2025 (8) TMI 784 - HC - GST

GST registration cancellation quashed for procedural fairness; fresh decision required with hearing opportunity under GST rules

The HC quashed and set aside the impugned order canceling the petitioner's GST registration for ineligible ITC claim, finding a breach of natural justice ... Ineligible availment of ITC - retrospective cancellation of GST registration of the vendors of the petitioner - violation of provisions of Section 16(2) of the GST Act - HELD THAT:- In the facts of the case, the impugned order is passed without considering the replies and the same is not tenable being in breach of principles of natural justice, more particularly, when it is not in dispute that the petitioner has tendered replies along with requisite documents in support thereof. The petition, therefore, succeeds only on the ground of breach of principles of natural justice. The impugned Order-in-Original dated 23.12.2024 is hereby quashed and set-aside and the matter is remanded to respondent No. 2 to pass a fresh de novo order after taking into consideration the reply filed by the petitioner on 8.8.2024 along with various documents and also to provide an opportunity of hearing to the petitioner, if requested by the petitioner. Such exercise shall be completed within 12 weeks from the date of receipt of copy of this Order. Petition allowed by way of remand. 1. ISSUES PRESENTED and CONSIDERED 1. Whether the adjudicating authority erred in passing an ex-parte Order-in-Original without considering the reply filed by the petitioner in response to the show-cause notice under the GST Act. 2. Whether the failure to consider the petitioner's reply amounted to a breach of principles of natural justice. 3. Whether the adjudicating authority provided adequate opportunity of personal hearing to the petitioner as required under the GST Act and principles of natural justice. 4. Whether technical or procedural anomalies in the GSTN portal system can justify non-consideration of a reply filed by the petitioner. 5. The applicability and scope of Section 161 of the CGST Act, 2017, in rectifying errors or omissions apparent on the face of the record in adjudication proceedings. 6. The procedural guidelines and instructions to be followed by adjudicating authorities in adjudication of show-cause notices to ensure compliance with principles of natural justice. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Consideration of Reply and Breach of Principles of Natural Justice Legal Framework and Precedents: The principles of natural justice mandate that a person against whom adverse action is proposed must be given a fair opportunity to present their case, including the right to file a reply and to be heard before an order is passed. Section 16(2) of the GST Act governs eligibility for input tax credit, and adjudication under Section 74 requires adherence to natural justice. Precedents emphasize that ex-parte orders without considering filed replies violate natural justice. Court's Interpretation and Reasoning: The petitioner filed a reply in Form GST DRC-06 on 8.8.2024 along with supporting documents to rebut the show-cause notice alleging ineligible input tax credit. However, the adjudicating authority passed the Order-in-Original dated 23.12.2024 ex-parte, erroneously stating that no reply was filed. The Court examined the record, including the GSTN portal printout (Page-52), confirming the petitioner's reply was indeed filed and uploaded with relevant documents. Key Evidence and Findings: The petitioner's reply and supporting documents were available on the GSTN portal, contradicting the adjudicating authority's claim. The failure to consider the reply was not disputed by the respondents but attributed to a technical issue in the portal system. Application of Law to Facts: Ignoring the filed reply and passing an ex-parte order without considering it constitutes a clear breach of natural justice. The Court held that such breach renders the impugned order untenable. Treatment of Competing Arguments: Respondents contended that no reply was received by the adjudicating authority due to non-visibility of the submission under the allocated case ID on the portal. However, the Court found this to be a procedural/technical anomaly and not a justification for ignoring the reply. The respondents acknowledged the omission and sought to rectify it under Section 161 of the CGST Act. Conclusion: The impugned Order-in-Original was quashed and set aside solely on the ground of breach of natural justice for non-consideration of the petitioner's reply. Issue 3: Adequacy of Opportunity for Personal Hearing Legal Framework and Precedents: The GST Act and principles of natural justice require that the adjudicating authority afford reasonable opportunity of personal hearing before passing an order. Section 75(5) of the CGST Act permits adjournments for hearing with reasons recorded in writing. Case law confirms that failure to avail hearing opportunities by the party does not amount to violation of natural justice if adequate chances were provided. Court's Interpretation and Reasoning: The adjudicating authority issued four separate hearing notices on different dates (10.09.2024, 16.10.2024, 13.11.2024, and 13.12.2024) dispatched by registered post and email. All notices were returned with the remark 'left', indicating non-receipt by the petitioner at the registered address. The petitioner was operating from the same address as per court records. Key Evidence and Findings: The respondents produced copies of returned notices and email records. The petitioner did not respond to any hearing notices nor appeared in person or virtually. The adjudicating authority's efforts to provide hearing opportunities were documented in the impugned order. Application of Law to Facts: The Court found that the adjudicating authority had extended ample opportunities for hearing. The petitioner's non-appearance or non-response did not constitute denial of natural justice. However, this issue became subordinate given the primary breach related to ignoring the filed reply. Treatment of Competing Arguments: The petitioner did not dispute the issuance of hearing notices but contended the order was ex-parte without considering the reply. The respondents relied on case law holding that failure to avail hearing opportunities does not invalidate proceedings. Conclusion: The adjudicating authority complied with the requirement to provide hearing opportunities. No breach of natural justice arose from the hearing process itself. Issue 4: Effect of Technical/Procedural Anomalies on Consideration of Reply Legal Framework: The GSTN portal is the official platform for filing replies and adjudication records. Section 161 of the CGST Act empowers authorities to rectify errors or omissions apparent on the face of the record. Court's Interpretation and Reasoning: The respondents explained that the petitioner's reply was not visible under the adjudicating authority's case ID on the portal due to system design issues where the reply was reflected under a different submenu without taxpayer identification details. This technical anomaly led to inadvertent non-consideration of the reply. Key Evidence and Findings: Affidavit of the Principal Commissioner detailed the portal's submenu structure and screenshots evidencing the anomaly. The respondents acknowledged the omission was not intentional or mala fide. Application of Law to Facts: The Court recognized that such technical glitches can cause procedural lapses. However, these do not absolve the authority from the obligation to consider filed replies. The respondents' reliance on Section 161 to rectify the omission was appropriate. Treatment of Competing Arguments: The petitioner's position that their reply was filed and ought to have been considered was upheld. The respondents' explanation was accepted as a valid cause for the omission but did not justify the impugned order. Conclusion: Technical anomalies caused the omission, which is rectifiable under Section 161, but do not validate the ex-parte order passed without considering the reply. Issue 5: Scope of Section 161 of the CGST Act in Rectifying Errors/Omissions Legal Framework: Section 161 allows the proper officer to rectify any error or omission apparent on the face of the record in any order passed under the CGST Act. Court's Interpretation and Reasoning: The respondents invoked Section 161 to seek leave of the Court to rectify the impugned order by considering the petitioner's reply and providing an opportunity of hearing. Application of Law to Facts: The Court acknowledged that the omission to consider the reply was an error apparent on the face of the record and hence amenable to correction under Section 161. Conclusion: The Court permitted the respondents to rectify the omission under Section 161 and directed a fresh adjudication after considering the reply and hearing the petitioner. Issue 6: Procedural Guidelines for Adjudication and Compliance with Natural Justice Legal Framework: The respondents filed Instruction No. 02/2025 dated 18/22.7.2025 issued by the Principal Commissioner CGST, Ahmedabad South, prescribing guidelines to ensure prompt attention to adjudication matters and adherence to natural justice. Key Provisions of the Instruction: Prompt e-diarization and transmission of replies to adjudicating authorities. Regular checking of emails including junk mail to avoid missing communications. Inclusion of virtual hearing links in personal hearing notices. Contacting noticees by email before ex-parte adjudication to confirm filing of replies. Verification of replies filed by assessee especially where SCNs issued by Preventive Section do not get transferred properly to adjudicating authority portal. Requirement of well-reasoned speaking orders considering all submissions. Court's Interpretation and Reasoning: The Court noted the issuance of these guidelines and training programs conducted to prevent recurrence of procedural lapses. The guidelines reflect an institutional commitment to uphold natural justice and procedural fairness. Conclusion: The Court found no further action necessary in light of these corrective measures but emphasized that adherence to such guidelines is critical to prevent similar breaches. Final Directions and Conclusion The impugned Order-in-Original dated 23.12.2024 was quashed and set aside solely on the ground of breach of natural justice due to non-consideration of the petitioner's reply. The matter was remanded to the adjudicating authority to pass a fresh de novo order after considering the reply filed on 8.8.2024 along with supporting documents and providing opportunity of hearing if requested. This exercise was directed to be completed within 12 weeks. The Court clarified that it did not examine merits and the fresh order shall be in accordance with law. No costs were imposed and the petition was disposed accordingly.