Tax Demand Order Overturned: Procedural Flaws Invalidate CTO's Assessment Under CGST Act Section 75

The HC invalidated a tax demand order issued by the CTO under the CGST Act, 2017. The order was set aside due to procedural defects, including failure to grant a personal hearing as mandated by Section 75(4), lack of reasoned decision-making under Section 75(6), and non-consideration of the Company's legal submissions. The CTO was directed to re-examine the tax demand while ensuring compliance with statutory requirements and principles of natural justice.

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1. ISSUES PRESENTED and CONSIDERED

- Whether the impugned order demanding tax, interest, and penalty for the period April 2020 to March 2021 was validly passed by the Commercial Tax Officer (CTO) under the CGST Act, 2017Rs.

- Whether the CTO was obligated to grant a personal hearing to the Company upon receipt of a written request before passing any adverse order under Section 75(4) of the CGST ActRs.

- Whether the impugned order complied with the requirement of setting out relevant facts and reasons as mandated under Section 75(6) of the CGST ActRs.

- Whether the failure to consider the Company's detailed factual and legal submissions before issuing the demand order vitiates the orderRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Impugned Order under the CGST Act

The CTO issued a show cause notice under Section 73(1) of the CGST Act, 2017, calling upon the Company to explain why tax, interest, and penalty should not be levied for the financial year 2020-21. The Company submitted a detailed reply disputing facts and raising legal arguments, and also requested a personal hearing under Section 75(4). Despite this, the CTO passed the demand order dated 18.02.2025 without granting any hearing or addressing the Company's submissions.

The Court noted that the CTO's order merely rejected the Company's reply with the brief observation "non-satisfactory reply to DRC-01" without any detailed reasoning or analysis. This indicated a failure to properly consider the Company's defense and legal contentions before raising the demand.

Thus, the CTO's order was found to be procedurally defective and invalid as it was passed without adherence to the statutory safeguards under the CGST Act.

Issue 2: Obligation to Grant Hearing under Section 75(4) of the CGST Act

Section 75(4) mandates that where a written request for hearing is received from the person chargeable with tax or penalty, or where any adverse decision is contemplated, an opportunity of hearing must be granted before passing any order.

In this case, the Company had made a written request for personal hearing. The CTO failed to grant such hearing before passing the impugned order. The Court emphasized that this omission violates the mandatory statutory requirement and the principles of natural justice.

The Court relied on a Division Bench precedent of the same High Court which held that failure to grant a hearing upon written request renders the order liable to be set aside. The principle that "justice should not only be done but also seem to have been done" was reiterated.

Issue 3: Requirement of Reasoned Orders under Section 75(6) of the CGST Act

Section 75(6) requires that the proper officer's order must set out relevant facts and the basis of the decision. The Court underscored that reasons are the soul of any judicial or quasi-judicial order and are essential to ensure that decisions are not arbitrary or whimsical.

The impugned order was found to be devoid of any reasons or factual findings addressing the Company's submissions. The order's brevity and conclusory rejection of the reply without explanation contravened this statutory mandate.

Consequently, the order failed the test of reasoned decision-making and was held to be legally unsustainable.

Issue 4: Consideration of Company's Submissions and Legal Contentions

The Company had submitted a detailed reply disputing the facts and raising legal points, including a request for personal hearing. The CTO did not consider these submissions before issuing the demand order.

The Court observed that ignoring such submissions amounted to denial of opportunity to be heard and violated the principles of natural justice. The absence of any discussion or analysis of the Company's contentions in the order further demonstrated non-application of mind by the CTO.

Therefore, the impugned order was set aside on this ground as well.

3. SIGNIFICANT HOLDINGS

- "Any order, whether judicial or quasi judicial, must contain reasons as such an order, without reasons would have no place in a world governed by the rule of law. In fact, reasons are the soul of an order, whether judicial or quasi judicial."

- "Section 75(6) of the CGST Act provides that the proper officer, in his order, shall set out the relevant facts and the basis of his decision."

- "Section 75(4) of the CGST Act mandates that 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 held that the failure to grant a hearing despite a written request and the absence of reasons in the order vitiate the impugned demand order.

- The impugned order dated 18.02.2025 was set aside with liberty to the CTO to proceed against the Company only in accordance with law, ensuring compliance with statutory provisions and principles of natural justice.

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