INQUIRY BY THE APPELLATE AUTHORITY, Goods and Services Tax - GST

[Sadanand Bulbule]

Dear experts

Section 107[11] of the CGST Act speaks as under:

(11) The Appellate Authority shall, after making such further inquiry as may be necessary, pass such order, as it thinks just and proper, confirming, modifying or annulling the decision or order appealed against but shall not refer the case back to the adjudicating authority that passed the said decision or order:

What I understand from the above is, the Appellate Authority must make necessary inquiry at the commencement of hearing proceedings and then pass order as deemed fit. But contrast to such mandatory requirement, many of the Appellate Authorities are passing orders without making any inquiry, much less necessary, other than just observing the impugned order and the grounds of appeal. Here what is crucial is the absence of necessary inquiry itself.

Query:

How far such non-inquired orders are sustainable in the eye of law and what about the fate of appellant's merits? Are such half baked orders are eligible to be rectified under Section 161?

Experts to comment

Posts / Replies

[Padmanathan Kollengode]

Learned Sadanand sir,

Can you elaborate on any instance (factual issue) as to where, in your opinion, an inquiry was necessary and was not made by FAA which resulted in a half baked order? This is to provide a proper context to a very pertinent query that you have raised.

[Sadanand Bulbule]

Dear Sir

Basically it is a question of law. "Necessary inquiry" is the foundation stone for deciding the prayer of the appellant impartially. Therefore narrating incidents of such deficiency is insignificant here. So I did not mention.Hope this is enough for your comments as regards to the credibility/durability of appeal order abandoning the rule of law.

[Padmanathan Kollengode]

Sir,

When Act explicitly says "officer shall, after making such further inquiry as may be necessary, pass order"... It is quite clear that it is mandatory. I dont see any two ways about it.

But doesn't what inquiry is necessary depended upon the facts and circumstances of each case? what if no inquiry is necessary in a particular case? Again, isnt it a question of fact?

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, As usual, the purpose of this post is to gain more knowledge from you and other experts. The issue raised by you is off the beaten path and hence thought provoking. My views are as under :

"Section 107[11] of the CGST Act speaks as under:

(11) The Appellate Authority shall, after making such further inquiry as may be necessary, pass such order, as it thinks just and proper, confirming, modifying or annulling the decision or order appealed against but shall not refer the case back to the adjudicating authority that passed the said decision or order:"

No comments required, it being text/language of the Act.

"What I understand from the above is, the Appellate Authority must make necessary inquiry at the commencement of hearing proceedings and then pass order as deemed fit. But contrast to such mandatory requirement, many of the Appellate Authorities are passing orders without making any inquiry, much less necessary, other than just observing the impugned order and the grounds of appeal. Here what is crucial is the absence of necessary inquiry itself.

Comments : Respectfully here I have different opinion. The word, 'MAY' does not mean 'must' or 'shall'. The word, 'MAY' denotes a discretionary sense. This word vests the Appellate Authority with a discretion whether to cause necessary inquiry or not. The wording "making such further inquiry as may be necessary' does not confer any absolute discretion on the Appellate Authority, The procedure consistent with the principles of natural justice have to be strictly adhere to. before passing any order.

Similarly, the word, 'shall' denotes a mandatory sense but it does not mean that in every case it shall have that effect unless the words of the statute are meticulously and scrupulously followed. Undoubtedly, in both ways the principles of natural justice have to followed by the Appellate Authority.

In Section 107(11) above there is a coma after the word, 'shall'. So the mandatory sense inherent in the word, 'shall' cannot be extended to the term, 'as may be necessary'. Both operate in opposite directions. Only common factor is the adherence to the principles of natural justice.

Query: How far such non-inquired orders are sustainable in the eye of law and what about the fate of appellant's merits? Are such half baked orders are eligible to be rectified under Section 161?

Reply : (i) Such non-inquired orders shall not be invalid or deemed to be invalid in terms of Section 160 of CGST Act.

(ii) Regarding the fate of Appellant's merits, the principles of natural justice have to very strictly adhered to .

Query : Are such half baked orders are eligible to be rectified under Section 161 ?

(iii) Yes, if the error is apparent on the face of the Order-in-Appeal.

Sir, Hopefully, you will correct me, if I am on wrong footing in any way or I have skipped anything. I am flexible.

Disclaimer Certificate : These are my personal views for exchange of views with experts on this forum and not meant any court proceedings.

 

[Sadanand Bulbule]

Dear Sethi Sir ji

Thanks for your classified opinion. However slightly I differ on the following context:

Under Section 107(11), the word used is “as may be necessary”. It is a phrase and not a group of words per se.

You are aware that, the phrase “ as may be necessary” legally means to do what is needed to achieve a desired result in a more justifiable and meaningful manner. With this definition, I see there is no “discretion” vested in the Appellate Authority by virtue of the word ”may” placed in between but it is inevitable. This is the intent of the law makers too. Here I feel there is no need to separate the word " may " from the phrase “ as may be necessary”. This phrase akin to the phrase " as the case may be".

Hope you would be pleased to revisit the query. Discussion brings the positive thoughts together to move in the right direction. I am aware that, this is not a forum for question and answer.

[These are my personal expressions for academic purpose only].

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

O.K. Sir. I am highly thankful to you for your prompt response. I shall X-ray my reply and come back soon.

It is worthwhile to mention here that, in fact, I have come across so many Orders-in-Appeal which were passed without making further required inquiry which is legally not correct and proper.

The query raised by you in this forum will really benefit the Trade and Industry.

[Sadanand Bulbule]

Dear all

I wish to add the following:

Revision of orders prejudicial to revenue.

A] Section 263 of the Income Tax Act, 1961 reads as below:

263. (1) The Principal Commissioner Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing]Officer or the Transfer Pricing Officer, as the case may be, is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify,-----------.

B] To co-relate the issue under discussion, it is beneficial to refer the ruling dated 29/08/2022 of the ITAT, Rourkela rendered in the case M/s. Earth Minerals Co Ltd Vs. ACIT, Rourkela, Rourkela [No.- ITA No. 223/CTK/2019] reported in 2022 (8) TMI 1311 - ITAT CUTTACK].

 The summary of the ruling is reproduced below:

Revision u/s 263 - absence of any enquiry done by the ld. Pr.CIT - HELD THAT:- An examination of the order passed u/s.263 of the Act, in the impugned appeal, shows that the ld. Pr.CIT has “not made or caused to be made such enquiry” before passing the order u/s.263 of the Act.

A perusal of the order of the ld. Pr.CIT shows that in para 14, he starts his decision and it goes on to para 28 but other than discussing the facts that has led him to believe that the order passed by the AO was erroneous and prejudicial to the interest of revenue, there has been no enquiry by him nor he has caused any enquiry to be done before he has passed the order u/s.263. This is not a case of inadequacy of enquiry. It is a case of absence of enquiry. On this ground alone, the order passed u/s. 263 of the Act by the ld. Pr.CIT is liable to be annulled and we do so.

C] The Hon’ble High Courts have approved such rulings of the ITAT rendered under Section 263.  Interestingly the wordings employed under Section 107[11] of the CGST Act are, more or less, on par with the provisions of Section 263 of the Income Tax Act,1961 to the extent of discharging the mandatory responsibility by the Appellate Authority before deciding the appeal on hand. Or else, I may say that, the said “necessity of inquiry” is borrowed from the Income Tax Act or other similar Acts.

 D] Therefore I am of the opinion that, the ultimate analogy of the ITAT [supra] should also apply to the order passed under Section 107[11] without conducting inquiry as may be necessary by the Appellate Authority and suffer accordingly.

Experts are once again welcome.

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, Agreed to the extent that 'as may be necessary' is a phrase and not a group of words. Despite it being a phrase, the words, 'may be' do not lose the original essence i.e. discretionary sense.

However, the following judgement of the Apex Court reflects your view :-

The Supreme Court in State of U.P. v. Jogendra Singh, - 1963 (3) TMI 59 - SUPREME COURT held as follows :-

“8. There is no doubt the word “may" generally does not mean “must” or “shall”. But it is well-settled that the word “may” is capable of meaning “must” or “shall” in the light of the context. It is also clear that where a discretion is conferred upon a public authority coupled with an obligation, the word “may” which denotes discretion should be construed to mean a command."

(To be continued)

[Sadanand Bulbule]

Dear all

In continuation of my posting at Sl No. 7, please refer the following:

2024 (5) TMI 109 - SC ORDER - PRINCIPAL COMMISSIONER OF INCOME TAX VERSUS M/S EARTH MINERALS CO. LTD.

Validity of Revision u/s 263 - ITAT has set aside the said order of the Principal CIT as noted “this is not a case of inadequacy of enquiry. It is a case of absence of enquiry” - HC confirmed that ITAT appears to be a plausible one and not erroneous in law - HELD THAT:- We are not inclined to interfere with the impugned judgment and hence, the special leave petition is dismissed.

[Sadanand Bulbule]

For the benefit of ready reference, I am reproducing the judgement of the Hon'ble Orissa High Court referred above:

2023 (3) TMI 1480 - ORISSA HIGH COURT - PRINCIPAL COMMISSIONER OF INCOME TAX, SAMBALPUR CHARGE VERSUS M/S. EARTH MINERALS CO. LTD.

Validity of Revision u/s 263 - ITAT has set aside the said order of the Principal CIT as noted “this is not a case of inadequacy of enquiry. It is a case of absence of enquiry” - HELD THAT:- The view taken by the ITAT appears to be a plausible one and not erroneous in law. Consequently, the Court is not satisfied that any substantial question of law arises. The appeal is dismissed.

[Sadanand Bulbule]

Dear all

The revisional powers under Section 108 of the CGST Act, 2017 too is on par with the revisional powers under Section 263 of the Income Tax Act, 1961[supra]. The relevant portion of Section 108 is reproduced hereunder:

Powers of Revisional Authority

Section 108. (1) Subject to the provisions of section 121 and any rules made thereunder, the Revisional Authority may, on his own motion, or upon information received by him or on request from the Commissioner of State tax, or the Commissioner of Union territory tax, call for and examine the record of any proceedings, and if he considers that any decision or order passed under this Act or under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act by any officer subordinate to him is erroneous in so far as it is prejudicial to the interest of revenue and is illegal or improper or has not taken into account certain material facts, whether available at the time of issuance of the said order or not or in consequence of an observation by the Comptroller and Auditor General of India, he may, if necessary, stay the operation of such decision or order for such period as he deems fit and after giving the person concerned an opportunity of being heard and after making such further inquiry as may be necessary, pass such order, as he thinks just and proper, including enhancing or modifying or annulling the said decision or order.

So making of inquiry as may be necessary under Section 107 by the Appellate Authority is as mandatory as by the Revisional Authority under Section 108 of the CGST Act and under Section 263 of the Income Tax Act, 961. Since this issue is well settled by the Hon'ble Supreme Court in its latest judgement dated 13/12/2023 referred above, in my categorical opinion, there shall not be confusion.

[Note: I have carefully posted all my opinions in the larger interest of appellant as well as the Appellate Authorities to have sustainable and justifiable orders in view of this necessity. Let the benefit of truth be extended to the deserving party, either the appellant or the respondent on merits].

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,   

Sir, Thank you very much for your crystal clear clarifications along  coupled with  legal force on the issue. I hope that your question and your comprehensive opinions will be  very very useful for the Appellate Authorities  as well as the  Trade and Industry.                                

[Padmanathan Kollengode]

Ld Kasturi Sir and Sadanand Sir,

Purely on the legal issue of "mandatory" vs "directory" nature of the provision, I would just like to share another analogy from Income Tax Act which came to my knowledge recently:

148A. The Assessing Officer shall, before issuing any notice under section 148,-

(a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment;

In SATGURU SAI EXTRUSIONS PRIVATE LIMITED AND SAI BALAJI EXTRACTION AND ALLOYS PVT LTD THROUGH ITS AUTHORIZED PERSON MANAGING DIRECTOR VERSUS UNION OF INDIA THROUGH MINISTRY OF FINANCE AND OTHERS 2024 (2) TMI 50 - BOMBAY HIGH COURT

27. In the absence of any specific judicial pronouncement dealing with the aspect of interpretation on this issue, considering the language of the provision and noticing the law enunciated in the above discussed reports, we are of the view that the words “if required” have been set out in 148A(a) so as to leave it to the discretion of the Assessing Officer as to whether he desires to conduct an enquiry. If the Legislature had the intent and object of mandating an enquiry before issuing a show cause notice under clause (b), the Legislature would not have specifically used the words “if required”, following the words “conduct an enquiry”. In these circumstances, if a harmonious interpretation is to be arrived at without rendering the words “if required” meaningless, in our view, the word ‘shall’ would mean ‘may’ as Section 148A(a) grants discretion to the Assessing Officer to conduct an enquiry.

1. Whether the language is similar in "The Assessing Officer shall, before issuing any notice under section 148, conduct any enquiry, if required...," and  "The Appellate Authority shall, after making such further inquiry as may be necessary, pass such order,...."? If yes, can inquiry under section 107 also be considered as directory?

2. Interestingly word "further" is used before inquiry. What would be the legislative intent behind this? Can an inference be drawn that already an inquiry is done (ie. on Impugned Order and APL-01)

3. Drawing reference to Hon'ble Bombay High Court decision, what would be the requirement of the phase "as may be necessary"? Can it be said that inquiry is mandatory but the "extent of inquiry" is discretionary upon the FAA (which can also be no inquiry)?

4. My understanding is that the extent of inquiry is a question of fact and would depend upon case to case. (i.e, "such further inquiry, as may be necessary" is similar to "reasonable inquiry")