse decision is taken by the Assessing Officer against the assessee, personal hearing is mandatory. Admittedly, in the assessment proceedings, pertaining to the assessment in question, no personal hearing was afforded to the petitioner. Therefore, the petitioner approached this Court in the present writ petition.
3. Mr. Jagamohan Pattanaik, learned counsel for the petitioner contended that the petitioner, a registered taxpayer, assigned with GSTIN 21AABAK1223B1ZQ under CGST/OGST Act, 2017, having place of business located at Jajanga, Bamebari, Keonjhar, deals in taxable supply of goods like manpower, recruitment agency, rent-a-cab operator, works contract, Cargo Handling Services, supply of tangible goods for use services as per the registration certificate granted in its favour under the CGST/OGST Act, 2017. The petitioner submitted its returns which were scrutinized and some discrepancies were pointed out by the authority. Accordingly, notice dated 26.10.2022 in Form GST ASMT-10 prescribed under Rule 99(1) of the Central Goods and Services Tax Rules, 2017/Odisha Goods and Services Tax Rules, 2017 (CGST/OGST Rules) was issued intimating discrepancies in the returns after scrutiny pertaining to tax periods from July, 2017 to March, 2018 in exercise of power under Section 61 of the CGST/SGST Act whereby it was required to explain the reasons for the discrepancies. While issuing such notice dated 26.10.2022, the Additional State Tax Officer marked against Sl. No.3 to 5 of GST ASMT-10, i.e. “date of personal hearing, time of personal hearing and venue where personal hearing will be held” as “NA”. However, in the said notice it has been indicated that the petitioner has been called upon to appear before the said authority on the date and time mentioned in the summary of the show cause notice issued in Form GST ASMT-10. The petitioner is also required to produce/upload all the evidence upon which it intended to rely in support its defence along with reply in Form ASMT-11 within thirty days. It is further stated in the notice that if the petitioner failed to submit the same or the reason submitted by it are found to be not acceptable, then proceeding under Section 73/74 of CGST/OGST Act would be initiated against it. If the petitioner pays the tax along with up-to-date interest till the date of payment in Form DRC-03 against the show cause notice, proceeding in respect of this show cause notice shall be deemed to be concluded as per the provisions under Section 73(8) of the CGST & OGST Act. It was also indicated that the authority “deserves the right to add, amend, delete or modify in part, portion of the notice and such addition amendment, deletion or modification, if any as per the provisions made under Section 161 of the CGST/OGST Act, 2017 made shall be deemed to the (be) part and parcel of the notice”.
3.1 It is contended that though the petitioner was willing to produce documents/records before the authority concerned, since the authority has suo motu indicated that no personal hearing will be given to the petitioner, thereby the said authority has closed her mind and passed the order without giving opportunity of hearing to the petitioner, thereby, initiation of proceeding under Section 73 of the Act and passing of the order under the said section cannot be sustained in the eye of law. It is further contended that due to non-grant of such opportunity to the petitioner, the authorities have acted arbitrarily, illegally and contrary to the provisions of law.
3.2 To substantiate his contention, he relied on the decisions in the case of M/s. Godrej Sara Lee Ltd. v. The excise and Taxation Officer-cum-Assessing Authority & others, 2023 LiveLaw (SC) 7; M/s Hitech Sweet Water Technologies Pvt. Ltd v. State of Gujurat, 2022 UPTC (Vol 112) 1760; Assistant Commissioner of State Tax v. M/s Commercial Steel Limited, 2021 SCC OnLine SC 884; M/s. B.L. Pahariya Medical Store v. State of U.P. and Another, Writ Tax No. 981 of 2023 disposed of on 22.08.2023 by Allahabad High Court; M/s. Mohini Traders v. State of U.P. and Another, Writ Tax No. 551 of 2023 disposed of 03.05.2023 by Allahabad High Court.
4. Sunil Mishra, learned Standing Counsel appearing for Revenue emphatically submitted that since the petitioner did not comply with the terms of notice issued under Section 61 of the CGST/OGST Act read with Rule 99 of the CGST/OGST Rules, the authority has proceeded to determine the tax liability under Section 73 of the Act and passed order accordingly. The petitioner was directed to comply with the demand determined in the order dated 31.01.2023. It is further contended that the order which has been passed by the authority is well within the statutory provision and does not require interference of this Court.
5. This Court heard Mr. Jagmohan Pattanaik, learned counsel for the petitioner and Mr. Sunil Mishra, learned Standing Counsel (Commercial Tax & Goods and Services Tax Organization) appearing for opposite parties by hybrid mode, and perused the record. Pleadings have been exchanged between the parties and with their consent, the writ petition is being disposed of finally at the stage of admission
6. It is an admitted fact that the petitioner is a registered taxpayer under the OGST/CGST Act 2017 having valid registration number and it has been dealing in taxable supply of goods. As per the provisions made under Section 39 of the CGST/OGST Act 2017 read with the OGST/CGST Rules, 2017, the petitioner was to file returns in Form GSTR-3B, which the petitioner filed, and the same have been self-assessed under Section 59 of the said Act. Therefore, as per the provisions made under Section 61 of the CGST/OGST Act read with Rule 99 of the OGST Rules, the returns filed for the tax periods July, 2017 to March, 2018 were scrutinized and the authority detected certain discrepancies to the tune of Rs.3,30,279.00 with respect to understatement of liability declared in Form GSTR-3B or an amount of Rs.28,47,936.00 filed under Section 39 of the CGST/OGST Act in comparison to the outward supply of Rs.31,78,214.00 vide statement reflected in GSTR-1 filed by the petitioner under Section 37 for the noted tax periods. On scrutiny, it was found that the petitioner has made incorrect self-assessment in the statutory returns. It has understated the tax liability in GSTR-3B in comparison to the outward supply statement reflected in GSTR-1 and it warrants initiation of proceeding under Section 73 of the OGST & CGST Act. It was called upon to reconcile the discrepancies vide notice dated 26.10.2022 in Form GST ASMT-10. It is apparent from the notice that against Sl. Nos. 3, 4 and 5 of said notice, so far as date of personal hearing, time of personal hearing and venue where personal hearing would be held against Sl. No.3, 4 and 5 it has been mentioned as “NA”. Meaning thereby, no opportunity of personal hearing was afforded to the petitioner. Ultimately, the order to the following effect was passed:
“You are also hereby called upon to appear before the undersigned on the date and time mentioned in the summary of the show cause notice issued in FORM GST ASMT-10. While showing cause, you are also required to produce/upload all the evidence upon which he intended to rely in support his defence along with his reply in form ASMT-II within THIRTY days. If you failed to submit the same or the reason submitted by you are found to be not acceptable then proceeding U/S 73/74 of CGST/OGST Act will be initiated against you.
If you pay the tax along with up-to-date interest till the date of payment in form DRC-03 against the show cause notice, proceeding in respect of this show cause notice shall be deemed to be concluded as per the provisions U/s 73 (8) of the CGST & OGST Act.
The undersigned deserves the right to add, amend, delete or modify in part, portion of this notice and such addition amendment, deletion or modification, if any as per the provisions made under section 161 of the CGST/OGST Act 2017 made shall be deemed to the part and parcel of this notice.
7. Accordingly, the proceeding under Section 73 of the Act was stated to have been initiated and the order impugned dated 31.01.2023 under Annexure-1 was passed, which is subject-matter of challenge before this Court on the ground that no opportunity of hearing was given to the petitioner. Needless to say, while issuing the notice under Section 61 of the Act, the Assessing Authority has herself given the written remarks under Sl. Nos. 3, 4 and 5 as “NA” and come to the conclusion to pay the dues as stated in the said notice. That itself is non-compliance of the principle of natural justice.
8. This Court called upon Mr. Mishra, learned Standing Counsel for Revenue to show the provision in exercise of which the authority concerned could write that no personal hearing should be given while the notice under Section 61 of the CGST/OGST Act has been issued. Nothing has been placed to substantiate the same, rather, it is admitted that the petitioner has not been given any opportunity in compliance to the notice dated 26.10.2022 issued under Section 61 of the CGST/OGST Act and the order has been passed by the Assessing Authority without adhering to the principles of natural justice as required under law. As such, when the proceeding under Section 73 of the Act was initiated, it reveals that the petitioner had not been given opportunity of hearing.
9. In Assistant Commissioner of State Tax (supra), the apex Court held that the writ court is otherwise justified in interfering in the order of assessment where the same has been passed without complying with the principle of natural justice of being heard, because the petitioner may remain unclear unless minimum opportunity of hearing is first granted, which is the settled principle of law of the land.
10. In M/s. Godrej Sara Lee Ltd. (supra), the apex Court while dealing with the matter of exercise of Article 226 of the Constitution of India and dismissal of the writ petition by a High Court on the ground that the petitioner has not availed the alternative remedy without however examining whether an exceptional case has been made out for such entertainment, observed that mere availability of an alternative remedy of appeal or revision, which the party invoking the jurisdiction of the High Court under Article 226 has not pursued, would not oust the jurisdiction of the High Court and render a writ petition “not maintainable” and where the controversy is a purely legal one and does not involve disputed questions of fact but only questions of law, then it should be decided by the High Court instead of dismissing the writ petition on the ground of an alternative remedy being available. Therefore, unless the discipline of adhering to decisions made by the higher authorities is maintained, there would be utter chaos in administration of tax laws apart from undue harassment to the assesses.
11. The High Court of Allahabad in the case of L. Pahariya Medical Store (supra) held that the assessee is not required to request for “opportunity of personal hearing” and it remained mandatory upon Adjudicating Authority to afford such opportunity before passing an adverse order because personal hearing would not only ensure observance of rules of natural of justice but also 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.
12. Similar view has also been taken in the case of Mohini Traders (supra), wherein the very same Allahabad High Court held that, it is mandatory to provide opportunity of personal hearing even if the assessee has opted “No” on the against column description “Date of personal hearing” on the common portal. This is because 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 Allahabad High Court has also justified as to why principle of natural justice is required to be given by observing that 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.
13. Applying the above principle to the present case, it is admitted that the petitioner deals with the transportation of Iron Ore to Rungta Mines Limited, holding valid GSTIN and files GST returns regularly. In exercise of the powers conferred by Sub-section (3) of Section 9 of the Central Goods and Services Tax Act, 2017, the Central Government on the recommendations of the Council notified the Reverse Charge Mechanism by which CGST/SGST will have to be paid directly by the receiver of service instead of the supplier. Rungta Mines Limited paid the GST/SGST for the transportation services supplied by the petitioner and availed by the Rungta Mines Limited, which is not in dispute and cannot be disputed. Therefore, without affording any opportunity of being heard, as provided under Sec. 75 (4) of GST Act, 2017 and law enunciated and noted above, the Adjudicating Authority issued the order creating heavy civil liability, observing such minimal opportunity of hearing is a must. Even without due application of mind, record already available with the Adjudicating Authority that the period in question, i.e. 2017-2018, GST/OGST had already been paid by the receiver of the service i.e. Rungata Mines Limited and, thus, under the principle of Reverse Charge Mechanism, no tax under GST/OGST is payable by the petitioner.
14. It is provided under Section 61(3) of the CGST/OGST Act that in case no satisfactory explanation is furnished within a period of thirty days of being informed by the proper officer or such further period as may be permitted by him or where the registered person, after accepting the discrepancies, fails to take the corrective measure in his return for the month in which the discrepancy is accepted, the proper officer may initiate appropriate action including those under Section 65 or Section 66 or Section 67, or proceed to determine the tax and other dues under Section 73 or Section 74. In the present case, the authority chose to initiate action under Section 73. Therefore, she was required to adhere to the modality contained in said Section 73 read with Rule 142.
15. In v1iew of the above, the notice issued intimating discrepancy in the returns under Section 61 of the CGST/OGST Act dated 26.10.2022 under Annexure-2 and the order dated 31.01.2023 passed under Section 73 of the Act vide Annexure-1 cannot be sustained in the eye of law and the same are liable to be quashed and are hereby quashed. The matter is remanded to the Assessing Authority to proceed de novo from the stage of issuance of notice intimating the discrepancy in returns after scrutiny under Section 61 of the CGST/OGST Act by affording due opportunity of hearing to the petitioner.
16. With the above observation and direction, the writ petition stands disposed of. However, there shall be no order as to costs.
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