Tax demand order quashed for ignoring taxpayer's replies and denying mandatory hearing under Section 75(4) CGST Act

The HC quashed a tax demand order passed under CGST Act, 2017, finding that authorities incorrectly stated petitioner filed no reply despite documentary evidence of multiple submissions on various dates in 2021-2022. The Court held the order violated Section 75(4) of CGST Act and principles of natural justice by failing to consider petitioner's replies and not providing mandatory personal hearing opportunity. The matter was remanded with directions to reactivate departmental portal, allow fresh reply filing, issue proper hearing notice, and pass orders within stipulated timeframe after due consideration.

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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 1st respondent, which stated that the petitioner had not filed any reply despite submissions to the contrary, was legally sustainable.
• Whether the principles of natural justice, specifically the right to be heard through a personal hearing, were violated in the passing of the impugned order.
• Whether the failure to consider the replies submitted by the petitioner and the absence of an opportunity for personal hearing constituted a breach of statutory requirements under Section 75(4) of the Central Goods and Services Tax (CGST) Act, 2017.
• Whether the impugned order should be set aside and the matter remanded for fresh consideration in accordance with law.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Impugned Order in Light of Petitioner's Submissions

Relevant legal framework and precedents: The CGST Act, 2017, governs the procedural and substantive aspects of tax proceedings. The law mandates that any order imposing a demand must be preceded by consideration of the taxpayer's replies and an opportunity for hearing. Precedents emphasize that ignoring filed replies amounts to non-application of mind and renders the order unsustainable.

Court's interpretation and reasoning: The Court examined the records and found that the petitioner had indeed submitted multiple replies on 06/12/2021, 21/03/2022, 23/03/2022, and 28/03/2022. The impugned order incorrectly stated that no reply was filed. This factual inaccuracy indicated a failure on the part of the tax authorities to consider the petitioner's submissions.

Key evidence and findings: The documentary proof of replies filed by the petitioner was undisputed. The Court noted the dates of submissions and contrasted them with the impugned order's assertion.

Application of law to facts: Since the impugned order was based on an erroneous premise that no reply was filed, it failed the test of due process and proper adjudication.

Treatment of competing arguments: The respondents contended that sufficient opportunities were granted but the petitioner failed to respond. However, they conceded that an additional opportunity could be granted, implicitly acknowledging the procedural lapse.

Conclusion: The impugned order was passed without proper consideration of the petitioner's replies and thus was liable to be set aside.

Issue 2: Violation of Principles of Natural Justice and Statutory Requirements Under Section 75(4) of the CGST Act, 2017

Relevant legal framework and precedents: Section 75(4) of the CGST Act mandates that before confirming any demand, the officer must provide an opportunity for personal hearing to the taxpayer. The principles of natural justice require that no order adverse to a party be passed without affording that party a fair hearing.

Court's interpretation and reasoning: The Court held that the impugned order was passed without affording the petitioner a personal hearing, which is a clear violation of Section 75(4) and the principles of natural justice. It emphasized that such violation amounts to failure of due process and deprives the petitioner of a fair opportunity to defend its case.

Key evidence and findings: The absence of any notice or record of personal hearing was evident from the impugned order and the procedural history.

Application of law to facts: The failure to provide personal hearing rendered the impugned order invalid and unsustainable in law.

Treatment of competing arguments: The respondents' argument that sufficient opportunities were granted was negated by the absence of personal hearing, which is a mandatory statutory requirement and cannot be waived or substituted by mere opportunities to file written replies.

Conclusion: The impugned order violated the mandatory statutory requirement of personal hearing and principles of natural justice, necessitating its quashing.

Issue 3: Appropriate Remedy and Directions for Fresh Consideration

Relevant legal framework and precedents: The power of judicial review allows the Court to set aside orders passed in violation of natural justice and remand the matter for fresh consideration in accordance with law.

Court's interpretation and reasoning: The Court exercised its supervisory jurisdiction to quash the impugned order and directed the respondents to reopen the proceedings. It mandated the activation of the departmental portal to enable the petitioner to file replies afresh, followed by issuance of a clear notice fixing a date for personal hearing, and thereafter passing orders on merits within a stipulated timeframe.

Key evidence and findings: The Court's directions were based on the procedural irregularities identified and the need to ensure compliance with statutory provisions and principles of natural justice.

Application of law to facts: The remedy provided ensures that the petitioner's rights are protected and that the respondents adhere to due process while adjudicating the matter.

Treatment of competing arguments: The respondents' concession to grant one more opportunity was incorporated into the directions, balancing the interests of both parties.

Conclusion: The Court's order for setting aside the impugned order and remanding the matter with clear procedural safeguards was appropriate and necessary.

3. SIGNIFICANT HOLDINGS

The Court held that:

"It is settled law that violation of principles of natural justice is a failure of due process. If any order is passed against the petitioner with demand, that order has to be passed after giving an opportunity of personal hearing to the petitioner otherwise, it will amount to depriving the interest of the petitioner and the same amounts to violation of principles of natural justice."

The Court further observed:

"In the impugned order, the 1st respondent has stated that despite sufficient opportunities being granted to the petitioner, the petitioner had not filed his reply, but a perusal of the records shows that the petitioner has filed his replies... But, the 1st respondent without taking note of the same has passed the impugned order."

Core principles established include:

• An order confirming demand under the CGST Act must be preceded by consideration of the taxpayer's replies and an opportunity for personal hearing as mandated by Section 75(4).

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