2024 (3) TMI 338 - HC - GST

Tax Demand Quashed: Procedural Lapses Invalidate Assessment Due to Insufficient Consideration of Taxpayer's Detailed Reply

Balaji Medical And Diagnostic Research Centre Versus Union Of India & Ors.

HC set aside tax demand order due to procedural defects. The order failed to adequately consider the petitioner's detailed reply to the Show Cause Notice. ... Violation of principles of natural justice - case of petitioner is that the impugned order does not take into consideration the reply submitted by the petitioner and is a cryptic order - demand including penalty - HELD THAT:- Perusal of the Show Cause Notice shows that the Department has given separate headings under declaration of output tax, excess claim Input Tax Credit [ITC], under declaration of ineligible ITC and ITC claim from cancelled dealers, return defaulters and tax nonpayers. To the said Show Cause Notice, a detailed reply was furnished by the petitioner giving full disclosures under each of the heads. The impugned order, however, after recording the narration, records that the reply uploaded by the taxpayer is not satisfactory - The observation in the impugned order dated 27.12.2023 is not sustainable for the reasons that the reply filed by the petitioner is a detailed reply. Proper Officer had to at least consider the reply on merits and then form an opinion whether the reply was devoid of merits. He merely held that the reply is devoid of merits which ex-facie shows that Proper Officer has not applied his mind to the reply submitted by the petitioner. The impugned order records that petitioner has not furnished the requisite details. Proper Officer is directed to intimate to the petitioner details/documents, as maybe required to be furnished by the petitioner. Pursuant to the intimation being given, petitioner shall furnish the requisite explanation and documents. Thereafter, the Proper Officer shall re-adjudicate the show cause notice after giving an opportunity of personal hearing and shall pass a fresh speaking order in accordance with law within the period prescribed under Section 75(3) of the Act - matter is remitted to the Proper Officer for re-adjudication. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether an adjudication order passed under Section 73 of the Central Goods and Services Tax Act, 2017 is sustainable when it labels a taxpayer's detailed reply as 'not satisfactory' without any recorded consideration of or reasons for rejecting that reply. 2. Whether the Proper Officer, upon finding a reply unsatisfactory or the need for further particulars, is obliged to specifically intimate the additional details required and afford an opportunity to the taxpayer to furnish those details before passing a final order. 3. Whether remittal for de novo re-adjudication is appropriate where the impugned order is cryptic, non-speaking and shows that the adjudicating authority has not applied its mind to the taxpayer's submissions. 4. Whether the Proper Officer is required to give an opportunity of personal hearing and to pass a speaking order within the period prescribed under Section 75(3) of the Act on re-adjudication. 5. Whether the Court's disposal and directions on procedural defects constitute a comment on the merits of the show cause notice or affect other challenges (e.g., challenge to a statutory notification). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of an order rejecting a detailed reply as 'not satisfactory' without recorded consideration Legal framework: Adjudication under Section 73 requires a speaking order based on consideration of the record, including replies filed in Form DRC-06. Administrative action must reflect application of mind and record reasons for acceptance or rejection of taxpayer submissions. Precedent Treatment: No specific precedents were cited or relied upon by the Court in the judgment; the decision rests on established principles of administrative law and requirement for speaking orders. Interpretation and reasoning: The Court observed that the taxpayer had filed a detailed reply addressing discrete heads in the show cause notice. The impugned order's lone observation that the 'submission of the Taxpayer was not found satisfactory' without any analysis or reasons indicates absence of application of mind. An adjudication order must demonstrate that the Proper Officer considered the factual and documentary material supplied and recorded reasons for rejecting the explanations; mere conclusory rejection is legally unsustainable. Ratio vs. Obiter: Ratio - Conclusive statements rejecting detailed taxpayer responses without recorded consideration render the order unsustainable for want of application of mind and reasons. Conclusion: The impugned order is quashed to the extent it summarily rejects the detailed reply as 'not satisfactory' without consideration and reasons. Issue 2 - Duty to seek further particulars before passing final order Legal framework: Principles of fair procedure require that when an authority considers a reply inadequate or requires additional particulars, it must specify what further information or documents are needed and allow the party an opportunity to respond before passing a final adverse order. Precedent Treatment: The Court did not invoke specific case law but applied settled procedural fairness principles. Interpretation and reasoning: The Proper Officer, if of the view that the reply is insufficient, should have specifically intimated the details wanted and afforded the taxpayer a chance to clarify or supplement the record. The absence of any such requisition or recorded request on file shows denial of an opportunity to explain, which vitiates the process. Ratio vs. Obiter: Ratio - When further particulars are needed, a specific intimation must be issued and an opportunity given to the taxpayer before adjudication. Conclusion: Failure to seek required particulars or to provide an opportunity to supply them is a procedural defect necessitating remittal for re-adjudication. Issue 3 - Appropriateness of remittal for re-adjudication where order is cryptic/non-speaking Legal framework: Administrative and tax adjudications must be speaking orders; cryptic orders that do not explain the basis for demand do not meet statutory and procedural mandates and may be set aside and remitted for fresh consideration. Precedent Treatment: No prior decisions were discussed; the Court applied mainstream administrative law norms on speaking orders. Interpretation and reasoning: Given the impugned order's failure to engage with the detailed reply and absence of reasons or specific findings, the Court concluded that the Proper Officer had not applied his mind. Consequently, the only effective remedy is to set aside the order and remit the matter for fresh adjudication so that the authority can consider the reply on merits and record reasons. Ratio vs. Obiter: Ratio - Cryptic, non-speaking orders that evidence non-application of mind must be set aside and the matter remitted for fresh adjudication. Conclusion: The impugned order was set aside and the matter remitted to the Proper Officer for re-adjudication. Issue 4 - Requirement of personal hearing and compliance with Section 75(3) timeline on re-adjudication Legal framework: Section 75(3) prescribes the time period within which the authority must pass an order; principles of natural justice require giving an opportunity of personal hearing before an adverse order is passed. Precedent Treatment: The Court did not cite authorities but applied statutory time limits and natural justice obligations. Interpretation and reasoning: On re-adjudication the Proper Officer is directed to intimate any further details/documents required, permit the taxpayer to furnish explanations, provide a personal hearing, and thereafter pass a fresh speaking order within the period specified under Section 75(3). These directions ensure procedural regularity and compliance with statutory timelines. Ratio vs. Obiter: Ratio - Re-adjudication must include specific intimation of deficiencies (if any), opportunity to furnish documents/explanations, a personal hearing, and issuance of a speaking order within the statutory period under Section 75(3). Conclusion: The Proper Officer must follow the procedural sequence mandated by the Court and the statute on re-adjudication. Issue 5 - Scope of the Court's intervention and reservation of merits; ancillary procedural matters Legal framework: Courts may confine relief to procedural defects without adjudicating substantive merits; preservation of rights permits parties to pursue substantive contentions afresh. Precedent Treatment: Not discussed; Court applied standard practice of limiting relief to procedural infirmities where appropriate. Interpretation and reasoning: The Court expressly clarified that it has neither considered nor commented upon merits of the contentions of either party and reserved all rights and contentions. A separate challenge to an administrative notification (Notification No. 9 of 2023 concerning an initial extension) was left open for adjudication elsewhere. Ratio vs. Obiter: Ratio - Quashing on procedural grounds does not constitute an adjudication on substantive merits; parties retain rights to press substantive objections, and other challenges remain open. Conclusion: Procedural quashment and remittal do not preclude future adjudication on merits; specific challenges (e.g., to a notification) remain undecided and preserved.