2026 (2) TMI 1261 - HC - GST

Failure to disclose verification reports and deny opportunity to respond breaches natural justice, requiring quash and remand for fresh consideration.

Failure to furnish verification reports that materially informed adverse findings in a tax adjudication and to grant the affected party a meaningful ... Principles of natural justice - Right to fair hearing - Duty to furnish verification reports before adjudication - Verification of transitional input tax credit u/s 140 - Remand for de novo consideration - Opportunity to rectify TRAN-1/TRAN-2 entries - HELD THAT:- It is the Petitioner’s case that since the record was voluminous, the representative of Petitioner visited the office of Respondent No. 3 and had explained the case on different occasions. It is contended by the Petitioner that Respondent No. 3 decided to depute its officers to visit the premises of Petitioner for verification of invoices and records. In such context, our attention is drawn to the letter dated 10th January 2025 of the Petitioner’s Manager, Indirect Taxes to Respondent No. 3. We find substance in the contentions, an opportunity of a fair hearing ought to have been granted to the Petitioner. It was necessary that copies of verification reports ought to have been furnished to the Petitioner, when the same were to be of relevance in coming to the conclusions as set out in the impugned order. Certainly furnishing of such verification reports, that too on the verification of documents furnished by the Petitioner, was imperative. Non furnishing of verification reports and no opportunity of a fair hearing on the same, in our opinion, certainly amounted to breach of the principles of natural justice, as behind the back of the Petitioner, no opinion could have been formed and expressed in the impugned order without the Petitioner being granted an opportunity to deal with the verification reports. On perusal of the impugned order, we are also inclined to agree with Mr. Shah that the entire exercise to pass the impugned order, was a hurried exercise, ex facie without verification of the entire record/invoices and other documents as noted in the impugned order. We fail to understand as to why such hasty actions would at all be resorted to by the concerned officials, upon whom an onerous duty is cast to pass an order only on complete verification of the record and in accordance with law. Thus, we find substance in the contentions as urged on behalf of the Petitioner that it will be appropriate that a fresh process of a hearing, being granted to the Petitioner on the show cause notice needs to be the course of action by setting aside the impugned order. Issues: Whether the impugned adjudication order dated 5th February 2025, which denied the Petitioner copies of verification reports and proceeded without granting an opportunity to deal with those reports in relation to transition of input tax credit, breached the principles of natural justice and required quashing and remand for fresh consideration.Analysis: The Court examined the record of correspondence, the show cause notice process, the verification reports prepared on 27th January 2025 and 3rd February 2025, and the personal hearing held on 4th February 2025. The impugned order records that not all invoices were verified due to the large declared stock and notes submissions regarding columns of TRAN-1/TRAN-2 entries; the verification reports were influential in the conclusions reached. The Court found that the verification reports were not furnished to the Petitioner and that the adjudicating officer proceeded on an apparently hurried and incomplete verification of documents. The absence of furnishing verification reports and a meaningful opportunity to address observations in those reports resulted in the Petitioner being unable to rectify alleged classification/column errors or to have the cited documentary evidence considered before adverse conclusions were drawn.Conclusion: The impugned order dated 5th February 2025 is quashed and set aside. The proceedings are remitted to the adjudicating authority for de novo consideration. The adjudicating authority is directed to furnish the verification reports to the Petitioner, grant an opportunity of hearing to permit rectification of entries and to decide the matter afresh in accordance with law within two months.Ratio Decidendi: Where verification reports materially inform adverse findings in tax adjudication, failure to furnish those reports and deny the affected party an opportunity to respond violates the principles of natural justice and requires quashing and remand for fresh adjudication after giving the party the requisite opportunity to be heard.