Tax demand order quashed for violating Section 75(4) mandatory hearing procedures and inadequate response consideration

HC allowed the petition challenging a tax demand order on grounds of procedural non-compliance. The court found that respondents failed to follow mandatory requirements under Section 75(4) of CGST/BGST Act, as personal hearing was scheduled before the reply filing deadline and without proper consideration of petitioner's response. Three communications cited by respondents were not produced on record. The court declared the statutory mandate was not followed and remitted the matter to Deputy Commissioner for fresh order after granting proper personal hearing to petitioner.

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ISSUES PRESENTED and CONSIDERED

The Court considered several key issues in this case:

(1) Whether the demand orders issued by the Respondent No. 5 were time-barred under Section 73(9) & (10) of the BGST/CGST Act, 2017.

(2) The validity of Notification No. 56/2023 CT extending the time limit under Section 73(10) of the CGST/BGST Act, 2017, and whether it was ultra vires Section 168A of the CGST/BGST Act, 2017.

(3) Whether the issuance of the demand orders without extending beneficial provisions for availing input tax credit was violative of Article 14 of the Constitution of India.

(4) Compliance with the procedural requirement of issuing a notice of personal hearing under Section 75(4) of the BGST/CGST Act, 2017, and whether the lack of such notice rendered the proceedings violative of principles of natural justice.

(5) The legality of the demand orders issued without issuing GST ASMT-10 under Rule 99 BGST/CGST Rule 2017 read with Section 61 BGST/CGST Act 2017.

(6) The issuance of demand orders without a pre-show cause notice in the form of DRC-01A under Section 73(3) of BGST/CGST Act 2017.

ISSUE-WISE DETAILED ANALYSIS

1. Time-Barred Demand Orders

The petitioner argued that the demand orders were time-barred under Section 73(9) & (10) of the BGST/CGST Act, 2017. The Court did not delve deeply into this issue as the primary focus was on procedural compliance, particularly the opportunity for a personal hearing.

2. Validity of Notification No. 56/2023 CT

The petitioner challenged the validity of the notification extending the time limit under Section 73(10) of the CGST/BGST Act, 2017. However, this challenge was not pressed before the Court, as a similar challenge had failed in a previous decision by the Hon'ble Division Bench of the Court in the case of M/s Barhonia Engicon Private Limited.

3. Violation of Article 14

The petitioner claimed that the issuance of demand orders without extending beneficial provisions for input tax credit was violative of Article 14 of the Constitution. The Court did not specifically address this issue, focusing instead on procedural compliance.

4. Compliance with Section 75(4) of BGST/CGST Act, 2017

The core issue was whether the Respondent No. 5 complied with the mandate of Section 75(4) of the BGST/CGST Act, 2017, which requires an opportunity for a personal hearing where an adverse decision is contemplated. The Court found that the date for personal hearing was fixed before the date for submission of the reply, which was not in accordance with the statutory mandate. The Court emphasized the importance of providing a fair opportunity for a personal hearing, as mandated by the Act and supported by the precedent set in the case of M/s Barhonia Engicon Private Limited.

5. Issuance of GST ASMT-10

The petitioner argued that the demand orders were issued without GST ASMT-10 under Rule 99 BGST/CGST Rule 2017. The Court did not specifically address this procedural issue, as the primary focus was on the lack of a personal hearing.

6. Pre-Show Cause Notice Requirement

The petitioner contended that the demand orders were issued without a pre-show cause notice in the form of DRC-01A under Section 73(3) of BGST/CGST Act 2017. This procedural lapse was part of the broader argument regarding the violation of principles of natural justice.

SIGNIFICANT HOLDINGS

The Court held that the mandate of Section 75(4) of the CGST/BGST Act was not duly followed, as the petitioner was not given a proper opportunity for a personal hearing. The Court quashed the impugned orders and demand, remitting the matter back to the Deputy Commissioner of State Tax for a fresh order after providing a personal hearing to the petitioner.

"An opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person."

The Court emphasized the statutory mandate for a personal hearing, quoting the Division Bench's decision in M/s Barhonia Engicon Private Limited: "Hence, when a reply has been submitted to the notice issued under Section 73 and if any adverse order is contemplated, without even a request for personal hearing, the Assessing Officer has to issue a notice providing an opportunity of hearing. This is the statutory mandate, from which there is no escape."

The Court directed the petitioner to appear for a personal hearing on 6th March 2025, with the Deputy Commissioner required to pass an appropriate order within one month from the date of hearing.

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