2025 (5) TMI 991 - HC - GST

Violation of principles of natural justice - Ex-parte order - SCN initiating proceedings was not served or brought to the petitioner s knowledge - denial of opportunity of being heard - HELD THAT - It is a settled legal principle evolved in a catena of decisions by this Court and the Supreme Court that provisions contained under tax statute have to be very strictly construed the hence provisions providing for a particular pre-requisite like opportunity of oral hearing before passing of final order have to be complied with by the authority. Authority cannot take it for granted that provisions providing for personal hearing is an empty formalities and representation to notice would suffice the need. In the case of Commissioner of Customs (Import) Mumbai v. Dilip Kumar and Company and others 2018 (7) TMI 1826 - SUPREME COURT (LB) in which the Supreme Court has very clearly observed The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocents might become victims of discretionary decision-making. Insofar as taxation statutes are concerned Article 265 of the Constitute prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because the State cannot at their whims and fancies burden the citizens without authority of law. In other words when the competent Legislature mandates taxing certain persons/ certain objects in certain circumstances it cannot be expanded/ interpreted to include those which were not intended by the legislature. Thus the order passed by the assessing officer dated 6th October 2021 shall be taken to be notice within the meaning of Section 74 of the GST Act 2017 to enable the petitioner to file his objections and place its documents before assessing officer/ competent authority for its consideration. Conclusion - The impugned order passed without service of notice and opportunity of hearing is unsustainable and the petitioner must be afforded a fresh opportunity to present its case. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

- Whether the assessing officer's order under Section 74 of the Goods and Services Tax Act, 2017 (GST Act) imposing tax liability, interest, and penalty upon the petitioner was valid given that the show cause notice initiating proceedings was not served or brought to the petitioner's knowledge;

- Whether the petitioner was denied the fundamental right to be heard, including the opportunity for personal hearing, before passing the impugned order;

- Whether the petitioner's statutory appeal was rightly rejected on the ground of delay when the petitioner was unaware of the order due to non-communication of the notice and order;

- The applicability and interpretation of procedural safeguards under the GST Act, particularly the requirement of service of notice and opportunity of hearing;

- The effect of non-availability of the show cause notice and order on the GST Portal under the tab "view notices and orders" on the petitioner's ability to defend itself;

- The relevance and binding nature of precedents laid down by earlier Division Benches of the Court on similar issues regarding notice, opportunity of hearing, and procedural fairness in GST proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the order under Section 74 of the GST Act in absence of service of show cause notice

Relevant legal framework and precedents: Section 74 of the GST Act empowers the assessing officer to determine tax liability in cases of fraud, willful misstatement, or suppression of facts. The procedure mandates issuance of a show cause notice to the concerned party, enabling it to respond before any order is passed. The principle of audi alteram partem (right to be heard) is a fundamental tenet of natural justice embedded in procedural requirements.

Precedents cited include Division Bench decisions in Ola Fleet Technologies Pvt. Ltd. v. State of U.P. and Others, Shyam Roshan Transport v. State of U.P., and Atul Agrwal v. State of U.P., where it was held that non-communication or non-availability of show cause notice on the GST Portal deprives the party of the opportunity to defend itself. These decisions emphasize that an ex parte order without proper notice is unsustainable.

Court's interpretation and reasoning: The Court observed that the petitioner was not served with the show cause notice (GST DRC-01) physically or electronically, nor was it available under the relevant tab on the GST Portal. Consequently, the petitioner was unaware of the proceedings and could not file a reply. The Court reiterated the principle that no person should be condemned unheard and that the legislature's intention in providing for notice and hearing is to ensure fairness.

Key evidence and findings: The petitioner's claim that the notice and order were not communicated, and the order was only discovered upon uploading on the dashboard, was accepted. The Court also noted the absence of any opportunity for personal hearing or submission of documents before passing the order dated 6th October 2021.

Application of law to facts: Applying the established legal principles and precedents, the Court found the impugned order to be ex parte and violative of the petitioner's right to be heard. The Court held that such an order cannot be sustained in law.

Treatment of competing arguments: The respondent's stance was not elaborated in the judgment, but the Court implicitly rejected any contention that mere availability of the order on the dashboard sufficed as notice. The Court emphasized the necessity of actual service or communication.

Conclusion: The order under Section 74 of the GST Act, passed without proper notice and opportunity of hearing, is invalid and unsustainable.

Issue 2: Rejection of statutory appeal on the ground of delay caused by lack of knowledge of the order

Relevant legal framework and precedents: The GST Act provides for statutory appeals against orders passed by assessing officers. Timely filing of appeal is mandatory, but the limitation period runs from the date of knowledge of the order. Precedents recognize that where a party is not served or made aware of the order, the limitation period cannot be held to have commenced.

Court's interpretation and reasoning: The Court recognized that the petitioner only came to know of the order in March 2024 and immediately filed the appeal, which was rejected as time-barred. The Court held that since the petitioner was unaware of the order due to non-service, the rejection of the appeal on delay grounds effectively rendered the petitioner remediless, which is contrary to principles of natural justice.

Key evidence and findings: The petitioner's immediate filing of appeal upon knowledge of the order was noted. The absence of any communication of the order or notice to the petitioner was a critical factor.

Application of law to facts: The Court applied the principle that limitation for filing appeal starts only upon knowledge of the order. Since the petitioner had no knowledge, the delay was excusable.

Treatment of competing arguments: The Court did not accept the respondent's position that delay barred the appeal, given the circumstances of non-service and non-communication.

Conclusion: The rejection of the statutory appeal on the ground of delay was improper and unjust.

Issue 3: Requirement of opportunity of personal hearing before passing the order

Relevant legal framework and precedents: Section 75 of the GST Act provides for the right of the party to participate in oral hearings even if it fails to submit a written reply to the show cause notice. The principle of audi alteram partem mandates that no adverse order be passed without affording the party an opportunity of hearing.

The Court relied on the Division Bench judgment in M/s Sai Dham Residency v. State of U.P., which held that even if the party does not comply with the show cause notice in writing, it retains the right to oral hearing to establish its case.

Court's interpretation and reasoning: The Court found that the petitioner was not afforded any personal hearing and the assessing officer recorded "NA" (not applicable) for hearing, which was impermissible. The Court emphasized that the authority cannot treat personal hearing as a mere formality or dispense with it altogether.

Key evidence and findings: The record showed absence of any hearing opportunity and no consideration of petitioner's documents or objections before passing the final order.

Application of law to facts: The Court held that the failure to provide personal hearing violated the statutory mandate and principles of natural justice.

Treatment of competing arguments: The Court rejected any argument that written submissions alone suffice or that absence of reply justified denial of hearing.

Conclusion: The petitioner was entitled to personal hearing, and the absence thereof vitiates the order.

Issue 4: Interpretation of procedural safeguards under the GST Act and strict construction of taxing statutes

Relevant legal framework and precedents: The Court referred to the Supreme Court's ruling in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company, which mandates strict construction of penal and taxation statutes, emphasizing that the State cannot burden citizens beyond the authority conferred by law.

Court's interpretation and reasoning: The Court reiterated that provisions requiring notice and hearing are mandatory and not mere formalities. The legislature's intention is to ensure fairness and prevent arbitrary imposition of tax liabilities.

Key evidence and findings: The Court relied on the statutory scheme and judicial precedents to underline the mandatory nature of procedural safeguards.

Application of law to facts: The Court applied the strict interpretation principle to invalidate the impugned order passed without compliance with procedural requirements.

Treatment of competing arguments: The Court implicitly rejected any expansive or liberal interpretation that would justify non-service or denial of hearing.

Conclusion: The procedural safeguards under the GST Act must be strictly complied with, and failure to do so renders the order void.

Issue 5: Directions for fresh proceedings and remedy to the petitioner

Court's reasoning and directions: Following the precedents and principles discussed, the Court directed that the impugned order dated 6th October 2021 shall be treated as a notice under Section 74 of the GST Act. The petitioner was granted eight weeks to file objections and submit documents. The assessing officer was directed to consider the submissions, afford opportunity of personal hearing, and pass a fresh order within four weeks thereafter.

This approach aligns with the Division Bench's directions in Ola Fleet Technologies and other cited cases, ensuring the petitioner is not condemned unheard and is provided a fair opportunity to defend itself.

3. SIGNIFICANT HOLDINGS

- "Nobody should be condemned unheard and legislature while incorporating the provision of notice/ show cause notice, intended so."

- "In construing penal statutes and taxation statutes, the Court has to apply strict rule of interpretation. The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocents might become victims of discretionary decision-making. Insofar as taxation statutes are concerned, Article 265 of the Constitution prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because the State cannot at their whims and fancies burden the citizens without authority of law."

- "Upon service of notice, the petitioner had been called to file its reply only. Consequently, non-compliance of that show cause notice may have only led to closure of opportunity to submit written reply. However by virtue of the express provision of Section 75 of the Act, even in that situation the petitioner did not lose its right to participate at oral hearing and establish at that stage itself that the adverse conclusions proposed to be drawn against the petitioner, may be dropped."

- The Court's final determination was that the impugned order passed without service of notice and opportunity of hearing is unsustainable, and the petitioner must be afforded a fresh opportunity to present its case. The order dated 6th October 2021 shall be treated as notice under Section 74, enabling the petitioner to file objections and documents, followed by a fresh adjudication after hearing.