Tax Authority's GST Notice Invalidated Due to Procedural Flaws, Ensuring Taxpayer's Right to Fair Hearing and Natural Justice

HC examined the validity of a GST tax order challenging procedural irregularities in service and adjudication. The Court found the tax authority's notice by portal upload insufficient and lacking natural justice principles. The order was set aside, directing the petitioner to deposit 25% of disputed tax, receive a proper hearing, and allowing bank account de-freezing upon compliance. The ruling emphasized effective statutory notice and taxpayer's right to be heard.

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1. ISSUES PRESENTED and CONSIDERED

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

• Whether the impugned order passed by the first respondent, which demanded payment of disputed GST tax and froze the petitioner's bank account, was legally valid and sustainable.
• Whether the issuance of the show cause notice by merely uploading it on the GST portal without furnishing a physical or otherwise effective copy to the petitioner constitutes valid service under the GST law.
• Whether the petitioner was afforded a reasonable opportunity of hearing before the impugned order was passed, in compliance with principles of natural justice and statutory requirements.
• Whether the procedure followed by the tax authority in issuing notices and passing the order complied with the provisions of the Central Goods and Services Tax Act, 2017, particularly Section 169 regarding service of notices.
• Whether the petitioner is entitled to have the impugned order quashed and the matter remanded for fresh consideration after deposit of a portion of the disputed tax.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of the Impugned Order and Freezing of Bank Account

The petitioner's bank account was frozen pursuant to the impugned order dated 29.04.2024, which demanded Rs.11,97,000/- for alleged wrongful Input Tax Credit claims for the period 2017-2018. The petitioner contended that this order was passed without any prior notice or opportunity to be heard, and was arbitrary and illegal.

The Court examined the relevant legal framework under the CGST Act, 2017, which mandates that before passing any adverse order, the taxpayer must be given a show cause notice and an opportunity to respond, as per the principles of natural justice and statutory provisions.

The Court found that the impugned order was passed without affording the petitioner any personal hearing or furnishing the original show cause notice. The mere uploading of the notice on the GST portal, without effective communication or confirmation of receipt, was held insufficient to constitute valid service. This failure deprived the petitioner of a meaningful opportunity to defend against the allegations.

Thus, the Court concluded that the impugned order was illegal and unsustainable on grounds of violation of natural justice and procedural lapses.

Service of Show Cause Notice by Uploading on GST Portal

The GST law, particularly Section 169, prescribes modes of service for notices, including electronic modes and physical delivery. The first respondent relied on uploading the show cause notice on the GST portal as sufficient service.

The Court analyzed this practice in light of statutory requirements and judicial precedents emphasizing effective and bona fide service. It held that mere mechanical uploading without ensuring actual receipt or response from the taxpayer does not amount to valid service. When repeated reminders on the portal failed to elicit any response, the officer was obligated to explore alternative methods such as sending notices by Registered Post with Acknowledgment Due (RPAD) to ensure delivery.

The Court reasoned that mechanical compliance with portal uploading leads to multiplicity of litigation and wastes judicial and administrative resources. Therefore, effective service requires reasonable steps to ensure the taxpayer is aware of the proceedings.

Opportunity of Hearing and Compliance with Principles of Natural Justice

The Court underscored that the petitioner was not afforded any opportunity of personal hearing before passing the impugned order. The absence of a hearing violated the fundamental principle of audi alteram partem, which is a cornerstone of administrative law and the GST statutory scheme.

The Court emphasized that the tax authority must provide a clear 14-day notice affording personal hearing after receiving the taxpayer's reply, before passing any final order. The failure to do so rendered the impugned order void and liable to be set aside.

Remedy and Directions for Fresh Consideration

Considering the petitioner's willingness to deposit 25% of the disputed tax, the Court exercised its discretionary power to set aside the impugned order and remand the matter to the first respondent for fresh adjudication.

The Court directed the petitioner to deposit 25% of the disputed amount within two weeks and file a detailed reply with supporting documents. The tax authority was directed to consider the reply, issue a clear notice affording personal hearing, and decide the matter in accordance with law.

Further, upon proof of deposit, the Department was directed to issue instructions for immediate de-freezing of the petitioner's bank account to enable business operations.

Treatment of Competing Arguments

The petitioner argued that the impugned order was arbitrary and passed without due process, which the Court accepted after analyzing the facts and law. The Government Advocate conceded the petitioner's offer to deposit 25% of the disputed tax and agreed to consider the petitioner's prayer for relief.

The Court balanced the interests of the revenue and the taxpayer by allowing the deposit and remand for fresh consideration, ensuring procedural fairness without prejudicing the revenue's claim.

3. SIGNIFICANT HOLDINGS

The Court held:

"The impugned assessment order passed without affording any opportunity of personal hearing to the petitioner, confirming the proposals contained in the show cause notices is illegal and unsustainable."

"Mere uploading notice repeatedly without ensuring their receipt by the petitioner cannot be considered as effective service. Such mechanical compliance does not serve any useful purpose and the same will only lead to multiplicity of litigations."

"When there was no response from the tax payer to the notice uploaded in the portal, the Officer should have sent the notice through RPAD, which would have served the purpose."

Core principles established include:

• Effective service of statutory notices under GST requires more than mere uploading on the portal; alternative modes must be employed if no response is received.
• Tax authorities must comply with principles of natural justice by affording personal hearing before passing adverse orders.
• Failure to provide effective notice and hearing renders assessment orders illegal and liable to be set aside.
• Courts may allow interim relief and remand for fresh consideration upon partial deposit of disputed tax by the taxpayer.

Final determinations:

• The impugned order dated 29.04.2024 is set aside.
• The matter is remanded to the first respondent for fresh consideration in accordance with law.
• The petitioner shall deposit 25% of the disputed tax within two weeks and file a reply.
• The first respondent shall provide a clear 14-day notice affording personal hearing before passing a fresh order.
• Upon proof of deposit, the petitioner's bank account shall be unfrozen immediately.

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