GST Section 75(4): Disjunctive ‘Or’ Signifies Dual Scenarios Requiring Personal Hearing

Shree Sai Palace Vs State Of U.P. And Others (Allahabad High Court)

In the case of Shree Sai Palace vs State Of U.P. And Others heard in the Allahabad High Court, the petitioner challenged an order passed by the Additional Commissioner, Grade – 2, (Appeals – 2nd), Commercial Tax, Jhansi, dated December 16, 2022. The petitioner, who owned a hotel and was registered under the Goods and Services Tax Act, 2017 (UPGST Act), received a notice under section 74 of the UPGST Act for the period December 2017.

The petitioner did not file a reply to the notice, and subsequently, an order was passed under section 74(9) of the UPGST Act on July 7, 2021, without affording the petitioner an opportunity for a personal hearing. The order was challenged on the grounds that it violated the principles of natural justice as no date, time, and venue for personal hearing were fixed.

The court emphasized the importance of providing an opportunity for personal hearing as mandated under Section 75(4) of the UPGST Act. It highlighted that the use of the disjunctive conjunction “or” in the statute indicates two distinct scenarios where personal hearing must be granted: upon request from the person chargeable with tax or penalty, or when any adverse decision is contemplated against such person.

The court cited previous rulings and held that even if no request is received from the person chargeable with tax or penalty, an opportunity of personal hearing must be granted if any adverse decision is contemplated. It emphasized that personal hearing represents a fundamental aspect of procedural fairness and natural justice, ensuring that individuals have the opportunity to present their case before any final determination is made.

Since no opportunity for personal hearing was provided to the petitioner before the adverse order was passed, the court quashed the order dated July 7, 2021, and the subsequent order dated December 16, 2022. The Respondent No. 2 was directed to grant the petitioner an opportunity for a personal hearing and to pass a reasoned order in accordance with the law within a specified period.

FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT

Heard counsel appearing on behalf of the parties.

2. This is a writ petition under Article 226 of the Constitution of India wherein the petitioner is aggrieved by the order dated December 16, 2022, passed by the Additional Commissioner, Grade – 2, (Appeals – 2nd), Commercial Tax, Jhansi (hereinafter referred to as the ‘Respondent No. 3’).

3. Factual matrix of the instant case is provided below:

a. Petitioner is the owner of Hotel, in which it gives banquet and garden for marriage bookings. Petitioner is duly registered with the GST department under under the Goods and Services Tax Act, 2017 (hereinafter referred to as the “UPGST Act”).

b. On 25.3.21, a notice was issued for the period December 2017 under section 74 of the UPGST Act.

c. The reply could not be filed by the petitioner to the afore­said notice. Subsequently on 7.7.21 an order under section 74(9) of the UPGST Act has been passed by the respondent No.2. DRC 07 has been issued by the respondent No.2 on 13.7.21. no date, time and venue for personal hearing has been fixed.

d. From perusal of the show cause notice, it is evident that  and hence the order dated 7.7.21 passed under section 74 of the Act is in violation of principles of natural justice.

e. Being aggrieved by the aforesaid order passed by respondent No.2 petitioner has filed an appeal before the responded No.3 and has also deposited 10% of disputed tax by way of pre-deposit.

f. By the impugned order dated 16.12.22, responded No.3 has partly allowed the appeal filed by the petitioner and has deleted the supply estimated on the basis of catering of food by the petitioner during marriages amounting to 41,85,000/-. Responded No.3 has confirmed the levy made by the respondent No.2 on the basis of documents seized during the survey.

10. Without delving into the merits of the instant case, it is crystal clear that an opportunity of ‘personal hearing’ was not afforded to the petitioner which is a mandatory requirement under Section 75(4) of the UPGST Act, 2017 which has been extracted below:

“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.”

(emphasis added)

5. Even if no request is received from the person chargeable with tax or penalty, an opportunity of personal hearing must be granted if any adverse decision is contemplated against such person.

6. When the word ‘or’ is used in a statute, it serves as a disjunctive con­junction, indicating two or more alternatives. Each option presented is to be considered independently. It is crucial to recognize that the disjunctive nature of “or” precludes its interpretation as a conjunctive conjunction, such as “and”. Unlike, “and”, which implies a requirement for the simultaneous fulfilment of multiple conditions, “or” allows for flexibility and choice by permitting compliance with any one of the alternatives presented. Attempt­ing to read “or” as “and” in a statute would fundamentally alter its meaning and undermine the legislative intent behind its use. Such an interpretation would impose stricter criteria or conditions than intended by the statute, po­tentially leading to absurd or unreasonable outcomes.

7. Courts have consistently upheld the disjunctive nature of “or” in stat­utory interpretation, adhering to the principle of giving effect to the plain and ordinary meaning of the language used in the statutes. This principle, known as the plain meaning rule or the literal rule of interpretation, emphas­izes the importance of interpreting statutes based on their plain and ordinary meaning, as understood by the average person reading the text of the statute. Moreover, the disjunctive function of “or” in statutes is essential for uphold­ing principles of fairness, equity, and access to justice. By offering alternat­ive paths or options, statutes accommodate diverse individual needs and situations, promoting inclusivity and mitigating potential disparities or in­justices. This is particularly significant in areas of law concerning rights, be­nefits, and entitlements, where the flexibility provided by “or” ensures that legal provisions can be applied in a manner that reflects the realities and complexities of human experiences.

8. In Commissioner of Sales Tax, Uttar Pradesh -v- The Modi Sugar Mills Ltd., reported in, MANU/SC/0276/1960, the Supreme Court affirmed that while interpreting taxing statutes, courts must look at the words used in the statute, and interpret a taxing statute considering what has been clearly expressed:

“….In interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be inter­preted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed : it cannot imply anything which is not expressed;

it cannot import provisions in the statutes so as to supply any assumed deficiency.”

9. The significance of the word “or” in Section 75(4) of the UPGST Act, 2017 cannot be underestimated. The usage of the word “or” extends beyond its disjunctive function; it serves as a pivotal indicator of legislative intent regarding the necessity of providing an opportunity for personal hearing. By incorporating “or” into the statutory language, lawmakers explicitly delin­eate two distinct scenarios in which the opportunity of personal hearing must be afforded: either upon application by the individual subject to penalty or tax imposition, or in the event of contemplation of an adverse order. Per­sonal hearing represents a fundamental aspect of procedural fairness and nat­ural justice, ensuring that individuals have the opportunity to present their case, respond to allegations, and address any concerns or mitigating factors directly to the decision-maker. It is a vital safeguard against arbitrary or un­just decisions. The inclusion of “or” in Section 75(4) of the UPGST Act, 2017, emphasizes the dual nature of the obligation to provide a personal hearing, accommodating both proactive requests from individuals seeking to defend their interests and reactive responses to adverse orders contemplated by tax authorities. In either scenario, the statutory mandate remains clear: the individual must be afforded an opportunity for personal hearing before any final determination is made regarding tax or penalty imposition. Moreover, the statutory mandate for personal hearing reflects an acknowledgement of the complex and multifaceted nature of tax and penalty determinations, which often involve intricate legal and factual considerations. Personal hear­ing provides a forum for nuanced discussion and exploration of these com­plexities, enabling decision-makers to make well-informed and equitable de­cisions based on a comprehensive understanding of the circumstances at hand.

10. A Division Bench of this Court in Bharat Mint and Allied Chemic­als v. Commissioner Commercial Tax and Others reported in 2022 SCC OnLine All 1088, underscored the significance of providing an opportunity for personal hearing as contemplated under Section 75(4) of the UPGST Act, 2017. Relevant paragraphs have been extracted below:

“9. From perusal of Section 75(4) of the Act, 2017 it is evid­ent that opportunity of hearing has to be granted by authorit­ies under the Act, 2017 where either a request is received from the person chargeable with tax or penalty for opportun­ity of hearing or where any adverse decision is contemplated against such person. Thus, where an adverse decision is con­templated against the person, such a person even need not to request for opportunity of personal hearing and it is mandat­ory for the authority concerned to afford opportunity of per­sonal hearing before passing an order adverse to such per­son.

***

12. It has also been admitted in the counter affidavit that ex­cept permitting the petitioner to reply to the show cause no­tice, opportunity of personal hearing has not been afforded to the petitioner. Thus the legislative mandate of Section 75(4) of the Act to the authorities to afford opportunity of hearing to the assessee i.e. to follow principles of natural justice, has been completely violated by the respondents while passing the impugned order.

13. The stand taken by the respondents in the counter affi­davit that the writ petition is not maintainable as the peti­tioner has an alternative remedy of appeal under Section 107 of the Act, can also not be accepted inasmuch as it is settled law that availability of alternative remedy is not a complete bar to entertain a writ petition under Section 226 of the Con­stitution of India. Certain exceptions have been carved out by Hon’ble Supreme Court that a writ petition under Article 226 of the Constitution of India may be entertained even there is an alternative remedy. One of the principle in this regard is that if the order impugned has been passed in gross violation of principles of natural justice. It is admitted case of the re­spondents that no opportunity of personal hearing, as con­templated under Section 75(4) of the Act, 2017, was afforded to the petitioner before passing the impugned order.

14. During the course of hearing of this writ petition, learned standing counsel has produced before us a photo stat copy of the order of the Assessing Authority relating to the impugned order and perusal thereof shows that no opportunity of hear­ing as contemplated under Section 75(4) of the Act, 2017 was not afforded to the petitioner. Thus, there being patent breach of principles of natural justice, the present writ petition is maintainable against the impugned order.”

11. The view taken in Bharat Mint and Allied Chemicals (supra) was reiterated by another Division Bench of this Court in Mohini Traders v. State of U.P. and Others reported in MANU/UP/2440/2023. Relevant paragraphs have been extracted below:

“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.”

12. Recently, in M/s Primeone Work Force Pvt. Ltd. v. Union of India, reported in 2024:AHC-LKO:3533-DB, the Division Bench of this Court, stated that an opportunity of hearing is mandatorily required to be given if tax and penalty are to be imposed:

“6. Section 75(4) of the Act of 2017 specifically states ‘or where any adverse decision is contemplated against such per­son’.

7. Since in the present cases, both tax and penalty are im­posed against the petitioners and admittedly, an adverse decision is contemplated against the petitioners, therefore, un­der Section 75(4) of the Act of 2017, an opportunity of hear­ing was mandatorily required to be given by the department to the petitioners and merely marking the same as “NO” in the option cannot entitle the department to pass an order without giving any opportunity or even without waiting for the petitioners to appear on the date fixed. This Court has already taken a similar view in M/s. Mohini Traders (supra).

8. In view thereof, all the writ petitions are allowed on the sole ground of opportunity of hearing and the orders im­pugned in all four writ petitions are quashed.”

13. The Supreme Court in Dharampal Satyapal Limited v. Deputy Commissioner of Central Excise, Guhati and Others reported in (2015) 8 SCC 519, upheld the importance of personal hearing before making any de­cision. The Supreme Court stated that even in administrative actions, where the decision of the authority may result in civil consequences, a hearing be­fore taking decision is necessary. Relevant paragraphs have been extracted below:

“33. In his separate opinion, concurring on this fundamental issue, K. Ramaswamy, J. echoed the aforesaid sentiments in the following words : (ECIL case [(1993) 4 SCC 727 : 1993 SCC (L&S) 1184 : (1993) 25 ATC 704] , SCC p. 773, para 61)

“61. It is now settled law that the proceedings must be just, fair and reasonable and negation thereof offends Articles 14 and 21. It is well-settled law that the principles of natural justice are integral part of Article 14. No decision prejudicial to a party should be taken without affording an opportunity or supplying the material which is the basis for the decision. The enquiry report constitutes fresh material which has great persuasive force or effect on the mind of the disciplinary au­thority. The supply of the report along with the final order is like a post-mortem certificate with putrefying odour. The fail­ure to supply copy thereof to the delinquent would be unfair procedure offending not only Articles 14, 21 and 311(2) of the Constitution, but also, the principles of natural justice.”

34. Likewise, in C.B. Gautam v. Union of India [(1993) 1 SCC 78] , this Court once again held that principle of natural justice was applicable even though it was not statutorily re­quired. The Court took the view that even in the absence of statutory provision to this effect, the authority was liable to give notice to the affected parties while purchasing their properties under Section 269-UD of the Income Tax Act, 1961. It was further observed that : (SCC p. 104, para 30)

“30. … The very fact that an imputation of tax evasion arises where an order for compulsory purchase is made and such an imputation casts a slur on the parties to the agreement to sell lead to the conclusion that before such an imputation can be made against the parties concerned, they must be given an opportunity to show cause that the undervaluation in the agreement for sale was not with a view to evade tax.”

It is, therefore, all the more necessary that an opportunity of hearing is provided.

35. From the aforesaid discussion, it becomes clear that the opportunity to provide hearing before making any decision was considered to be a basic requirement in the court pro­ceeding. Later on, this principle was applied to other quasi-judicial authorities and other tribunals and ultimately it is now clearly laid down that even in the administrative actions, where the decision of the authority may result in civil con­sequences, a hearing before taking a decision is necessary. It was, thus, observed in A.K. Kraipak case [(1969) 2 SCC 262] that if the purpose of rules of natural justice is to prevent mis­carriage of justice, one fails to see how these rules should not be made available to administrative inquiries. In Maneka Gandhi v. Union of India [(1978) 1 SCC 248] also the applic­ation of principle of natural justice was extended to the ad­ministrative action of the State and its authorities. It is, thus, clear that before taking an action, service of notice and giv­ing of hearing to the noticee is required. In Maharashtra State Financial Corpn. v. Suvarna Board Mills [(1994) 5 SCC 566] , this aspect was explained in the following manner : (SCC p. 568, para 3)

“3. It has been contended before us by the learned counsel for the appellant that principles of natural justice were satis­fied before taking action under Section 29, assuming that it was necessary to do so. Let it be seen whether it was so. It is well settled that natural justice cannot be placed in a strait­jacket; its rules are not embodied and they do vary from case to case and from one fact-situation to another. All that has to be seen is that no adverse civil consequences are allowed to ensue before one is put on notice that the consequence would follow if he would not take care of the lapse, because of which the action as made known is contemplated. No particu­lar form of notice is the demand of law. All will depend on facts and circumstances of the case.”

14. From a bare reading of the order dated July 7, 2021 passed by the Respondent No. 2 it is palpably clear that no opportunity of personal hearing was afforded by the Respondent No.2 to the petitioner, which is a statutory obligation under Section 75(4) of the UPGST Act, 2017. Furthermore, the Respondent No. 3, while dismissing the appeal failed to correct this glaring impropriety in its order dated December 16, 2022. These orders cannot be allowed to pass through the legislative barriers of natural justice, erected to safeguard individual rights and prevent abuse of power.

15. In light of the aforesaid discussion, let there be a writ of certiorari issued against the order dated July 7, 2021 passed by the Respondent No.2 and order dated December 16, 2022, passed by the Respondent No.3. These orders are quashed and set aside. Consequential relief to follow. The Re­spondent No. 2 is directed to grant an opportunity of personal hearing to the petitioner and thereafter pass a reasoned order in accordance with the law within a period of two months from date.

This writ petition is, accordingly, allowed.