2024 (12) TMI 1648 - HC - GST

Order under Section 73 CGST quashed for lack of proper personal hearing and templated, non-application of mind

The HC found the impugned final order under section 73 CGST defective for failure to provide a proper personal hearing and for evident non-application of ... Principles of natural justice - service of final order u/s 73 of the Central Goods and Services Tax Act confirming a tax demand with providing a personal hearing - non-application of mind - HELD THAT:- Similar issue decided in Xerox India Ltd. v. Asstt. Commissioner, DGST [2024 (12) TMI 1283 - DELHI HIGH COURT] where it was held that 'The Assistant Commissioner has clearly adopted a template where the only reason assigned is that the reply filed was “not comprehensible, conceivable, not perspicuous and is ambiguous”. This clearly exhibits an abject non-application of mind and the officer repeatedly employing identical phraseology to deal with such matters.' The final orders cannot be sustained - the order dated 31 August, 2024 is quashed - petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a final order under Section 73 of the Central Goods and Services Tax Act confirming a tax demand can be sustained where the officer records that the taxpayer's filed reply is 'not comprehensible, conceivable, perspicuous and ambiguous' and relies on the taxpayer's non-attendance at a personal hearing without further reasoning. 2. Whether repeatedly employing identical template language in multiple final orders-stating the reply is incomprehensible and confirming demand for want of personal hearing-amounts to non-application of mind and renders such orders wholly unreasoned and liable to be quashed. 3. The extent to which an adjudicating officer must consider and record reasons when disposing of a show cause notice under Section 73 after receipt of a written reply and requests for adjournment/personal hearing (including the relevance of statutory provisions governing adjournment and opportunity to be heard). 4. Whether, upon quashing a deficient final order, the Revenue may proceed afresh with SCN proceedings and what scope should be preserved for parties on merits. 5. Whether challenges to notifications issued under Section 168A of the CGST Act can be kept open for determination in appropriate proceedings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of final order under Section 73 where officer labels reply incomprehensible and relies on non-attendance at hearing Legal framework: Section 73 deals with determination of tax not paid or short paid, and proceedings begin with a show cause notice followed by an opportunity of personal hearing; related provisions (including those dealing with adjournment) govern the manner of hearing and requirement to consider written replies. Precedent Treatment: The Court relied on and followed its recent decision in a factually identical matter (referred to in the judgment) in which an order framed in substantially the same terms was quashed. That earlier decision is applied to the present facts. Interpretation and reasoning: The Court observed that an adjudicating order which merely records that the taxpayer's reply is not comprehensible and that no one attended the hearing, without addressing the substance of the written response or explaining why the reply could not be understood, manifests an absence of reasoning. The officer's conclusion is a formulaic recitation that fails to engage with the material on record or explain why the written reply did not suffice to meet the issues raised in the SCN. Ratio vs. Obiter: Ratio - where a final order under Section 73 is founded solely on such template observations and non-attendance, without application of mind to the written reply and without adequate reasons, the order is vulnerable to quashing for want of reasoned decision-making and breach of principles of natural justice. Conclusions: The impugned order confirming demand on the stated grounds is unsustainable and is quashed. The Court held that such reasoning is wholly inadequate to sustain a tax demand determined under Section 73. Issue 2 - Template language and repeated identical orders: non-application of mind Legal framework: Administrative action must disclose the reasoning process and cannot be a mere ipse dixit; decisions should reflect consideration of the written reply, evidence and reasons for acceptance or rejection. Precedent Treatment: The Court noted a pattern of identically worded orders by the officer and relied on its prior finding in a similar writ where the same template language was condemned and the order quashed. The prior decision was followed in the present matter. Interpretation and reasoning: Repeating verbatim phrases across multiple adjudications (e.g., describing replies as incomprehensible without analysis) indicates an abject non-application of mind. Such repetition converts the order into a template rather than a reasoned adjudication tailored to the particular factual and legal content of each reply. The Court emphasised that the officer failed to make any amendment despite prior judicial caution. Ratio vs. Obiter: Ratio - template reasoning that does not consider the actual contents of the taxpayer's reply and does not articulate why the reply is insufficient constitutes a failure to exercise jurisdiction properly and merits quashing of the order. Conclusions: Template orders employing identical phraseology without case-specific reasoning are legally defective; the impugned order is set aside on this ground. Issue 3 - Duty to consider written replies and adjournment requests; scope of opportunity to be heard Legal framework: Principles of natural justice require that an opportunity to be heard be meaningful; statutory rules governing adjournments and hearings (including the mechanism for filing objections in prescribed forms) must be applied; an officer must consider written submissions and record reasons if hearing is not held or if adjournment is refused. Precedent Treatment: The Court applied its prior analysis where failure to engage with written responses and to provide reasoned rejection of adjournment requests or of the substance of replies was held to be impermissible. Interpretation and reasoning: The mere fact of non-attendance at a personal hearing does not absolve the officer of the obligation to consider and adjudicate on the written reply. If the officer finds the reply incomprehensible, the order must explain in what manner the reply fails to address specific points in the SCN and why a demand is justified notwithstanding the written response. Where adjournment requests are made, the officer should record reasons for denial or acceptance, having regard to statutory thresholds (e.g., sufficient cause) and the need for fairness. Ratio vs. Obiter: Ratio - an adjudicating officer must engage with written replies and adjournment requests and must record reasons when reaching an adverse conclusion in absence of oral explanation; failure to do so violates principles of natural justice and duty to give reasons. Conclusions: The officer's treatment of the written reply and adjournment/personal hearing requests was inadequate; orders based solely on form phrases or non-attendance without case-specific reasoning are invalid. Issue 4 - Consequences upon quashing: power to proceed afresh and preservation of rights Legal framework: Quashing permits remand or fresh adjudication consistent with law; parties retain substantive rights and contentions for fresh consideration. Precedent Treatment: Following its earlier ruling, the Court allowed the Revenue to proceed afresh but mandated that the fresh proceedings bear in mind the written reply previously filed by the taxpayer. Interpretation and reasoning: Quashing is remedial rather than punitive; it requires that any subsequent action comply with statutory requirements, afford meaningful opportunity to be heard, and properly consider existing written submissions. The Court preserved all rights and contentions on merits for resolution in proper proceedings. Ratio vs. Obiter: Ratio - the Revenue may initiate fresh proceedings after quashing a defective order, but must do so in accordance with law and taking into account the earlier reply; quashing does not preclude legitimate reassessment conducted with proper reasoning and procedural fairness. Conclusions: The impugned order is quashed; respondents are permitted to proceed afresh on the SCN, subject to due consideration of the reply and compliance with procedural and substantive legal requirements. All rights and contentions are kept open. Issue 5 - Challenge to notifications issued under Section 168A kept open Legal framework: Section 168A authorises issue of notifications; validity of such notifications can be contested in appropriate proceedings. Precedent Treatment: The Court did not decide the challenge to the notifications and expressly left the matter open for determination in appropriate proceedings. Interpretation and reasoning: Given the procedural posture and the specific contest to the adjudicatory order under Section 73, the Court considered it appropriate to refrain from adjudicating the broader challenge to the notifications under Section 168A at this stage. Ratio vs. Obiter: Obiter - the decision to keep the challenge open is interlocutory and procedural rather than a determination on merits of the notifications. Conclusions: The challenge to the notifications under Section 168A is left open for determination in appropriate proceedings; no adjudication on that point is made in the present order.