2025 (5) TMI 768 - HC - GST

Principles of natural justice - no opportunity of personal hearing was accorded - ITC claimed under wrong head - HELD THAT - It may be seen that when the notice under Section 73 of the Act was issued to the petitioner 03.01.2025 was fixed the date of personal hearing. However the response was filed after the said date on 17.01.2025 and order impugned came to be passed on 28.02.2025 without providing/offering opportunity of personal hearing to the petitioner despite the fact there was sufficient time available to the authority between 17.01.2025 to 28.02.2025. Not fixing a date for providing personal hearing is contrary to the spirit of the provisions of Section 75(4) of the Act which inter alia requires grant of opportunity of personal hearing before passing an adverse order. Looking to the nature of response filed by the petitioner and the deficiency found by the Assistant Commissioner in case opportunity of personal hearing was provided the plea as raised could have been substantiated. An attempt to substantiate the plea raised could have been made by the petitioner from which it has been deprived of allowed. Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the Assistant Commissioner was obligated to provide an opportunity of personal hearing to the petitioner before passing an order under Section 73(9) of the U.P. Goods and Services Act, 2017 ("Act").

- Whether the failure to provide such opportunity of personal hearing violated the procedural safeguards prescribed under Section 75(4) of the Act.

- Whether the petitioner's contention that the alleged excess Input Tax Credit (ITC) claimed was a bona fide mistake and revenue neutral was adequately considered, and whether the petitioner was denied the chance to substantiate this plea.

- Whether the writ petition challenging the order passed without personal hearing is maintainable or whether the petitioner should have resorted to the statutory appeal remedy under Section 107 of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Obligation to Provide Personal Hearing before Passing Order under Section 73(9)

Relevant Legal Framework and Precedents:

Section 73 of the Act deals with determination of tax not paid or short paid or erroneously refunded or ITC wrongly availed or utilized. Subsection (9) empowers the authority to pass an order after considering the show cause notice and reply. Section 75(4) mandates that before passing any order which is prejudicial to any person, an opportunity of personal hearing must be provided.

Court's Interpretation and Reasoning:

The Court noted that the Assistant Commissioner issued a show cause notice under Section 73 and fixed 03.01.2025 as the date for personal hearing. However, the petitioner filed its reply only on 17.01.2025, after the scheduled hearing date. Despite this, the Assistant Commissioner passed the order on 28.02.2025 without affording any further opportunity for personal hearing.

The Court emphasized that the statutory scheme requires the authority to afford an opportunity of personal hearing before passing an adverse order. The fact that the petitioner's reply was filed after the initially fixed hearing date did not absolve the authority from the duty to provide a fresh hearing date, especially since there was sufficient time between the reply and the order.

Key Evidence and Findings:

The record showed that the petitioner's reply was received on 17.01.2025, and the order was passed on 28.02.2025 without any hearing. The Assistant Commissioner did not communicate any fresh hearing date to the petitioner.

Application of Law to Facts:

The Court held that the failure to provide an opportunity of personal hearing before passing the order was contrary to the express mandate of Section 75(4) of the Act. The procedural lapse vitiated the order impugned.

Treatment of Competing Arguments:

The Respondent contended that the petitioner's reply was considered and that the petitioner should have availed the statutory appeal remedy under Section 107. The Court, however, distinguished this by focusing on the procedural requirement of personal hearing, which is a prerequisite to passing any order under Section 73(9). The lack of personal hearing was a fundamental procedural violation that could not be cured by an appeal.

Conclusions:

The Court concluded that the Assistant Commissioner was bound to provide an opportunity of personal hearing after receiving the petitioner's reply and before passing the order, and the failure to do so rendered the order invalid.

Issue 2: Consideration of Petitioner's Plea Regarding Mistaken ITC Claim

Relevant Legal Framework and Precedents:

The Act permits correction of errors in ITC claims, and the principle of revenue neutrality applies where excess ITC is claimed by mistake but does not result in actual loss to revenue. The petitioner claimed that ITC was availed in the wrong head (CGST-SGST instead of IGST) due to a bona fide mistake.

Court's Interpretation and Reasoning:

The Court observed that the petitioner's explanation was substantive and relevant to the allegations in the show cause notice. However, since no personal hearing was granted, the petitioner was deprived of the opportunity to substantiate this plea with evidence or arguments.

Key Evidence and Findings:

The petitioner's reply to the show cause notice explicitly stated the nature of the mistake and its revenue neutral character. The Assistant Commissioner found deficiencies in the reply but did not communicate these to the petitioner or allow the petitioner to address them in a hearing.

Application of Law to Facts:

Given the procedural lapse, the Court found that the petitioner's plea was not properly tested or adjudicated. The failure to allow a hearing prevented the petitioner from clarifying or rectifying the alleged discrepancies.

Treatment of Competing Arguments:

The Respondent argued that the reply was considered and the order was justified. The Court rejected this on the ground that consideration without hearing, especially when deficiencies are found, is insufficient and contrary to principles of natural justice.

Conclusions:

The Court held that the petitioner was entitled to a fair opportunity to substantiate its plea regarding the mistaken ITC claim, which was denied, warranting quashing of the order and remand for fresh adjudication.

Issue 3: Maintainability of Writ Petition in Light of Alternative Remedy

Relevant Legal Framework and Precedents:

Section 107 of the Act provides for an appeal against orders passed under Section 73. Generally, statutory remedies are to be exhausted before approaching the writ jurisdiction.

Court's Interpretation and Reasoning:

The Respondent contended that the writ petition was premature and barred by the availability of an alternative statutory remedy. The Court acknowledged this principle but noted that the writ petition challenged a fundamental procedural violation - denial of opportunity of personal hearing - which goes to the root of the order's validity.

Key Evidence and Findings:

The procedural lapse was established on record, and the Court found that the petitioner was deprived of a basic right under the Act.

Application of Law to Facts:

The Court distinguished this case from routine challenges on merits and held that where a fundamental procedural right is denied, immediate judicial intervention is justified to prevent miscarriage of justice.

Treatment of Competing Arguments:

The Court balanced the need to respect alternative remedies with the necessity to uphold procedural fairness and natural justice.

Conclusions:

The writ petition was held maintainable to the extent of quashing the impugned order and remanding the matter for fresh consideration with personal hearing.

3. SIGNIFICANT HOLDINGS

"Not fixing a date for providing personal hearing, is contrary to the spirit of the provisions of Section 75(4) of the Act, which inter alia requires grant of opportunity of personal hearing before passing an adverse order."

"Looking to the nature of