2025 (12) TMI 1443 - HC - GST

GST tax demand in s.74 proceedings exceeded show-cause notice ceiling and denied requested hearing; orders quashed, remanded

The dominant issues were whether the adjudication exceeded statutory jurisdiction under s.75(7) of the WBGST Act, 2017 and whether denial of a requested ... Taxability of annuity payments received by the Appellant during the operation and maintenance (O&M) phase - Procedural legality and jurisdictional competence of the revenue authorities in confirming a substantial tax demand under the West Bengal Goods and Services Tax Act, 2017 - adherence to the principles of natural justice and the strict jurisdictional limits imposed by the GST statute or not - Violation of Section 75(4). HELD THAT:- Section 75(4) of the Act uses the imperative expression “shall be granted” where a request for a personal hearing is made. This converts the power to grant a hearing into a binding statutory duty upon the Adjudicating Authority once the Assessee makes an explicit request. The failure to respect this statutory command, particularly in a proceeding under Section 74 which involves an allegation of wilful suppression, is not a mere irregularity. The Hon'ble Supreme Court in Kaveri Telecom Products Ltd. vs. Commissioner of Customs and in similar cases concerning taxing statutes, has emphasized that the denial of a mandatory personal hearing, where specifically requested, constitutes a fundamental and fatal infirmity that goes to the root of the administrative action. A procedural breach of this nature, affecting the very fairness of the process, cannot be cured by a subsequent retrospective consideration of the merits of the case. The assessment order, having been passed ex-parte despite the statutory mandate, is rendered unsustainable and liable to be set aside on this ground alone. The cumulative effect of the jurisdictional flaw under Section 75(7) and the procedural breach under Section 75(4), compounded by the non-application of mind evident in the parallel proceedings under Section 73 and Section 74, leads us to the inescapable conclusion that the assessment was fundamentally flawed - the Adjudicating Authority under the Goods and Services Tax Act is strictly bound by the jurisdictional ceiling imposed by Section 75(7), and any demand confirmed in the final order that exceeds the tax amount specified in the Show Cause Notice is ultra vires and vitiates the order in toto, and the provision of Section 75(4), which mandates the grant of a personal hearing upon request, is absolute, and its denial constitutes a fatal breach of the principles of natural justice, necessitating the quashing of the ex-parte order, regardless of the merits of the demand. The assessment orders suffer from fundamental jurisdictional and procedural breaches which render them illegal and unsustainable in the eyes of the law - The Adjudication Order in FORM GST DRC-07 dated December 10, 2020, and the subsequent Appellate Order in FORM GST APL-04 dated January 02, 2025, are hereby set aside and quashed in their entirety. Appeal allowed by way of remand. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the adjudicating authority acted ultra vires Section 75(7) of the West Bengal Goods and Services Tax Act, 2017 by confirming a tax amount in the final order that exceeded the tax amount specified in the show cause notice, thereby vitiating the demand. 1.2 Whether denial of a personal hearing, despite an express request by the assessee, violated the mandatory requirement of Section 75(4) of the Act and the principles of natural justice, rendering the ex-parte adjudication order unsustainable. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Excess demand beyond the show cause notice-breach of Section 75(7) as a jurisdictional ceiling Legal framework: The Court examined Section 75(7) of the Act, which mandates that the amount confirmed in the final order shall not exceed the amount specified in the notice, treating this limit as a binding jurisdictional constraint on adjudication. Interpretation and reasoning: On the record, the tax confirmed in the final order was higher than the tax proposed in the show cause notice. The Court held that the adjudicating authority could not travel beyond the four corners of the notice and that statutory limits on confirming amounts are mandatory. The State's explanation that the enhancement arose from a 'calculation error' relating to bifurcation was rejected as irrelevant to compliance, since the statute expressly prohibits confirmation of any amount in excess of the notice. Conclusions: Confirming a tax amount exceeding the show cause notice directly contravened Section 75(7), was ultra vires, and vitiated the adjudication order in toto. The consequential appellate order affirming such demand could not stand. 2.2 Mandatory personal hearing on request-violation of Section 75(4) and natural justice Legal framework: The Court examined Section 75(4) of the Act, noting its imperative language that a personal hearing 'shall be granted' where requested, thereby converting discretion into a mandatory duty once an assessee seeks a hearing. Interpretation and reasoning: The assessee had expressly requested a personal hearing in its reply, yet the adjudicating authority passed an ex-parte final order. The Court held that this denial was not a curable irregularity, particularly in a proceeding invoking Section 74 and involving allegations of wilful suppression. The Court concluded that retrospective reliance on the written reply and documents could not cure the fundamental denial of an effective hearing mandated by statute and required by audi alteram partem. Conclusions: Non-grant of a requested personal hearing breached Section 75(4) and the principles of natural justice, constituting a fatal infirmity sufficient by itself to set aside the ex-parte order, irrespective of the merits of the tax demand. 2.3 Final operative outcome based on cumulative illegality Interpretation and reasoning: The Court treated the Section 75(7) breach (jurisdictional excess) and Section 75(4) breach (mandatory hearing denied) as fundamental defects undermining the legality of the assessment. On these concluded grounds, the assessment and the affirming appellate order were held unsustainable. Conclusions and directions: The Court quashed both the adjudication order and the appellate order in entirety and remanded for de novo adjudication from the stage of the reply to the show cause notice. The adjudicating authority was directed to provide a fresh and effective personal hearing within six weeks, to pass a speaking order on merits addressing the exemption claim on annuity payments, and to ensure strict compliance with Section 75(7) so that the final recoverable tax does not exceed the amount specified in the original notice. Any pre-deposit was made subject to the result of fresh adjudication with expeditious adjustment/refund as applicable.