2025 (4) TMI 1648 - HC - GST

Tax Adjudication Order Quashed: Procedural Fairness Trumps Non-Response, Ensuring Proper Notice and Hearing Rights

M/s SEEMA CATERERS Versus THE STATE OF KARNATAKA, THE COMMERCIAL TAX OFFICER, THE BANK MANAGER CANARA BANK

HC quashed ex-parte tax adjudication orders under KGST Act 2017 due to lack of proper notice and hearing. The court found the petitioner's non-response ... Challenge to impugned Adjudication Order and subsequent orders/notices issued under the KGST Act 2017 - ex-parte orders passed without affording the petitioner an opportunity to be heard - HELD THAT:- A perusal of the material on record including the impugned orders would indicate that it is an undisputed fact that the petitioner did not respond/reply to the show cause notice and the impugned ex-parte orders have been passed without hearing the petitioner. Under these circumstances, in view of the specific assertion on the part of the petitioner with regard to inability and omission to submit the reply to the show cause notice and participate in the proceedings was due to bona fide reasons, unavoidable circumstances and sufficient cause, by adopting a justice oriented approach and in order to provide one more opportunity to the petitioner, it is deemed just and appropriate to set aside the impugned orders and remit the matter back to the respondent for reconsideration afresh in accordance with law by issuing certain directions. The matter is remitted back to the respondent for reconsideration afresh from the stage of the Petitioner submitting its reply to the show-cause notice dated 30.12.2023 in accordance with law - petition allowed by way of remand. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this matter are:Whether the impugned Adjudication Order dated 30.03.2024 and subsequent orders/notices issued under the KGST Act 2017 were validly passed given that the petitioner did not receive or respond to the show cause notice issued on 30.12.2023;Whether the ex-parte orders passed without affording the petitioner an opportunity to be heard violated principles of natural justice;Whether the petitioner's assertion of bona fide reasons and unavoidable circumstances for non-submission of reply to the show cause notice warrants quashing of the impugned orders and remitting the matter for fresh consideration;Whether the respondent authorities acted within their jurisdiction and in accordance with law in issuing the impugned orders and notices;Whether the petitioner's account freeze, consequent to the impugned orders, should be lifted pending reconsideration.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the Impugned Orders Passed Without Petitioner's Reply or HearingRelevant Legal Framework and Precedents: The KGST Act 2017 empowers the Commercial Tax Officer to issue show cause notices under Section 65(6) for discrepancies in GST returns. Principles of natural justice mandate that before passing an adverse order, the affected party must be given a reasonable opportunity to be heard. Precedents emphasize that ex-parte orders without service or hearing are generally liable to be set aside unless the party deliberately avoids participation.Court's Interpretation and Reasoning: The Court noted that the petitioner did not submit any reply to the show cause notice dated 30.12.2023 and that the impugned Adjudication Order dated 30.03.2024 was passed ex-parte. The Court acknowledged the petitioner's claim of non-receipt of the show cause notice and bona fide reasons for non-participation. Given the undisputed fact of non-hearing, the Court found the impugned orders to be unjust and contrary to the principles of natural justice.Key Evidence and Findings: The record showed issuance of observation notice on 15.11.2023, followed by the show cause notice on 30.12.2023. There was no material to suggest deliberate avoidance by the petitioner. The petitioner's assertion of unavoidable circumstances was accepted as sufficient cause.Application of Law to Facts: Since the petitioner was not heard before passing the impugned orders, the Court held that the orders were liable to be quashed and the matter required fresh consideration with opportunity to the petitioner to present his case.Treatment of Competing Arguments: The respondents contended that the petitioner failed to exercise due diligence and hence the orders should be sustained. The Court, however, prioritized the petitioner's right to be heard and found the failure to respond was not deliberate but due to bona fide reasons.Conclusion: The impugned ex-parte orders were set aside for violation of natural justice and non-service of notice.Issue 2: Jurisdiction and Validity of Subsequent Orders and Notices (Annexure H and H-1)Relevant Legal Framework and Precedents: The KGST Act 2017 provides procedural safeguards in issuance of notices under Section 79 and related provisions. Validity of such notices depends on adherence to statutory procedure and fairness.Court's Interpretation and Reasoning: The Court treated the subsequent orders and notices dated 09.09.2024 and 24.10.2024 as consequential to the impugned Adjudication Order and thus also liable to be set aside pending fresh adjudication.Key Evidence and Findings: The notices were issued by the same authority and pertained to the same tax period and proceedings. Since the foundational adjudication was quashed, these notices lacked independent validity.Application of Law to Facts: The Court applied the principle of continuity and procedural fairness, holding that all consequential orders must be reconsidered afresh once the petitioner is heard.Treatment of Competing Arguments: Respondents argued that the notices were valid and necessary enforcement steps. The Court found that enforcement cannot proceed on the basis of orders passed without hearing.Conclusion: The subsequent notices and orders were set aside along with the adjudication order.Issue 3: Remedy and Directions for Fresh ConsiderationRelevant Legal Framework and Precedents: Courts have the power to quash orders passed in violation of natural justice and remit matters for fresh consideration with directions to ensure fair hearing.Court's Interpretation and Reasoning: The Court adopted a justice-oriented approach, emphasizing the importance of providing the petitioner a reasonable opportunity to submit replies, pleadings, and documents. The Court directed the respondent authority to reconsider the matter from the stage of receipt of the petitioner's reply to the show cause notice.Key Evidence and Findings: The petitioner's request for remand and opportunity to be heard was found to be bona fide and justified.Application of Law to Facts: The Court balanced the need for procedural fairness with the statutory mandate of tax administration, providing a clear mechanism for fresh adjudication.Treatment of Competing Arguments: While respondents opposed remand, the Court prioritized principles of fairness and procedural propriety.Conclusion: The matter was remitted for fresh consideration with liberty to the petitioner to fully participate.Issue 4: Defreezing of Petitioner's AccountRelevant Legal Framework and Precedents: Freezing of accounts is a coercive measure linked to enforcement of tax dues, but such measures must be proportionate and not prejudicial where orders are under challenge.Court's Interpretation and Reasoning: The Court directed immediate defreezing of the petitioner's account upon receipt of the order, recognizing the hardship caused by freezing in the absence of valid orders.Key Evidence and Findings: The account freeze was a direct consequence of the impugned orders now set aside.Application of Law to Facts: The Court applied equitable principles to prevent undue hardship pending fresh adjudication.Treatment of Competing Arguments: No specific counter-argument on this point was noted; the Court's direction was to maintain fairness.Conclusion: The account freeze was lifted forthwith.3. SIGNIFICANT HOLDINGSThe Court held that 'the impugned ex-parte orders have been passed without hearing the petitioner,' and that 'in view of the specific assertion on the part of the petitioner with regard to inability and omission to submit the reply to the show cause notice and participate in the proceedings was due to bona fide reasons, unavoidable circumstances and sufficient cause,' it is just and appropriate to set aside the impugned orders and remit the matter back for fresh consideration.Core principles established include:The fundamental requirement of affording an opportunity of hearing before passing adverse adjudication orders under the KGST Act;Ex-parte orders passed without service or hearing, especially where non-participation is due to bona fide reasons, are liable to be quashed;Subsequent enforcement notices and orders dependent on such adjudication must also be set aside pending fresh proceedings;The Court has the discretion to remit matters for fresh adjudication with directions to ensure procedural fairness;Equitable relief such as defreezing of accounts can be granted pending reconsideration to prevent undue hardship.