2025 (11) TMI 350 - HC - GST

Quashed orders and remand for de novo adjudication after failure to apply audi alteram partem; consider GSTR-3B vs GSTR-2A discrepancy

HC quashed and set aside the impugned orders and remanded the matter to respondent no.3 for de novo adjudication after affording the petitioners an ... Blocking of credit under Section 17(5) of Gujarat Goods & Service Tax Act, 2017 - difference between Form GSTR-3B and Form GSTR-2A - HELD THAT:- The petitioner in his reply to the show-cause notice has categorically stated that there is no difference in Form GSTR-3B and Form GSTR-2A and there was no discrepancy in the Form. However, once the explanation is given by the petitioner qua difference of Form GSTR-3B and Form GSTR-2A and the same not being considered, it is deemed fit to remand the matter to the adjudicating authority to consider the issue on merits when there is specific averment that there is no difference in the demand when either due to reversal of the input tax credit or increase in the output tax liability qua difference in Form GSTR-3B and Form GSTR-2A. The finding given by the authority at Para-2.1 of adjudication order does not deal with the aspect raised by the petitioner. It is fundamental proposition of law that other side should be heard before any order is passed. The maxim of Audi Alteram Partem is broad enough to include the rule against bias since a fair hearing is must for it to be unbiased hearing. The essential ingredients of fair hearing is that a person should be served with a proper notice and should be given a right to hearing. The impugned orders are quashed and set aside and the matter is remanded to respondent no.3 for passing fresh de novo order after giving an opportunity of hearing to the petitioners - Petition allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether limitation for filing an appeal under Section 107(4) of the Act commences from date of service of the physical copy of the adjudication order where the authority has chosen to serve a physical copy. 2. Whether confirmation of tax demand purely on the basis of a difference between input tax credit as per Form GSTR-3B and Form GSTR-2A, without dealing with a specific explanation given by the assessee (that credit notes were accounted as output tax liability and thereby produced no net revenue effect), is lawful and sustainable. 3. Whether the principles of natural justice, specifically audi alteram partem, were complied with when the adjudicating authority failed to consider the petitioner's specific explanation before confirming the demand. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Commencement of limitation where physical service of adjudication order is made Legal framework: Limitation for filing an appeal under Section 107(4) of the Act is measured by the period prescribed from the date of the adjudication order; statutory scheme contemplates computation of limitation from date of communication or service where physical service is effected. Precedent Treatment: No prior judicial authority was cited or applied by the Court in the judgment; the Court proceeded on established procedural principles regarding computation of limitation where physical service is effected. Interpretation and reasoning: The Court noted that the adjudicating authority chose to dispatch and serve a physical copy of the adjudication order on a specified date and that the physical copy was received by the assessee's employee on a subsequent date. The petitioner's appeal was filed after receipt of the physical copy and within the period which would be condonable if limitation is computed from the date of actual physical service. The Court accepted the submission that where the authority elects to serve a physical copy, the period of limitation ought to commence from the date of service. Ratio vs. Obiter: Ratio - limitation ought to be computed from date of service where physical service has been effected by the authority. Conclusions: The appellate authority's rejection of the appeal solely on the ground that the appeal was filed out of time without reckoning the date of physical service was vulnerable; computation of limitation must take physical service into account where adopted by the authority. Issue 2 - Legality of confirming demand based solely on GSTR-3B vs GSTR-2A discrepancy without considering specific explanation (credit notes accounted as output tax) Legal framework: Assessment and adjudication under Section 73 of the Act hinge on establishing tax liability; differences between returns (GSTR-3B and GSTR-2A) may trigger inquiry but demand must be founded on proper application of provisions and consideration of explanations; reversal of input tax credit or adjustment by way of increased output liability are accounting alternatives which may yield identical revenue consequences. Precedent Treatment: The Court did not invoke or distinguish any prior authorities; it applied statutory reasoning and principles of fair adjudication to the facts. Interpretation and reasoning: The petitioner had specifically explained that supplier credit notes were reflected as an increase in output tax liability instead of reducing input tax credit, and that the net revenue position remained unaffected. The adjudicating order confirmed demand on the ground of discrepancy between GSTR-3B and GSTR-2A but did not address the petitioner's explanation or explain why that explanation was inadequate or legally irrelevant. The Court observed that the adjudicating authority's finding (noted at Para-2.1 of the adjudication order) did not engage with the specific point raised by the petitioner that either reversal of ITC or increase in output tax liability would yield the same demand and that the alleged difference was venial and without additional revenue implication. Ratio vs. Obiter: Ratio - An adjudicating authority must consider and adjudicate on specific explanations offered by the taxpayer concerning discrepancies between tax returns before confirming a demand; failure to do so renders the order unsustainable. Obiter - Observations that the two accounting treatments lead to the same demand were treated as uncontested by the revenue in oral submissions but primarily served to underline the need for reconsideration. Conclusions: Confirmation of demand on the sole basis of mismatch between GSTR-3B and GSTR-2A, without considering the taxpayer's specific explanation that the mismatch arose from accounting of credit notes as output tax liability, is unlawful; the matter requires fresh consideration on merits. Issue 3 - Compliance with principles of natural justice (audi alteram partem) in adjudication Legal framework: Fundamental requirement of fair hearing (audi alteram partem) mandates that a person be given proper notice and a meaningful opportunity to be heard; the rule against bias and fairness in adjudication are corollaries of the fair hearing principle. Precedent Treatment: The Court relied on established maxims and the elementary doctrine of fair hearing; no specific case law was cited or overruled. Interpretation and reasoning: The Court emphasized that a fair hearing includes not only service of notice but also consideration of the submissions made by the party. The adjudicating authority's failure to deal with the petitioner's reply/explanation on a central issue amounted to a breach of the requirement to hear and consider the other side. The adjudication record reflected that the petitioner had provided a categorical explanation which remained unaddressed in material respects. Ratio vs. Obiter: Ratio - Non-consideration of a party's specific explanation on a material issue amounts to breach of the principle of natural justice and vitiates the order. Obiter - Reference to the broader rule against bias is explanatory of the need for unbiased consideration. Conclusions: The adjudication order is vitiated for failure to consider the petitioner's explanation and thereby violating audi alteram partem; remand for fresh adjudication after affording a real opportunity of hearing is warranted. Remedial Conclusion and Directions The Court quashed and set aside both the adjudication order and the appellate order to the extent they were founded on the defects identified (mechanical rejection on limitation ignoring date of physical service; confirmation of demand without considering petitioner's explanation; breach of audi alteram partem). The matter was remitted to the adjudicating authority for fresh de novo adjudication after giving an opportunity of hearing to the petitioner, to be completed within 12 weeks from receipt of copy of the order. No costs were imposed.