2025 (4) TMI 1375 - HC - GST

Tax Authority's GST Recovery Order Quashed for Procedural Violations, Fresh Hearing Mandated with Specific Safeguards

Exide Industries Limited Versus Assistant Commissioner, CGST & Ors.

The HC set aside a GST recovery order due to breach of natural justice. While finding procedural lapses by the tax authority in providing adequate ... Violation of principles of natural justice - denial of adequate hearing to the Petitioner - ineligible Input Tax Credit (ITC) was availed of by the Petitioner - HELD THAT:- The Court has perused the repeated personal hearing notices which have been issued. Clearly, there has been a laxity by the Petitioner. However, the Respondent No. 1 also could have put the Petitioner to terms and not have passed a detailed order raising a substantial demand running into more than Rs.12 crores including the recovery of ineligible ITC and penalty of Rs. 6,34,61,579/-. Considering the fact that the Petitioner has not been afforded a hearing though some attempts were made by the Petitioner to thereafter approach the Respondent No. 1’s office, there would be breach of natural justice. Subject to the payment of said costs within a period of one week, the impugned order dated 3rd February, 2025 is set aside - Petition disposed off. 1. ISSUES PRESENTED and CONSIDERED- Whether the impugned order dated 3rd February 2025 and the associated Form GST DRC-07 dated 4th February 2025, passed by the Adjudicating Authority, are liable to be set aside on grounds of breach of natural justice due to denial of adequate hearing to the Petitioner.- Whether the Petitioner was afforded sufficient opportunity to be heard before issuance of the impugned order demanding recovery of alleged ineligible Input Tax Credit (ITC) and imposing penalty.- Whether the procedural requirements under the Central Goods and Services Tax Act, 2017, including limitation periods for passing the Order-in-Original, are applicable or can be extended or excluded in light of repeated adjournments sought by the Petitioner.- The appropriate course of action regarding costs and directions for further proceedings in case of setting aside the impugned order.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Breach of Natural Justice and Adequacy of HearingRelevant Legal Framework and Precedents: The principles of natural justice mandate that a party should be given a fair opportunity to present its case before any adverse order is passed. This includes the right to receive notice of hearings in a timely manner and the right to be heard. The Central Goods and Services Tax Act, 2017 (CGST Act) requires that before passing an order demanding recovery of tax or penalty, the adjudicating authority must provide the taxpayer a reasonable opportunity of being heard.Court's Interpretation and Reasoning: The Court examined the sequence of events beginning with the issuance of the Show Cause Notice (SCN) on 17th May 2024, the Petitioner's reply dated 10th June 2024, and subsequent personal hearing notices scheduled on 20th November 2024, 5th December 2024, and 16th December 2024. The Petitioner contended non-receipt or late receipt of hearing notices, with the notice for 16th December 2024 being received on the date of hearing itself. Despite attempts by the Petitioner's representatives to visit the Respondent's office for hearing, the order was passed without any further hearing.Key Evidence and Findings: The Court perused the hearing notices and found that while the Petitioner exhibited laxity in responding to the notices, the Respondent also failed to ensure that the Petitioner was afforded a proper hearing before passing an order involving a substantial demand exceeding Rs. 12 crores and penalty exceeding Rs. 6 crores.Application of Law to Facts: The Court held that the failure to provide a meaningful hearing before passing the impugned order constituted breach of natural justice. The procedural lapse by the Respondent in not putting the Petitioner to terms before issuing the order was a significant factor in setting aside the order.Treatment of Competing Arguments: While the Respondent may have argued that multiple notices were issued and the Petitioner was remiss in attending hearings, the Court balanced this against the Respondent's duty to ensure compliance with natural justice. The Court found the Respondent's action of passing the order without a proper hearing disproportionate and unjustified.Conclusion: The impugned order was set aside on the ground of breach of natural justice due to denial of adequate hearing.Issue 2: Imposition of Costs Due to Petitioner's LaxityRelevant Legal Framework and Precedents: Courts have discretion to impose costs on parties where there is evident procedural laxity or unnecessary delay causing wastage of judicial resources.Court's Interpretation and Reasoning: Although the Court found fault with the Respondent's failure to provide a hearing, it also noted the Petitioner's laxity in responding to hearing notices and seeking repeated adjournments. To balance the equities, the Court imposed a cost of Rs. 1 lakh on the Petitioner to be contributed to the Delhi High Court Bar Association.Application of Law to Facts: The Court directed payment of costs within one week as a precondition to setting aside the impugned order and proceeding further.Conclusion: Costs were imposed on the Petitioner to reflect its procedural laxity despite the ultimate setting aside of the order.Issue 3: Directions for Further Proceedings and HearingRelevant Legal Framework and Precedents: The CGST Act, 2017, particularly Section 75(3), prescribes limitation periods for passing Orders-in-Original. However, courts have held that limitation may be extended or excluded in cases where adjournments or procedural delays are caused by the party seeking relief.Court's Interpretation and Reasoning: The Court directed that upon payment of costs, the Petitioner shall be given a fresh hearing by the Adjudicating Authority. The hearing notice must be communicated both through the official portal and directly to the Petitioner's counsel via specified contact details, with at least five working days' advance notice.Key Evidence and Findings: The Court emphasized that no adjournment shall be sought by the Petitioner on the scheduled date of hearing, given the history of repeated adjournments.Application of Law to Facts: Due to the Petitioner's prior conduct, the Court clarified that the limitation period under Section 75(3) of the CGST Act shall not apply, effectively allowing the Adjudicating Authority to proceed beyond the usual time frame.Conclusion: The Court set procedural safeguards to ensure a fair hearing and timely disposal of the matter, while preventing further delays.3. SIGNIFICANT HOLDINGS- 'Considering the fact that the Petitioner has not been afforded a hearing though some attempts were made by the Petitioner to thereafter approach the Respondent No. 1's office, there would be breach of natural justice.'- 'Subject to the payment of said costs within a period of one week, the impugned order dated 3rd February, 2025 is set aside.'- 'The hearing notice shall be communicated to the Petitioner both on the portal as also through the ld. Counsel on the following contact details... It is made clear that the hearing shall be fixed with at least five working days advance notice.'- 'No adjournment shall be sought by the Petitioner on the said date.'