2025 (5) TMI 1517 - HC - GST

Procedural Lapses Invalidate Tax Assessment: Authority Ordered to Reconsider Evidence and Provide Fair Hearing Under CGST Regulations

Upendra Mahato Versus Union Of India And Ors.

The HC found procedural irregularities in a CGST Act case. The adjudicating authority failed to consider the appellant's reply and audit report, violating ... Validity of Show cause notice issued under the CGST Act, 2017 - uploaded in statutory form GST DRC 01 - No opportunity of hearing - Application for rectification under Section 161 - HELD THAT:- It is an admitted factual position that the appellant did not respond to the show cause notice dated 8.9.2023 which has been uploaded in statutory form GST DRC 01 on 18.9.2023 as he did not file any reply within the time permitted, but had sent a reply dated 15.12.2024 but by then the order in original was passed by the authority on 14.12.2023. In the said order it has been recorded that in order to comply with the principles of natural justice opportunity of personal hearing was given to the appellant but they did not attend the personal hearing nor submitted any reply to the show cause notice. Though the order in original is stated to be passed on 14.12.2023, the same has been uploaded in the portal only on 20.12.2023 which is evident from the screen shot of the GST User Dashboard annexed in pages 87 and 88 of the stay petition. Therefore, by the time the order was uploaded the appellant’s reply dated 15.12.2023 was very much available with the assessing officer. However, this appears to have been not taken into consideration. Subsequently the appellant filed an application for rectification under Section 161 of the CGST Act, 2017 dated 12.7.2024. It is submitted by the learned advocate for the appellant that though in the order it is stated that reasons have been attached as annexure, the appellant was not communicated with the reasons and what was attached was the order in original alone. Considering the above facts, which appear to be not in dispute, we find that the appellant did not have adequate opportunity to put forth the submissions before the authority. Therefore, we are inclined to interfere with the matter and remand the matter back to the adjudicating authority to take a fresh decision on merits and in accordance with law. In the result, the appeal is allowed. The order passed in the writ petition is set aside. The writ petition is allowed. The order in original and the order rejecting the rectification application are set aside and the matter is remanded back to the adjudicating authority for a fresh decision. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court are:(a) Whether the appellant was afforded adequate opportunity of hearing and to submit replies in response to the show cause notice issued under the CGST Act, 2017;(b) Whether the order in original dated 14.12.2023, passed without considering the appellant's reply dated 15.12.2023, complies with the principles of natural justice;(c) Whether the application for rectification under Section 161 of the CGST Act, 2017, filed by the appellant, was rightly rejected;(d) Whether the adjudicating authority erred in ignoring the appellant's submissions regarding full payment of tax, interest, and penalty as per the audit report and final observation letter;(e) The procedural propriety and legality of the orders impugned in the writ petition and the intra court appeal.2. ISSUE-WISE DETAILED ANALYSIS(a) Adequacy of Opportunity of Hearing and Submission of ReplyThe relevant legal framework includes the principles of natural justice, which mandate that no order should be passed without giving the affected party a reasonable opportunity to be heard. Under the CGST Act, 2017, show cause notices require a response within a stipulated time and may involve personal hearings.The Court noted that the appellant did not submit any reply within the permitted time frame to the show cause notice dated 8.9.2023, but did send a reply dated 15.12.2023. The order in original was passed on 14.12.2023, before the reply was submitted, but was uploaded on the portal only on 20.12.2023. The Court observed that by the time the order was uploaded, the appellant's reply was available to the assessing officer but was not considered.The adjudicating authority recorded that the appellant neither attended the personal hearing nor submitted any reply, but the Court found this to be factually inaccurate given the reply dated 15.12.2023 was on record at the time of uploading the order. The Court concluded that the appellant was deprived of adequate opportunity to put forth submissions, violating natural justice.(b) Compliance with Principles of Natural Justice in Passing the Order in OriginalThe Court examined the procedural propriety of the order in original dated 14.12.2023. The authority claimed to have provided personal hearing opportunity, which the appellant did not avail. However, the appellant's contention and evidence showed that the reply was submitted shortly after the order date but before its upload, and no proper consideration was given.The Court found that the principles of natural justice were not complied with, as the appellant's substantive reply was ignored, and the personal hearing opportunity was not effectively communicated or utilized. This failure warranted interference.(c) Rejection of Application for Rectification under Section 161 of the CGST Act, 2017The appellant filed an application for rectification on 12.7.2024, asserting that the order in original did not consider the reply dated 15.12.2023 and that all dues had been paid as per the audit report and final observation letter dated 19.1.2023. The application was sent by speed post and uploaded on the portal.The rectification application was rejected by order dated 21.11.2024. The appellant argued that the reasons for rejection were not communicated, only the original order was attached, and thus the rejection was procedurally defective.The Court observed that the rejection did not adequately address the appellant's submissions and that the appellant was not properly informed of the grounds for rejection, undermining the fairness of the process.(d) Consideration of Audit Report and Final Observation Letter Indicating Full PaymentThe appellant relied on the audit report under Section 65(6) of the CGST Act, 2017, and the final observation letter from the CGST Siliguri Circle-V, which reflected full payment of tax, interest, and penalty for the relevant financial years.The Court noted that these documents were submitted and should have been considered by the adjudicating authority in deciding the show cause notice and the rectification application. The failure to consider these key evidentiary documents was a material irregularity.(e) Procedural and Legal Validity of Impugned OrdersThe impugned orders included the order in original dated 14.12.2023, the summary uploaded on 20.12.2023, and the order rejecting rectification dated 21.11.2024. The Court found that the orders suffered from procedural lapses, including non-consideration of replies, inadequate communication of reasons, and non-compliance with natural justice.Given these issues, the Court held that the impugned orders could not stand and required remand for fresh adjudication in accordance with law.3. SIGNIFICANT HOLDINGSThe Court held:'Considering the above facts, which appear to be not in dispute, we find that the appellant did not have adequate opportunity to put forth the submissions before the authority.''Therefore, we are inclined to interfere with the matter and remand the matter back to the adjudicating authority to take a fresh decision on merits and in accordance with law.'Core principles established include:- The necessity of strict adherence to the principles of natural justice, especially the right to be heard and to have one's submissions considered before passing any adverse order under the CGST Act.- The requirement that all relevant documents, including replies and audit reports indicating compliance, must be taken into account by the adjudicating authority.- The obligation on the authority to communicate reasons for rejecting rectification applications clearly and to provide a fair opportunity for the appellant to respond.Final determinations on each issue were:(i) The appellant was denied adequate opportunity to be heard, as the reply submitted before the order's upload was ignored;(ii) The order in original and the order rejecting rectification were passed without proper consideration of material submissions and evidence;(iii) The impugned orders were set aside;(iv) The matter was remanded to the adjudicating authority for a fresh decision on merits after affording the appellant a comprehensive opportunity to submit replies and attend personal hearing;(v) The appellant was directed to submit a comprehensive reply within two weeks, and the authority was directed to conclude the proceedings preferably within 30 days after personal hearing.