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2025 (5) TMI 294 - HC - GSTChallenge to assessment order on the ground of violation of principles of natural justice - HELD THAT - It appears that the show cause notice dated 26.10.2023 was issued covering one issue for which the petitioner had submitted its reply on 24.11.2023 and the respondent also afforded an opportunity of personal hearing to the petitioner however while passing the impugned order the respondent covered two issues and in respect of second issue no opportunity of personal hearing was afforded to the petitioner. As rightly pointed out by the learned counsel for the petitioner that the show cause notice was issued covering one issue and the impugned order dated 04.12.2024 which covered two issues inasmuch as it is beyond the scope of the demand proposed in the show cause notice issued to the petitioner. Taking into consideration the facts and circumstances of the case and considering the submissions made by the learned counsel on either side as well as the instructions from the respondent Department this Court is of the view that the impugned order was passed without application of mind and in violation of principles of natural justice and therefore the impugned order dated 04.12.2024 be treated as show cause notice and the petitioner shall submit their reply. The order impugned herein is set aside and the matter is remanded to the respondent for fresh consideration.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Violation of principles of natural justice by expanding the scope of the assessment beyond the show cause notice Relevant legal framework and precedents: The principles of natural justice require that a party against whom adverse action is proposed must be given adequate notice of the case against them and a reasonable opportunity to respond. This includes that the issues on which the authority proposes to act must be clearly communicated in the show cause notice or equivalent document. It is well-established that an order cannot be passed on grounds not disclosed to the affected party, as this would be a breach of audi alteram partem (right to be heard). Court's interpretation and reasoning: The Court observed that the original show cause notice dated 26.10.2023 issued to the petitioner covered only one issue. The petitioner had submitted its reply to that notice and was also afforded a personal hearing. However, the impugned assessment order dated 04.12.2024 addressed two issues, including a second issue relating to reversal of Input Tax Credit (ITC) and determination of RCM liability, which was not mentioned in the original show cause notice. The Court held that this constituted a clear violation of the principles of natural justice, as the petitioner was not given any prior notice or opportunity to respond to the additional issue raised in the impugned order. Passing an order on a ground not disclosed in the show cause notice was beyond the scope of the notice and hence legally impermissible. Key evidence and findings: The petitioner's submission that the impugned order confirmed a demand of Rs. 1,56,53,60,166/- on a new ground not included in the original notice was supported by the record. The respondent's own Special Government Pleader conceded that the second issue was not covered in the show cause notice. Application of law to facts: Applying the established legal principle that an order cannot be passed on undisclosed grounds, the Court found the impugned order to be invalid insofar as it dealt with the second issue. Treatment of competing arguments: The respondent argued that the impugned order could be treated as a show cause notice, allowing the petitioner to submit objections and then pass a fresh order. The Court accepted this as a suitable remedy, balancing the need for procedural fairness with administrative efficiency. Conclusions: The Court concluded that the impugned order was passed without application of mind and violated natural justice, necessitating its setting aside and remand for fresh consideration. Issue 2: Adequacy of opportunity of hearing on all issues considered in the assessment order Relevant legal framework and precedents: The right to a personal hearing is a fundamental aspect of natural justice. Authorities must provide the affected party an opportunity to be heard on every issue that may affect their rights or liabilities. Court's interpretation and reasoning: The Court noted that while the petitioner was given a personal hearing on the original issue raised in the show cause notice, no such opportunity was afforded in respect of the second issue introduced in the impugned order. This procedural lapse further compounded the violation of natural justice. Key evidence and findings: The record showed that the petitioner had responded to the original notice and attended a hearing, but was not heard on the reversal of ITC or RCM liability issues. Application of law to facts: The Court held that the absence of a hearing on the additional issue rendered the impugned order procedurally defective. Treatment of competing arguments: The respondent's concession that the order could be treated as a show cause notice and the petitioner allowed to submit objections and be heard was accepted. Conclusions: The Court directed that the petitioner be given an opportunity to submit objections and be heard on all issues before a fresh order is passed. Issue 3: Appropriate procedural remedy for the violation of natural justice in assessment proceedings Relevant legal framework and precedents: When an order is passed without affording a party an opportunity of hearing on all grounds, the usual remedy is to quash the order and remit the matter for fresh consideration after providing a proper hearing. This ensures compliance with natural justice without prejudicing substantive rights. Court's interpretation and reasoning: The Court found that the impugned order was passed without application of mind and violated natural justice. Instead of outright dismissal or confirmation, the Court chose to treat the impugned order as a show cause notice and directed the respondent to allow the petitioner to file objections and be heard afresh. Key evidence and findings: The respondent's willingness to treat the order as a show cause notice and consider the petitioner's objections was a relevant factor in the Court's decision. Application of law to facts: The Court applied the principle of fairness and procedural propriety by setting aside the order and remanding the matter with directions for fresh consideration. Treatment of competing arguments: The Court balanced the petitioner's right to be heard with the respondent's interest in efficient tax administration. Conclusions: The Court ordered the impugned order to be set aside, treated as a show cause notice, and directed fresh proceedings in accordance with law. 3. SIGNIFICANT HOLDINGS The Court held:
Core principles established include the inviolability of the right to be heard on all issues affecting a party's liability, the necessity of clear and comprehensive show cause notices, and the procedural requirement that an order cannot be passed on grounds not disclosed earlier to the affected party. Final determinations were that the impugned assessment order was invalid due to procedural defects and must be set aside and remanded for fresh consideration after affording the petitioner a full opportunity to be heard on all issues.
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