2025 (5) TMI 992 - HC - GST

ITC availed availed without receipt of goods - denial of fair opportunity of hearing - violation of principles of natural justice - HELD THAT - A perusal of the record would show that there are two show cause notices dated 22nd July 2022 and 3rd August 2024 which have been issued. No reply to the Show Cause Notice dated 3rd August 2024 was filed by the Petitioner even after the notice for personal hearing which was sent on 8th January 2025. No reply was also filed to the show cause notice even after the alleged access to the personal hearing was not granted. Beyond that no effort was made by the Petitioner to either file the reply or file the documents physically or otherwise. The order has been passed on 28th January 2025 almost two weeks after the date of personal hearing. From the above circumstances it is clear that the Petitioner has not been diligent in filing the reply and attending the hearings. The order is clearly an appealable order under Section 107 of the Central Goods and Service Tax Act 2017. Considering the fact that (i) The Department has given the show cause notice and the personal hearing notices to the Petitioner; (ii) The Petitioner has not been diligent; the Department cannot be held to blame for not giving a proper hearing. The impugned Order in the opinion of the Court does not warrant interference - Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

(a) Whether the impugned order confirming demand of Input Tax Credit (ITC) availed without receipt of goods, along with penalty and interest, was validly passed by the Department;

(b) Whether the Petitioner was denied a fair opportunity of hearing, specifically whether the alleged denial of access to the personal hearing on 15th January, 2025 amounted to a violation of principles of natural justice;

(c) Whether the imposition of penalty under Sections 74, 122, and 125 of the CGST Act, 2017 and corresponding provisions of the Delhi GST Act and IGST Act was justified;

(d) Whether the Petitioner's failure to file reply to the show cause notice and attend hearings disentitled it from relief;

(e) Whether the Petitioner was entitled to quash the impugned order under Article 226 of the Constitution of India;

(f) The procedural propriety of the Department in issuing show cause notices, conducting hearings, and passing the order;

(g) The availability of alternative remedy of appeal under Section 107 of the CGST Act, 2017 and the Court's jurisdiction to interfere at this stage.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) - Validity of the impugned order confirming demand of ITC, interest, and penalty

The relevant legal framework includes Section 74 of the CGST Act, 2017, which empowers the Department to recover tax not paid or ITC wrongly availed, along with interest under Section 50 and penalty provisions under Section 122. The Delhi GST Act and IGST Act contain corresponding mirror provisions.

The Court noted that the Department issued two show cause notices dated 22nd July, 2022 and 3rd August, 2024, alleging wrongful availing of ITC amounting to Rs. 34,92,903/-. The Department confirmed the demand along with interest and imposed an equal amount as penalty under the cited provisions.

The Court observed that the order was passed after personal hearings were scheduled and that the Petitioner failed to file any reply or documents in response to the show cause notices. The Court found that the Department's action in confirming the demand and imposing penalty was in accordance with the statutory provisions and justified on the facts.

Issue (b) - Alleged denial of access to personal hearing and fairness of procedure

The Petitioner contended that although personal hearings were fixed on 13th, 14th, and 15th January, 2025, access was denied when the Petitioner's counsel joined the hearing link on 15th January at 12:00 PM.

The Court examined the record and noted that the Department had provided three dates for personal hearing and that the Petitioner only sought to join on the last date, primarily to seek an extension. The Court further noted that no reply was filed even after the alleged denial of access.

Importantly, the Court emphasized that the Petitioner did not make any further effort to file replies or documents physically or otherwise. The Court held that the Department cannot be blamed for the Petitioner's lack of diligence and that the procedural safeguards were adequately provided.

The Court concluded that the principles of natural justice were not violated and that the Petitioner was given sufficient opportunity to be heard.

Issue (c) - Justification for imposition of penalty on the Petitioner and its director

The penalty was imposed under Section 74 read with Sections 122(2)(b) and 122(1)(vii) of the CGST Act on the Petitioner, and under Section 122(3)(d) and Section 125 on the director of the company.

The Court observed that the penalty was imposed for wrongful availing of ITC without receipt of goods, a serious contravention under the GST laws. The Court found the imposition of penalty proportionate and in line with statutory provisions.

Since the Petitioner failed to contest the allegations substantively or provide any defense, the Court upheld the penalty imposition.

Issue (d) - Effect of Petitioner's failure to file reply or attend hearings diligently

The Court highlighted that the Petitioner did not file any reply to the show cause notice dated 3rd August, 2024, nor did it attend the personal hearings on the earlier dates of 13th and 14th January, 2025. The Petitioner only attempted to join on 15th January, 2025, and that too to seek an extension.

The Court held that such lack of diligence disentitles the Petitioner from claiming any procedural infirmity or relief. The Court emphasized that the Department had discharged its duty by issuing notices and providing hearing opportunities.

Issue (e) - Jurisdiction under Article 226 and availability of alternative remedy

The Court noted that the impugned order is appealable under Section 107 of the CGST Act, 2017. The Court observed that the Petitioner has an adequate and efficacious remedy in the form of appeal before the designated appellate authority.

Accordingly, the Court declined to interfere with the order under Article 226, while granting liberty to the Petitioner to file an appeal within 30 days along with the pre-deposit. The Court directed that if the appeal is filed within the stipulated time, it shall not be dismissed on the ground of limitation and shall be decided on merits.

Issue (f) - Procedural propriety of the Department

The Court scrutinized the procedure followed by the Department and found that:

- Show cause notices were issued in accordance with law;

- Personal hearing notices were sent specifying three dates;

- The Department provided opportunity for the Petitioner to be heard;

- The order was passed after giving reasonable time post hearings.

The Court held that the Department complied with the procedural requirements and did not commit any error warranting interference.

Issue (g) - Treatment of competing arguments

The Petitioner argued denial of access to the hearing and lack of opportunity to present its case. The Department contended that sufficient opportunities were provided and that the Petitioner was negligent.

The Court sided with the Department, reasoning that the Petitioner's failure to attend hearings on earlier dates and to file any reply undermined its claim of denial of natural justice. The Court found no merit in the Petitioner's contentions.

3. SIGNIFICANT HOLDINGS

"The Department has given the show cause notice and the personal hearing notices to the Petitioner; the Petitioner has not been diligent; the Department cannot be held to blame for not giving a proper hearing."

"From the above circumstances it is clear that the Petitioner has not been diligent in filing the reply and attending the hearings."

"The impugned Order, in the opinion of the Court, does not warrant interference."

The Court established the principle that where the Department issues show cause notices and provides multiple dates for personal hearing, the failure of the Petitioner to diligently respond or attend hearings disentitles it from claiming violation of natural justice.

The Court reaffirmed that the penalty provisions under the CGST Act, 2017 and