Tax Adjudication and Natural Justice under GST Regime

Vishnupriya Tawania

Tax Adjudication and Natural Justice under the GST Regime: Towards a Fairer Compliance System

The idea of GST was first proposed by the Atal Bihari Vajpayee government. The Goods and Services Tax (GST) regime is a comprehensive, multi-stage, destination-based tax and was introduced to replace the complex and fragmented indirect tax structure that existed in India before 2017. It was officially implemented on 1^st of July 2017 for entire India except Jammu and Kashmir. GST was introduced in J&K on 8^th of July 2017, one week later than the rest of India due to its special constitutional status under article 370 (before august 2019). It proposes the idea of one nation, one tax, one market.

India follows the Dual GST model i.e. both the central and state governments have the power to levy and collect tax on a common base (i.e., supply of goods and services) and that is because India is a federal country. It was introduced to create a unified, simplified and transparent tax systems and eliminate the cascading effect of multiple indirect taxes that existed in India prior to GST regime. However, as the system matured, the focus gradually shifted from implementation to enforcement, particularly how adjudication proceedings are conducted, procedural safeguards like right to hearing and reasoned order. The reality of the adjudication proceedings often reveals departure from these principles.

The taxpayers face delays, templated show cause notices and inconsistent interpretations by the authorities. This article argues that procedural fairness is not just a mere formality in GST proceedings, it is a structural necessity for maintaining taxpayer confidence and ensuring the credibility of tax system in India. This article discusses on if India’s GST adjudicatory mechanism truly balances the state’s legitimate interest in revenue collection with taxpayer’s right to due process.

Legal Framework of GST Adjudication

While this framework appears robust on paper, its implementation is not without inconsistencies that challenges the rights of taxpayers. It is governed primarily by central goods and services tax act, 2017 (CGST Act) which outlines the procedure for determination of tax liabilities, issuance of show cause notices, hearings and appeals. Corresponding State/UT Acts follow similar provisions for intra-state supplies, while the Integrated Goods and Services Tax (IGST) Act, 2017 governs the inter-state transactions and imports. Thus, while the CGST provisions form the backbone of GST adjudications, the legal framework extends across these acts covering all types of supplies.

The following are the procedural stages under the CGST Act, 2017:

• Section 61: Scrutiny of returns by a proper officer
• Section 62: Provisional assessment
• Section 63: Summary assessment
• Section 73: Issuance of Show cause notice (SCN) in cases of tax not paid or short paid without fraud or wilful misstatement
• Section 74: Issuance of Show cause notice (SCN) in cases of tax not paid or short paid due to fraud, wilful misstatement or suppression of facts
• Section 73(5) & 74(5): Officer issues the final adjudication order after considering the SCN, reply, and evidence.
• Section 79-87: Recovery of tax, interest, and penalty if not paid voluntarily.
• Section 107–122: Appeal mechanism:
• First appeal → Appellate Authority
• Further appeal → Appellate Tribunal → High Court → Supreme Court

Key procedural safeguards

• Section 75(4): Right to a personal hearing before adjudication.
• Section 75(7): Requirement for issuance of reasoned orders.
• Rule 142: SCN procedure, including issuance through DRC forms.

Procedural Fairness in Theory and Practise

In the context of GST adjudication, procedural fairness ensures that taxpayers are treated fairly, informed of allegations and given an opportunity of being heard and present their case before any adverse action is taken against them. Procedural fairness means right to be heard, reasoned decisions, consistency, predictability and transparency. Under GST law these principles are codified under section 75(4) and 75(7) of the CGST Act, 2017 which guarantees right to personal hearing and reasoned order.

However, while the law provides a robust framework, its practical implication sometimes faces challenges. It contrasts law on paper with law in action. The following are the inconsistencies faced by the taxpayers in GST Adjudications:

Procedural inconsistencies

• Passing of ex-parte orders by the department by not giving them opportunity to present themselves or avoid considering the replies made by them
• Absence of proper procedure being followed like non-issuance of relevant notices by proper means as prescribed in the act for example non-issuance of ADT-02 in certain cases
• Failure to provide opportunity of personal hearing though it is mandatory under Section 75(4) of the CGST Act, 2017
• Violation of Rule 142 (SCN summary not served/uploaded on the portal) denying proper service of relevant documents to the taxpayers
• Passing of non-speaking orders where the demands are stated but the reasons for raising such demand are not listed
• Same officer conducting audit and issuing adjudication (Rule of bias)

Jurisdictional and Structural irregularities

• State authorities demanding IGST though taxpayer falls under Central jurisdiction.
• Duplication of proceedings (same issue reopened).
• Single SCN for multiple years (beyond authority) is fundamentally incorrect and legally impermissible. This issue has been addressed in the case of M/S. Bangalore Golf Club v. Assistant Commissioner of Commercial Taxes, Koramangala, Bengaluru [2024 (10) TMI 116 – Karnataka High Court], where the court held that the practice of issuing a single consolidated SCN for multiple assessment years contravenes the provisions of the CGST Act..
• Department taking contradictory stands despite earlier refund approvals.
• Two assessments are not permissible in law especially on the same issue. In this regard, reliance is placed on Duncans Industries Ltd. v. CCE 2006 (201) E.L.T. 517 (SC).

Delay, Limitation & Business Impact

• Prolonged adjudication timelines
• Bank attachments without prior notice and stay orders disrupting business liquidity-reliance is placed on
• Non-compliance with monetary jurisdiction thresholds.
• Although Section 73(2) of the CGST Act, 2017 mandates a minimum three-month gap between the issue of a Show Cause Notice and the passing of the final order, in practice this safeguard is often overlooked, denying taxpayers adequate time to defend themselves and undermining procedural fairness.
• Collectively these issues impact ease of doing business, increased compliance costs and reduce taxpayer confidence in the stability of GST system

Refund and Credit-related complexities

• Refund procedure under section 54 of the CGST Act,2017 remains one of the most complicated and most litigated aspect of GST administration.
• Contradictory stands taken by authorities on refund matters, whereby refunds are first approved and thereafter rejected, leading to undue delays and its adverse impact on the businesses.
• Department taking contrary stands subsequently in absence of change of circumstances or law especially previous refunds orders sanctioned u/s 54(5) and Rule 92(1) by very same authorities-reliance is placed on Birla Corporation Ltd vs CCE 2005 (186) ELT 266 (SC) and Indian Oil Corporation Ltd vs C.C. Ex, Baroda 2006 (202) ELT 37 (SC)

Principle of natural justice

The principle of natural justice is mainly based on two basic pillars i.e. nobody shall be condemned unheard (audi alteram partem), and nobody shall be judge of his own cause (nemo debet esse judex in propria sua causa). Which is popularly known as the rule against bias. It means the authority giving decisions must provide the taxpayers with an opportunity of being heard and shall be composed of impartial persons acting fairly, without prejudice and bias.

Section 75(4) of the CGST Act, 2017 mandates grant of personal hearing before issuance of order but practically sometimes the same is not provided to the taxpayers by the department and hearings are treated as discretionary. This mismatch between judicial interpretation and administrative conduct highlights a systematic disregard for natural justice.

Proceedings initiated and concluded by the same authority amounts to violation of “rule against bias.” Very process of adjudication of a notice, is to provide a fair opportunity to the person on whom the said notice is issued and decide the matter on merits and facts by means of an unbiased approach. However, in certain cases, the entire proceedings that is from conduct of Audit, issuance of show cause notice to issuance of order everything is carried out by the sole authority. The reliance is placed on various court judgements wherein it was held that no person can be a judge in his own case

1. Swastik Plastics v. Comm Delhi Goods and Service Tax (2022) 12 Centax 155 (Del).

2. Mohammed Bilal v. ACCT& C.Ex, Kerala 2018 (16) G.S.T.L. 549 (Ker.)

Conclusion

In view of the above, it is evident that the GST regime continues to evolve and stabilize, with both authorities and taxpayers facing challenges arising from procedural inconsistencies and compliance regulations. Given the evolving nature of GST and the acknowledged challenges, the authorities are expected to adopt a fair, consistent and facilitative approach in refund and compliance matters to avoid undue hardships to taxpayers and smooth flow of their businesses. As it can be seen from above that there are various ways or procedures to be followed by authorities during adjudication as mentioned in their relevant sections under the act and their non-compliance’s impact on taxpayers is huge. Therefore, embedding procedural fairness within the GST adjudication process will enhance the taxpayer’s trust and institutional legitimacy.