GST Best Judgment Assessment Order Struck Down for Procedural Violations and Lack of Reasoned Justification Under Section 46

The SC invalidated a GST best judgment assessment order due to procedural irregularities. The Court found the order invalid because: (1) no prior notice was issued under Section 46, (2) the assessment lacked reasoned justification, (3) no opportunity of hearing was provided, and (4) the appeal dismissal on limitation grounds was unsustainable. The order was quashed, requiring a fresh assessment with proper statutory compliance.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the order passed under Section 62 of the GST Act without prior issuance of notice under Section 46 of the GST Act is valid and sustainable.
• Whether the best judgment assessment order under Section 62 of the GST Act must be supported by relevant material and reasoning.
• Whether the appeal dismissal on the ground of limitation was correctly upheld.
• Whether the petitioner was entitled to an opportunity of hearing before passing the assessment order under Section 62 of the GST Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of order under Section 62 of GST Act without notice under Section 46

Relevant legal framework and precedents: Section 46 of the GST Act mandates issuance of a notice to a registered person who fails to furnish returns under Sections 39, 44, or 45, requiring them to furnish the return within fifteen days. Section 62 empowers the proper officer to proceed with best judgment assessment only after failure to furnish returns even after service of notice under Section 46. This sequence is mandatory and forms a procedural safeguard.

Court's interpretation and reasoning: The Court emphasized that Section 62 is a contingent power exercisable only after the statutory notice under Section 46 has been served and the person has failed to comply. The Court held that the absence of any notice under Section 46 renders the exercise of power under Section 62 improper and contrary to the statutory scheme.

Key evidence and findings: The order dated 27.08.2019 did not mention any service of notice under Section 46. The record was silent on the issuance of such notice, which is a prerequisite for invoking Section 62.

Application of law to facts: Since no notice under Section 46 was served, the assessing authority lacked jurisdiction to pass the best judgment assessment under Section 62. The order was thus held to be invalid.

Treatment of competing arguments: The State argued that the order was rightly passed under Section 62. However, the Court rejected this contention on the basis of statutory interpretation and procedural requirements.

Conclusion: The order under Section 62 without prior notice under Section 46 is unsustainable and must be quashed.

Issue 2: Requirement of reasoned order and reliance on relevant material under Section 62

Relevant legal framework and precedents: Section 62(1) requires the proper officer to assess tax liability to the best of his judgment "taking into account all the relevant material which is available or which he has gathered." The principle of reasoned orders is fundamental to administrative law and ensures transparency and fairness.

Court's interpretation and reasoning: The Court noted that the order dated 27.08.2019 was bereft of any reasoning or mention of relevant material upon which the assessment was based. This absence of reasoning violates the statutory mandate and principles of natural justice.

Key evidence and findings: The order itself lacked any explanation or reference to material evidence justifying the assessment.

Application of law to facts: Without any material or reasoning, the assessment order cannot be sustained as it fails to meet statutory and judicial standards.

Treatment of competing arguments: The State did not produce any material or reasoning to justify the assessment, and the Court found this omission fatal.

Conclusion: The assessment order must be reasoned and based on relevant material; otherwise, it is liable to be quashed.

Issue 3: Dismissal of appeal on limitation grounds

Relevant legal framework and precedents: Appeals under the GST Act are subject to limitation periods prescribed by the statute. The Court must ensure that limitation rules are followed to maintain procedural discipline.

Court's interpretation and reasoning: The appeal against the assessment order was dismissed as barred by limitation. The Court noted that since the original assessment order itself was invalid, the dismissal of appeal on limitation grounds could not sustain the impugned orders.

Key evidence and findings: The appeal was dismissed on 29.01.2025 for being beyond the limitation period.

Application of law to facts: Given the invalidity of the assessment order, the Court found that the dismissal of appeal on limitation grounds was not a sufficient reason to uphold the assessment.

Treatment of competing arguments: The State relied on limitation to defend the dismissal of appeal, but the Court prioritized the procedural infirmities in the assessment order over limitation.

Conclusion: The appeal dismissal on limitation grounds cannot sustain the flawed assessment order; both orders are liable to be quashed.

Issue 4: Opportunity of hearing before passing assessment order under Section 62

Relevant legal framework and precedents: Principles of natural justice require that a person affected by an adverse order must be given an opportunity of hearing before such order is passed. The GST Act implicitly incorporates this principle.

Court's interpretation and reasoning: The Court observed that no opportunity of hearing was granted to the petitioner before passing the best judgment assessment order. This omission violates the principles of natural justice and statutory safeguards.

Key evidence and findings: The record did not reflect any hearing or opportunity given to the petitioner prior to the assessment order.

Application of law to facts: The absence of opportunity of hearing vitiates the assessment order and warrants its quashing.

Treatment of competing arguments: The State did not dispute the absence of hearing but relied on the validity of the order; the Court rejected this argument.

Conclusion: The petitioner must be afforded an opportunity of hearing before any fresh assessment order is passed.

3. SIGNIFICANT HOLDINGS

"On a plain reading of the said provision, it is clear that if a person fails to furnish the return, it is incumbent upon the assessing authority to serve notice under Section 46 of GST Act and in the event, he fails to file the return even after the notice, recourse to Section 62 of GST Act is available."

"It is also clear that even while exercising the power vested by virtue of Section 62, it is incumbent upon the assessing authority to take into account all the relevant material which are available or which have been gathered, thus, it is clear that the order under Section 62 of GST Act is to be based upon some material."

"Finding the order to be contrary to the mandate of Section 46 of GST Act as well as lacking in reasonings which

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