2025 (7) TMI 550 - HC - GST

Ex-parte order enhancing taxable turnover set aside for violating natural justice principles in tax assessment

Hotel Rudra & Anr. Versus Deputy Commissioner, State Tax & Ors.

The Calcutta HC allowed a petition challenging an ex-parte order enhancing taxable turnover for violating natural justice principles. The court found that ... Violation of principles of natural justice - Matter disposed ex-parte - enhancement of taxable turnover - HELD THAT:- Since the matter has been disposed of ex-parte without considering the merits of the case, and for the sake of interest of justice and equity the matter should be remanded back to the authority concerned for proper adjudication of the same. The principles of natural justice warrants that a party should have a fair opportunity to present his or her case. Hence, the respondent No. 2 is directed to fix a date of hearing peremptorily upon service of notice of hearing to the petitioner and pass a reasoned order after affording an opportunity of hearing within a period of 8 weeks from the date of communication of the said order. The order shall be communicated accordingly in the approved/prescribed portal mentioned in the statute. Petition disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this matter are:Whether the ex-parte disposal of the appeal by the appellate authority was valid and in accordance with principles of natural justice.Whether the enhancement of taxable turnover from Rs. 19,33,516/- to Rs. 70,03,871/- based on seized documents and subsequent assessment was justified and lawful.Whether the petitioners were afforded adequate opportunity to present their case during the assessment and appellate proceedings.Whether the matter requires remand for fresh adjudication in view of procedural irregularities.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of ex-parte disposal of appeal and adherence to principles of natural justiceRelevant legal framework and precedents: The principles of natural justice mandate that no party should be condemned unheard. The right to a fair hearing is a fundamental procedural safeguard in quasi-judicial and adjudicatory proceedings. Ex-parte orders are generally disfavored unless the party deliberately absents or fails to avail opportunity after due notice.Court's interpretation and reasoning: The Court observed that the appellate authority disposed of the appeal ex-parte without considering the merits. While the respondents argued that the petitioners failed to appear despite ample opportunities and did not communicate reasons for absence, the Court emphasized that the principles of natural justice require a fair opportunity to present the case. The absence of a reasoned order or proper hearing led the Court to conclude that the ex-parte disposal was not in consonance with natural justice.Key evidence and findings: The record showed that the petitioners did not appear before the appellate authority, and no communication explaining non-appearance was submitted. However, the Court found that procedural fairness necessitated a remand for fresh hearing.Application of law to facts: Given the procedural irregularity of ex-parte disposal without adjudicating merits, the Court held that the matter should be remanded to ensure compliance with natural justice.Treatment of competing arguments: The Court acknowledged the respondents' contention regarding non-appearance but prioritized the fundamental right to be heard over procedural default, directing strict compliance with hearing requirements on remand.Conclusions: The ex-parte order was set aside, and the appellate authority was directed to conduct a fair hearing and pass a reasoned order within a stipulated timeframe.Issue 2: Justification and lawfulness of enhancement of taxable turnover and assessmentRelevant legal framework and precedents: Under the West Bengal Goods & Services Tax Act, 2017, the taxable turnover declared by a registered person is subject to verification and assessment by tax authorities. Discrepancies between declared turnover and evidence such as seized documents can lead to reassessment and enhanced turnover determination. The assessment must be based on cogent evidence and comply with statutory procedures, including issuance of show-cause notices and opportunity to be heard.Court's interpretation and reasoning: The Court noted that the turnover was enhanced from Rs. 19,33,516/- (room rent service only) to Rs. 70,03,871/- by segregating turnover under food, hukka, and banquet services, which the petitioners disputed. The enhancement was based on seized documents and differences pointed out in GST returns versus seized records. The final order imposed tax, penalty, and interest accordingly.Key evidence and findings: The assessment was initiated following inspection, search, and seizure. The respondent issued notices in Form GST DRC-01A and subsequently in Form GST DRC-01, pointing out discrepancies and demanding tax and penalty. The petitioners contested the inclusion of food, hukka, and banquet services turnover, asserting only room rent service turnover was taxable.Application of law to facts: While the assessment process followed statutory steps, the Court refrained from delving into the substantive correctness of the turnover enhancement at this stage due to the procedural infirmity in appellate disposal. The Court implicitly recognized the necessity of adjudicating these factual and legal disputes afresh after proper hearing.Treatment of competing arguments: The petitioners challenged the enhanced turnover on the ground that they did not provide such services, while the respondents relied on seized documents and GST returns discrepancies. The Court did not resolve this factual dispute but emphasized the need for a reasoned adjudication post-hearing.Conclusions: The Court did not uphold or reject the enhanced turnover but mandated fresh adjudication to determine the validity of the assessment after hearing the petitioners.Issue 3: Adequacy of opportunity to present case during assessment and appealRelevant legal framework and precedents: The right to be heard is a cornerstone of administrative law and tax proceedings. The authorities must provide reasonable opportunity to the assessee to explain discrepancies and contest assessments before passing final orders.Court's interpretation and reasoning: The Court found that while the petitioners were given opportunities during assessment (issuance of show-cause notices), their non-appearance before the appellate authority led to ex-parte disposal. The Court stressed that the appellate authority must ensure that the petitioner receives proper notice and opportunity to be heard.Key evidence and findings: The record indicated issuance of notices and opportunities at the assessment stage. However, the appeal was disposed of without hearing the petitioners, which was found to be contrary to natural justice.Application of law to facts: The Court directed the appellate authority to fix a hearing date, serve notice, and allow the petitioners to present their case before passing a reasoned order, thereby ensuring procedural fairness.Treatment of competing arguments: The respondents contended that the petitioners' failure to appear was deliberate and that sufficient chances were provided. The Court balanced this against the fundamental right to a fair hearing and ordered strict compliance on remand.Conclusions: The Court mandated that the petitioners be afforded a genuine opportunity to be heard during appellate proceedings.Issue 4: Necessity of remand for fresh adjudicationRelevant legal framework and precedents: Where procedural irregularities vitiate the adjudicatory process, courts routinely remand matters to the competent authority for fresh consideration in accordance with law and principles of natural justice.Court's interpretation and reasoning: The Court held that since the appeal was disposed of ex-parte without considering merits, and in the interest of justice and equity, the matter must be remanded for proper