Tax assessment order quashed for violating natural justice principles with non-speaking order lacking proper reasoning

The HC quashed a tax assessment order for violating natural justice principles. The adjudicating authority issued a non-speaking order that failed to consider the petitioner's explanation to the show cause notice or provide reasons for rejecting it. The authority also imposed the highest tax rate without justification and ignored the petitioner's claim regarding exempt turnover. The court held that merely rejecting explanations without adequate reasoning violates procedural fairness requirements. The matter was remanded to the adjudicating authority with directions to pass a fresh reasoned order within three months after hearing the petitioner.

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Issues Involved:
1. Non-speaking order by the adjudicating authority.
2. Arbitrary application of tax rate.
3. Violation of principles of natural justice.

Summary:

Non-speaking Order by the Adjudicating Authority:
The petitioner challenged the order dated 31.12.2023 passed by the adjudicating authority u/s 73 of the U.P.G.S.T. Act, 2017, for the period 1.7.2017 to 31.3.2018. The petitioner received a show cause notice dated 30.9.2023 and submitted replies on 23.12.2023 and 31.12.2023, including copies of his ledger, balance sheet, and books of accounts. However, the adjudicating authority ignored these replies and concluded that the explanation furnished was not worthy of acceptance without providing any reasoning. The court noted that the impugned order is wholly non-speaking with respect to the rejection of the explanation furnished by the petitioner and the application of the tax rate on the commodities dealt with by the petitioner.

Arbitrary Application of Tax Rate:
The adjudicating authority subjected the entire turnover to tax @ 28% without discussing the nature and identity of the commodities or considering the rate of tax specified under the Schedule to the Act. The petitioner dealt with two types of commodities: taxable (Pulses) and exempt (Paddy and Paddy husk). The turnover of both commodities was disclosed in the monthly returns and the documents submitted with the replies. The adjudicating authority failed to provide any reason for taxing the turnover at the highest rate of 28%, despite accepting the disclosure made by the petitioner on Form GSTR-3B.

Violation of Principles of Natural Justice:
The court emphasized that the adjudicating authority is obligated to deal with the explanation furnished by the petitioner by providing adequate reasons. Merely describing a claim as unacceptable or false does not fulfill the requirements of a proper adjudication proceeding. The court highlighted that the essence of fairness in an adjudication proceeding requires reasons to be given in black and white. The adjudicating authority's failure to assign reasons for taxing the turnover on a best judgment basis and ignoring the petitioner's explanation violates the principles of natural justice.

Conclusion:
The court set aside the adjudication order dated 31.12.2023, noting that it is laconic and violates the principles of natural justice. The matter is remitted to the adjudicating authority to pass a fresh reasoned order as expeditiously as possible, preferably within three months, after hearing the petitioner.

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