Natural justice breach in appellate enhancement of penalty leads to set-aside and remand for fresh hearing on merits

Appellate enhancement of penalty without affording the appellants a fresh opportunity to be heard breached principles of natural justice; the appellate authority increased the penalty after an adjourned hearing which the appellants' representative missed due to medical reasons, and failed to give requisite notice to show cause against enhancement, thereby violating the statutory proviso requiring notice. For that reason the impugned appellate order increasing penalty is set aside and the matter is remanded to the appellate authority for a fresh decision on merits after giving a reasonable opportunity to be heard.

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Issues: Whether the appellate authority's ex-parte dismissal of the appeal and enhancement of penalty without granting the petitioners a fresh opportunity to be heard (contrary to the first proviso to section 107(11) of the relevant GST enactments) violated principles of natural justice and required setting aside and remand for fresh decision.

Analysis: The appellate order was not passed on a date proximate to the adjourned hearing date; there was a significant delay between the adjourned hearing and the ex-parte order. Documentary evidence showed that the petitioners' authorized representative/tax consultant was under medical supervision and was indisposed around the relevant time, providing a plausible explanation for non-appearance. The appellate authority increased the penalty amount without affording the petitioners a specific opportunity to show cause against enhancement. Such procedure failed to accord a reasonable opportunity of hearing as required by the first proviso to section 107(11) and thereby amounted to non-compliance with principles of natural justice.

Conclusion: The appellate order dated May 9, 2024 is set aside on the ground of violation of principles of natural justice and non-compliance with the first proviso to section 107(11); the matter is remanded to the appellate authority for fresh decision on merits, with liberty to the petitioners to file additional reply to be considered on hearing.

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