Penalty orders under CGST Act Section 127 quashed for violating natural justice principles during rectification process

The AP HC set aside penalty orders imposed under CGST Act Section 127 for wrongly availed input tax credit. The court held that penalties imposed through rectification under Section 161 without providing reasonable opportunity of hearing violated principles of natural justice. The original notice dated 13.08.2020 under Rule 100(1) did not include penalty liability, which was later added through rectification adversely affecting the assessee. Since Section 62 only covers interest and late fee liability, not penalties, and penalty imposition requires proper hearing under Section 127, the impugned orders were quashed. Respondents permitted to proceed with fresh notice following due process.

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Issues Involved:
1. Legality of the assessment order issued under Section 62 of the CGST Act, 2017.
2. Imposition of penalty without giving an opportunity of hearing.
3. Validity of the rectification order under Section 161 of the CGST Act, 2017.
4. Compliance with principles of natural justice.

Issue-wise Detailed Analysis:

1. Legality of the assessment order issued under Section 62 of the CGST Act, 2017:
The petitioner, a company registered under the CGST Act, 2017, failed to submit returns in GSTR-3B for January 2020 to June 2020. Consequently, the 3rd respondent issued a letter on 21.07.2020 under Section 46 of the CGST Act, directing the petitioner to file returns within 15 days. Due to non-compliance, an assessment order was passed on 13.08.2020 under Section 62 of the CGST Act, determining liabilities towards IGST, CGST, APGST, and cess. The assessment was based on the best judgment of the officer, as permitted under Section 62 for non-filers of returns.

2. Imposition of penalty without giving an opportunity of hearing:
The assessment order dated 13.08.2020 did not include any penalties. However, a Corrigendum-cum-Addendum issued on 27.08.2020 imposed additional liabilities, including penalties under Section 122(2)(a) of the CGST Act. This was followed by a rectification order on 12.11.2020, reiterating the penalties. The petitioner argued that these penalties were imposed without any opportunity for a hearing, violating principles of natural justice. The court noted that Section 62 does not provide for penalty imposition and that any rectification adversely affecting a person must follow the principles of natural justice under Section 161.

3. Validity of the rectification order under Section 161 of the CGST Act, 2017:
Section 161 allows rectification of errors apparent on the face of the record but mandates that principles of natural justice be followed if the rectification adversely affects any person. The rectification order dated 12.11.2020, which imposed penalties, did not adhere to these principles, as no hearing was provided to the petitioner. The court emphasized that any adverse rectification must involve a reasonable opportunity for the affected party to present their case.

4. Compliance with principles of natural justice:
The court highlighted that the imposition of penalties without a hearing was against the principles of natural justice. The initial assessment order did not mention penalties, and the subsequent orders imposing penalties were issued without giving the petitioner an opportunity to be heard. This procedural lapse rendered the orders illegal. The court set aside the impugned orders, allowing the respondents to issue a fresh notice and pass orders in accordance with the law, ensuring compliance with natural justice principles.

Conclusion:
The writ petition was allowed, and the impugned orders were set aside due to the failure to provide the petitioner with an opportunity for a hearing before imposing penalties. The respondents were directed to issue a fresh notice and proceed in accordance with the law, upholding the principles of natural justice. All pending miscellaneous petitions were closed.

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