Karnataka HC quashes tax demand under KGST Act Section 73 for denying mandatory personal hearing

The Karnataka HC allowed the petition challenging a tax demand order passed under Section 73(9) and (10) of KGST Act, 2017. The petitioner had filed a reply to the show cause notice and requested personal hearing, but the tax authority proceeded to impose tax, interest and penalty without considering the reply or granting the hearing. The HC held that opportunity to file reply and personal hearing are mandatory requirements under the Act, as indicated by the word "shall." The court found violation of natural justice principles when the authority ignored the petitioner's response and denied the requested hearing, constituting a breach of fundamental rights.

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Issues Involved:
1. Jurisdiction and abuse of power by Respondent No. 3.
2. Validity of the order passed in Form GST DRC-07.
3. Constitutionality of Notification No. 9/2023.
4. Violation of principles of natural justice.
5. Availability and adequacy of alternative remedies.

Detailed Analysis:

1. Jurisdiction and Abuse of Power by Respondent No. 3:
The petitioner contended that Respondent No. 3 exceeded its jurisdiction and abused its power by demanding tax, interest, and penalty without properly considering the documents and replies submitted by the petitioner. The court found that the proper officer must consider any representation made by the person chargeable with tax before determining the amount due, as mandated by Section 73(9) of the CGST Act. The court held that the failure to consider the petitioner's responses and the issuance of the impugned order without proper consideration constituted an abuse of power.

2. Validity of the Order Passed in Form GST DRC-07:
The petitioner sought to quash the order passed in Form GST DRC-07, arguing that it was illegal and untenable in law. The court observed that the impugned order was passed without considering the petitioner's replies and without providing a personal hearing, which violated the principles of natural justice as enshrined in Section 75(4) and (5) of the CGST Act. The court quashed the impugned order dated 30.03.2024 and remitted the matter back to Respondent No. 3 for fresh consideration after affording an opportunity of personal hearing.

3. Constitutionality of Notification No. 9/2023:
The petitioner challenged the constitutionality of Notification No. 9/2023, arguing that it was ultra vires the Constitution of India and the provisions of the CGST Act, 2017. The court did not specifically address this issue in detail, as the primary focus was on the procedural lapses and the violation of natural justice principles by Respondent No. 3.

4. Violation of Principles of Natural Justice:
The petitioner argued that the impugned order was passed without affording a personal hearing, which violated the principles of natural justice. The court emphasized that Section 75(4) of the CGST Act mandates an opportunity of hearing where a request is received from the person chargeable with tax. The court found that the petitioner's request for a personal hearing was not considered, and the impugned order was passed hastily without proper consideration of the petitioner's responses. The court held that this constituted a violation of the principles of natural justice and quashed the impugned order.

5. Availability and Adequacy of Alternative Remedies:
The respondents argued that the petition was not maintainable due to the availability of an alternative efficacious remedy under Section 107 of the CGST Act. The court acknowledged that the existence of an alternative remedy is not an absolute bar to the maintainability of a writ petition under Article 226 of the Constitution of India. The court found that the petitioner's fundamental rights were breached, and the principles of natural justice were violated, which justified the invocation of writ jurisdiction. The court held that the petitioner's case fell within the exceptional circumstances where a writ petition could be entertained despite the availability of an alternative remedy.

Conclusion:
The court quashed the impugned order dated 30.03.2024 and remitted the matter back to Respondent No. 3 for fresh consideration after affording an opportunity of personal hearing to the petitioner. The court imposed costs of Rs. 50,000 on the petitioner for non-utilization of the opportunities provided and directed the petitioner to appear before Respondent No. 3 on the next date of hearing. The court clarified that the petitioner could not raise the contention of time-bar in the remanded proceedings.

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