2025 (10) TMI 440 - HC - GST

Order set aside for failure to give notice to produce documents; petitioner allowed two weeks to file additional reply

HC found merit in the petitioner's contention that the adjudicating order showed infirmity for failing to give notice to produce documentary evidence ... Rejection of rectification application - original order of adjudication suffer from error apparent on the face of the record or not - requirement to provide an opportunity to enable the petitioner to submit relevant documentary evidence - principles of natural justice - HELD THAT:- This Court finds that there is a merit in the submission of the learned counsel for the petitioner in as much as the petitioner after having submitted its response to the 1st notice dated 16.02.2023 and 20.10.2023 wherein, they have submitted that they have not availed any excess credit, if the respondent Authority was of the view that the claim was not supported by documentary evidence, the respondent ought to have been put on notice so as to enable the petitioner to submit relevant documentary evidence. In view thereof, this Court finds that the impugned order suffer from infirmity. This Court is inclined to set aside the impugned order while directing the petitioner to submit an additional reply along with relevant documentary evidence within a period of two weeks from the date of uploading of the web copy order without waiting for the certified order copy - Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the adjudication order and the subsequent rejection of a rectification petition under Section 161 are legally sustainable where the tax authority, having observed discrepancies between input tax credit claimed and third-party data, did not expressly indicate that the taxpayer's initial responses lacked documentary support before passing the adjudication order. 2. Whether principles of natural justice and statutory procedure under the relevant GST law required the authority to afford a specific opportunity to tender documentary evidence once a taxpayer has responded to audit notices asserting import transactions and IGST payments. 3. Whether rejection of a rectification petition on the ground that the original order does not suffer from an 'error apparent on the face of the record' is appropriate where relevant documentary evidence was tendered with the rectification petition but was not considered in the original adjudication. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of adjudication and rectification orders where authority did not request documentary evidence Legal framework: The GST regime contemplates comparison of input tax claimed with records such as GSTR-2B, GSTR-1, supplier returns and import data from ICEGATE; statutory adjudication requires examination of claims and documentary evidence relating to input tax credit. Section 161 (rectification) permits correction of mistakes apparent on the face of the record. Precedent Treatment: No authority was cited in the judgment for direct precedent on the specific procedural lacuna; the Court proceeded on statutory principles and established norms of administrative fairness. Interpretation and reasoning: The Court examined the sequence of notices, taxpayer's replies asserting import and IGST payment (with reference to a bill of entry and DEPB adjustment), and the authority's failure to indicate that the replies were unsupported by documentary proof prior to adjudication. The Court reasoned that when a taxpayer files substantive replies to notices claiming specific import transactions, the assessing authority, if unconvinced, must communicate the insufficiency of those replies to afford an opportunity for documentary supplementation rather than proceed to final adjudication on the basis that evidence was lacking. Ratio vs. Obiter: Ratio - where a taxpayer responds to audit notice claiming specific supporting facts, the authority must, if dissatisfied, put the taxpayer on notice to produce documentary proof before passing a final adjudication that disallows claimed credits; failure to do so renders the adjudication infirm. Obiter - ancillary remarks on the non-emptiness of reminder notices and administrative practice. Conclusions: The adjudication order suffered from infirmity for not providing an opportunity to supply documentary evidence after the taxpayer's substantive responses; thus the adjudication could not stand without re-examination of tendered evidence. Issue 2 - Duty to afford opportunity and principles of natural justice under the TNGST Act Legal framework: The TNGST Act (and analogous GST procedures) mandates the authority to follow statutory procedure and to afford reasonable opportunity of hearing; administrative fairness requires that a taxpayer be informed of deficiencies in their response so they can cure them. Precedent Treatment: The Court relied on principles of natural justice and statutory opportunity rather than specific prior case law. Interpretation and reasoning: The Court found merit in the taxpayer's contention that reminder notices are not mere formalities and that if the authority was unconvinced by the taxpayer's written response, it should have expressly indicated the inadequacy and invited documentary corroboration. The absence of such a targeted request deprived the taxpayer of a fair chance to produce evidence that could have influenced the adjudication. Ratio vs. Obiter: Ratio - where statutory or procedural scheme requires opportunity to be given, the authority's failure to indicate deficiencies and invite documentary proof violates natural justice and warrants reopening of the adjudication. Obiter - comments on timelines for submission and practical directions to re-do assessment. Conclusions: Procedural fairness under the TNGST Act required the authority to afford a reasonable opportunity to produce documents once the taxpayer had made representations; failure to do so justified setting aside the adjudication and directing re-examination with a hearing. Issue 3 - Appropriateness of rejecting rectification under Section 161 where relevant documents were filed with rectification petition Legal framework: Section 161 permits rectification of mistakes apparent on the face of the record; rectification is not a substitute for substantive review but allows correction where an obvious error is demonstrable from the record. Precedent Treatment: The Court did not rely on decided cases distinguishing the scope of Section 161; it applied the statutory test to the facts. Interpretation and reasoning: The Court observed that the taxpayer had filed documentary evidence with the rectification petition which, if considered, might have borne on the correctness of the original adjudication. The authority rejected the rectification solely on the ground that the original order did not exhibit an error apparent on the face of the record, without considering whether the newly tendered documents necessitated re-examination. The Court treated the authority's refusal to re-examine in light of those documents as procedurally and legally flawed. Ratio vs. Obiter: Ratio - rejection of rectification under Section 161 is inappropriate where the rectification application is accompanied by documentary material that, if considered, may reveal that the adjudication was based on an incomplete assessment of facts; the authority must consider such material and, if necessary, re-open assessment rather than mechanically dismissing rectification as not involving an 'error apparent on the face of the record.' Obiter - delineation of the boundary between rectification and substantive re-assessment. Conclusions: The rejection of the rectification petition was unsustainable because the authority failed to consider the documentary evidence tendered and mechanically concluded absence of an apparent error; the matter required re-examination in light of the documents. Remedial Direction and Outcome (Court's Conclusion on Relief) Interpretation and reasoning: In light of the procedural infirmity and the authority's concession to re-do the assessment, the Court set aside the impugned adjudication and directed the taxpayer to submit additional reply and documentary evidence within a specified short period, after which the authority must re-examine the claim and pass orders in accordance with law, affording reasonable opportunity of hearing in terms of the TNGST Act. Ratio: The Court's directive constitutes the operative remedy - setting aside the adjudication and ordering re-assessment with opportunity to be heard and consideration of documentary evidence - grounded in statutory procedure and natural justice. Conclusions: The adjudication and the rectification rejection were set aside; the authority is directed to re-examine the taxpayer's claim on the basis of the documentary evidence to be filed and to pass fresh orders after affording a reasonable hearing in accordance with the TNGST Act.