2025 (6) TMI 580 - HC - GST

Tax Authority Ordered to Provide Fair Hearing, Allowing Taxpayer Chance to Explain Discrepancies Under Natural Justice Principles

The HC found that the tax authority violated natural justice principles by confirming a tax demand without providing a meaningful opportunity to explain ... Challenge to impugned order on the premise that the same is made in violation of principles of natural justice - HELD THAT:- It is submitted that the petitioner is ready and willing to pay 25% of the disputed tax and that he may be granted one final opportunity before the adjudicating authority to put forth their objections to the proposal, to which the learned Government Advocate appearing for the respondent does not have any serious objection. The petitioner shall deposit 25% of the disputed taxes as admitted by the learned counsel for the petitioner and the respondent, within a period of four weeks from the date of receipt of a copy of this order - The impugned order dated 29.08.2024 is set aside. Petition disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court include:- Whether the impugned order dated 29.08.2024 was passed in violation of the principles of natural justice, particularly regarding the opportunity to be heard before confirmation of the tax demand.- Whether the petitioner was afforded adequate opportunity to explain the discrepancies noticed in the GST returns and related documents.- The validity and sufficiency of the notices issued under the GST Act, including Form DRC 01 A, DRC 01, and the personal hearing notice.- The applicability of the precedent set by this Court in a similar matter involving remand subject to payment of 25% of disputed taxes.- The appropriate procedural course to be followed when discrepancies are found in GST returns and tax demands are proposed.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Violation of Principles of Natural JusticeRelevant legal framework: The principles of natural justice require that before any adverse order is passed, the affected party must be given a fair opportunity to present their case, supported by relevant evidence. This principle is embedded in administrative law and is fundamental to the GST adjudication process.Court's interpretation and reasoning: The Court examined whether the petitioner was given a meaningful opportunity to explain the discrepancies noted in the GST returns. It was noted that although notices were issued (Form DRC 01 A, DRC 01, and personal hearing notice), the petitioner's reply dated 29.06.2024 lacked supporting documents substantiating the explanation for the mismatches.Key evidence and findings: The petitioner's failure to produce relevant documents in support of their explanation was a critical factor. However, the petitioner contended that if granted an opportunity, they could adequately explain the discrepancies.Application of law to facts: The Court recognized that the petitioner's right to be heard was not fully realized as the reply was not supported by documents, and the adjudicating authority proceeded to confirm the order without affording a further opportunity for explanation.Treatment of competing arguments: The respondent contended the notices were adequate and the order was justified. The petitioner argued that the lack of supporting documents in the reply was due to absence of opportunity to submit them. The Court sided with the petitioner's contention, emphasizing the requirement of a fair hearing.Conclusion: The Court held that the impugned order was passed in violation of natural justice principles and set it aside.Issue 2: Adequacy and Validity of Notices IssuedRelevant legal framework: Under the GST Act, proper issuance of notices such as Form DRC 01 A and DRC 01 is mandatory before passing an assessment order. These notices must clearly communicate the discrepancies and provide an opportunity to respond.Court's interpretation and reasoning: The Court observed that notices were issued in a timely manner and included a personal hearing notice. However, the petitioner's response was inadequate due to lack of supporting documents.Key evidence and findings: The timeline of notices and responses was scrutinized. The petitioner received the notices but did not substantiate the reply, leading to confirmation of the order.Application of law to facts: The Court found that while procedural steps were followed, the substantive right to present evidence was not fully honored.Treatment of competing arguments: The respondent argued compliance with procedural requirements. The petitioner highlighted the need for an additional opportunity to submit evidence.Conclusion: The Court concluded that procedural compliance alone is insufficient without ensuring a meaningful hearing.Issue 3: Application of Precedent Relating to Remand Subject to Payment of 25% of Disputed TaxesRelevant legal framework: The Court referred to its recent judgment in a similar case where the matter was remanded subject to the petitioner depositing 25% of the disputed tax amount as a condition for further adjudication.Court's interpretation and reasoning: The Court found this approach appropriate to balance the interest of revenue protection and the taxpayer's right to be heard.Key evidence and findings: The petitioner expressed willingness to deposit 25% of the disputed tax, aligning with the precedent.Application of law to facts: The Court adopted the precedent and directed the petitioner to deposit 25% of the disputed taxes within a stipulated period to avail the opportunity to be heard afresh.Treatment of competing arguments: The respondent did not raise serious objections to this proposal, indicating acceptance.Conclusion: The Court disposed of the writ petition on the terms of remand, conditional deposit, and fresh opportunity to file objections.Issue 4: Procedure for Compliance and Further AdjudicationRelevant legal framework: The GST procedural framework mandates that once discrepancies are found, the taxpayer must be given an opportunity to file objections and supporting documents before final assessment.Court's interpretation and reasoning: The Court laid down a detailed timeline and procedure for deposit of disputed tax, adjustment of amounts already paid, submission of objections, and consideration thereof by the authority with a reasonable opportunity of hearing.Key evidence and findings: The Court emphasized strict compliance with timelines and conditions, warning that failure to comply would result in restoration of the impugned order.Application of law to facts: The Court balanced the interests of revenue protection and taxpayer's rights by conditioning the opportunity to be heard on partial payment and timely filing of objections.Treatment of competing arguments: Both parties consented to the procedural directions.Conclusion: The Court prescribed a clear procedural roadmap ensuring fairness and adherence to law.3. SIGNIFICANT HOLDINGS'The impugned order dated 29.08.2024 is set aside.''The petitioner shall deposit 25% of the disputed taxes as admitted by the learned counsel for the petitioner and the respondent, within a period of four weeks from the date of receipt of a copy of this order.''On complying with the above condition, the impugned order of assessment shall be treated as show cause notice and the petitioner shall submit its objections within a period of four (4) weeks from the date of receipt of a copy of this order along with supporting documents/material.''If the above conditions viz., 25% of disputed taxes is not complied or objections are not filed within the stipulated period, four weeks respectively from the date of receipt of a copy of this order, the impugned order of assessment shall stand restored.'Core principles established include:- The necessity of affording a meaningful opportunity to be heard, supported by documentary evidence, before confirming tax demands.- The procedural fairness requirement in GST adjudication extends beyond mere issuance of notices to ensuring substantive participation.- The viability of conditional remand subject to partial payment of disputed taxes as a balanced approach protecting revenue while safeguarding taxpayer rights.- Clear procedural timelines and consequences for non-compliance must be prescribed to ensure orderly adjudication.Final determinations:- The impugned order confirming tax demand without adequate opportunity to present evidence was quashed.- The petitioner was granted a final opportunity to file objections after depositing 25% of the disputed tax amount.- Non-compliance with the Court's directions would result in restoration of the impugned order.