THE IMPERATIVE OF INDEPENDENT ADJUDICATION

The Imperative of Independent Adjudication

The recent trend of adjudication proceedings being initiated primarily on the basis of unsubstantiated inspection reports raises significant concerns regarding adherence to the principles of natural justice and the proper demarcation of jurisdictional powers under the Goods and Services Tax (GST) framework. There is need for the Adjudicating Authority (Proper Officer) to conduct an independent and original scrutiny of facts, rather than relying blindly on the findings and assumptions of inspecting or enforcement authorities.

The boundary between inspection and adjudication:

The core contention often lies in the jurisdictional overreach where the role of the inspecting officer—whose function is to investigate, gather facts, and report—appears to merge with the quasi-judicial function of the adjudicating officer—who must interpret the law, weigh evidence, and render a reasoned decision.

Inspecting Authority: Their primary function is to find the truth of the matter and submit a report. They are the prosecuting or investigative arm of the administration.

Adjudicating Authority (Proper Officer): They are vested with the duty of final adjudication under sections like Section 73 of the GST Act. This role requires an active application of mind to all relevant facts and legal provisions, as emphasized by judicial pronouncements on the meaning of 'consider' under Section 73(9).

Judicial wisdom is well-settled:

The prosecuting/inspecting authority cannot become the judge. Transferring a case for the 'final part of adjudication' without the adjudicating officer first conducting a first-hand scrutiny of facts amounts to a misconception of jurisdiction. The adjudicating officer must not behave like a 'postman' or a 'parrot,' merely rubber-stamping the inspection report. Likewise the inspecting authorities should not step into the shoes of adjudicating authorities since they are too big for them.

The requirement of cogent and independent evidence:

A show cause notice or final order under Section 73 cannot be a 'super structure built on sinking sand.' The law mandates that allegations of short payment, particularly classification disputes, must be supported by tangible, incontrovertible evidence, not merely by 'assumption,' 'surmises,' or 'if and buts.' In the case of classification disputes, such as the differential rate of tax on goods/services, the taxpayer's tax invoices and documented transactions constitute live evidence. The adjudicating officer is duty-bound to weigh these facts against the inspection report's allegations. A critical principle repeatedly emphasized by the courts is that adjudication cannot take place on 'borrowed satisfaction.' Relying on an inspection report without independent or cogent reasons to believe the allegations is an unlawful practice.

Recent Judicial Precedents on 'Borrowed Satisfaction'

1. Supreme Court on reassessment (Upholding Gujarat HC): The Supreme Court has recently upheld High Court rulings that quash reassessment proceedings based on 'borrowed satisfaction' where the Assessing Officer (AO) merely adopts information from an investigation wing without any independent application of mind or tangible material to directly link the taxpayer to the alleged tax evasion. The Court stressed that mechanical adoption of third-party information without zero independent enquiry vitiates the entire process.

2. ITAT Delhi on investigation inputs: In a recent Income Tax Appellate Tribunal (ITAT) ruling, a reassessment notice was set aside and addition deleted because the AO merely reproduced information from the Investigation Wing, with no independent enquiry or verification of transactions. The Tribunal held that such mechanical, borrowed-satisfaction reasons vitiate the reassessment, recording conclusions rather than reasons.  

Supply of incriminating material and natural justice:

The principles of natural justice are non-negotiable. For a fair adjudication, the taxpayer is legally entitled to copies of all incriminating materials or tangible evidence that the adjudicating authority proposes to rely upon.

Recent judicial precedents on procedural fairness:

1. Karnataka High Court on payment under duress: The Karnataka High Court has ordered the refund of tax collected with huge interest under duress during GST search operations. The Court categorically observed that collection of tax without proper adjudication or consent cannot be regarded as a voluntary payment or a self-ascertained tax under Section 74(5). This ruling reinforces that the investigative wing cannot coerce payment and the final liability must be determined only through the proper adjudication process. Further in another case, it has quashed the notice on mindless interpretation of services rendered by KERC.

2. Gauhati High Court on Scrutiny Procedure: The Gauhati High Court recently held that the initiation of demand proceedings under Section 73 of the CGST Act without first issuing Form GST ASMT-10 (for scrutiny discrepancies under Section 61) is invalid. The Court ruled that the statutory scheme requires an opportunity to be granted to the assessee to rectify or explain discrepancies, and skipping this step vitiates the jurisdiction of the proper officer to issue the Show Cause Notice under Section 73/74/74A.

Conclusion:

The need for administrative accountability :The integrity of the GST adjudication process hinges on the Adjudicating Authority's commitment to judicial discipline.

The Proper Officer must:

1. Scrutinize the facts independently with a 'clean glass,' avoiding any 'pre-fixed frame of mind.'

2. Reject reliance on mere assumptions or generalisations made by the inspecting authority, as borrowed satisfaction is repeatedly held to be unlawful.

3. Ensure the final order reflects a conscious and reasoned application of mind, substantiated by lawful reasons and provable evidences. Despite decades of jurisprudence establishing these fundamental requirements, the taxpayer community often faces needless troubles, yet the mindset of both the enforcement and adjudicating authorities remains unchanged. The perception persists that both wings are 'sailing in the same boat with holes in the bottom,' leading to arbitrary demands and unnecessary litigation.

4. It is therefore incumbent upon top administrators to ensure a paradigm shift. They must actively monitor and enforce the strict judicial separation between investigation and adjudication to guarantee fair process of law  for all taxpayers. The final adjudication cannot be concluded on 'unsubstantive information.' It is the Adjudicating Authority's ethical and legal duty to acknowledge and respect the truth that emerges from a holistic examination of all material on record, thereby ensuring that the dignity of the taxpayer's rights is preserved and the fundamental requirements of the law are met. This is not a charity. It is their bounden duty for which they are paid salary out of taxpayers’ money only. 'If they can't be true to their salt, nothing else matters'.