2024 (1) TMI 1247 - HC - GST

AAAR tax ruling relying on undisclosed adverse official report material-order set aside and remanded for fresh hearing

The dominant issue was whether the AAAR's ruling was vitiated for breach of natural justice by relying on adverse material in an official report without ... Violation of principles of natural justice - gross violation of the established position of law - whether the ruling of the AAAR rendered in the appeal by utilising the report containing adverse material against the petitioner in absence of confrontation is vitiated? - HELD THAT:- The principles of natural justice are those rules which have been laid down by the Courts as being the minimum protection of the rights of the individual against the arbitrary procedure that may be adopted by a judicial or quasi-judicial authority while making an order affecting those rights. These rules are intended to prevent such authority from doing injustice. Law is well-settled that in the applicability of the doctrine of natural justice there can be no distinction between the quasi-judicial function and an administrative function inasmuch as the aim of both is to arrive at a just decision and to prevent miscarriage of justice. In STATE OF ORISSA VERSUS DR. (MISS) BINAPANI DEI & ORS. [1967 (2) TMI 96 - SUPREME COURT], the Supreme Court observed that even an administrative order or decision in matters involving civil consequences have to be made consistently with the rules of natural justice. The purpose of the rules of natural justice is to prevent miscarriage of justice, the rules should be made applicable to administrative enquiries also. On examination of contention of learned Senior Advocate appearing for the petitioner and taking note of concession made by the learned Senior Standing Counsel defending the order of the AAAR, it is found that the Order dated 27.07.2021, which is sought to be set aside invoking extraordinary jurisdiction under Article 226/227 of the Constitution of India for want of confrontation, as one of the facets of the principles of natural justice, does not transpire that the AAAR has disclosed the material contained in the report submitted by the Superintendent of CGST & Central Excise, Sambalpur-I Range to the Assistant Commissioner, CGST & Central Excise, Sambalpur-I Division vide Letter dated 27.04.2021, to the petitioner. Therefore, it is safe to say that the petitioner had been deprived of reasonable and fair opportunity to submit its explanation. While it is not deniable that the authority is entitled to conduct enquiry and collect material behind the back of the petitioner and even the authority need not disclose to the petitioner the source of any adverse material in his possession, which he seeks to utilize against the petitioner, yet the petitioner is expected to meet such adverse materials and thereby save himself. Therefore, confrontation of such adverse material intending to be used to the detriment of the petitioner was required to be confronted to the petitioner by the AAAR. This Court, therefore, sets aside Order dated 27.07.2021 passed by the Odisha Appellate Authority for Advance Ruling (Annexure-8) being absolutely indefensible and, therefore, it does warrant interference. Hence, said Order is set aside and the matter is remitted to the Odisha Appellate Authority for Advance Ruling for taking fresh decision after due compliance of the principles of natural justice. The writ petition stands disposed of. Issues Involved:1. Legality and propriety of the AAAR Order.2. Procedural irregularities and violation of principles of natural justice.3. Classification of business activity as 'restaurant services' under GST.Summary of Judgment:1. Legality and Propriety of AAAR Order:The petitioner, a partnership firm in the bakery business, challenged the AAAR Order No. 02/Odisha-AAAR/Appeal/2021-22 dated 27.07.2021, which set aside the AAR ruling and held that the items sold by the petitioner attract the GST tariff rate as individual items. The AAAR's decision was based on a report by the Jurisdictional Officer, which was not disclosed to the petitioner, leading to the reversal of the AAR's classification of the petitioner's services as 'restaurant services.'2. Procedural Irregularities and Violation of Principles of Natural Justice:The petitioner argued that the AAAR's order was passed in gross violation of established legal principles and procedural irregularities, particularly the principles of natural justice. The AAAR relied on an untested report from the Jurisdictional Officer without confronting the petitioner with this adverse material. The Court emphasized that the principles of natural justice require that any adverse material used against a party must be disclosed to them, allowing for a fair opportunity to rebut the same. The Court cited several precedents affirming the necessity of adhering to natural justice principles in administrative and quasi-judicial proceedings.3. Classification of Business Activity as 'Restaurant Services':The petitioner contended that their business, which involves making and selling bakery products with dining facilities, should be classified as 'restaurant services' under the GST Act. The AAR had initially ruled in favor of the petitioner, classifying their services as 'restaurant services' and applying a 5% GST rate. However, the AAAR overturned this ruling, classifying the petitioner's services as individual items subject to different GST rates. The Court noted that the AAAR's reliance on the dictionary meaning of 'restaurant' was inappropriate and that the actual nature of the petitioner's business activities should be considered.Conclusion and Decision:The Court found that the AAAR's order was vitiated due to the violation of natural justice principles, as the petitioner was not given an opportunity to respond to the adverse report. The Court set aside the AAAR's order and remitted the matter back to the AAAR for a fresh decision, ensuring compliance with the principles of natural justice. The Court directed that the petitioner be given a fair opportunity to present their case and respond to any adverse material before a new decision is made.