2025 (6) TMI 1369 - HC - Customs

Violation of principles of natural justice - cryptic order without dealing with each of the discussions which were duly highlighted in the appeal memos - non-speaking order - HELD THAT - If the impugned order is tested on the anvil of principles laid down in Kranti Associates 2010 (9) TMI 886 - SUPREME COURT it will be clear like noon day that the impugned order cannot sustain judicial scrutiny. The same is cryptic and does not assign any reason in relation to various grounds. It is crystal clear that the order of the learned Appellate Authority is an example of non-application of mind. Learned Appellate Authority has not dealt with each of the points raised by the petitioners in the appeal memos. He passed an order stating that the petitioners have failed to provide any credible evidence to rebut the specific findings. He did not deal with the defence of the petitioners on the aspect of right to cross-examine the witness. Thereafter the learned Appellate Authority opined that in view of the findings of the adjudicating authority and material on record since the impugned order has elaborately dealt with the submissions of the noticee interference was declined. Since in the order of the learned Appellate Authority he miserably failed to apply mind and assign reasons it is unable to countenance the orders. Hence both the impugned orders passed in the appeals are hereby set aside. The petitioners are directed to appear before the learned Appellate Authority on 02.04.2025 at 11 30 AM. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in these petitions are:

- Whether the learned Appellate Authority complied with the statutory obligation to assign reasons for each of its conclusions in the appellate orders under challenge.

- Whether the impugned appellate orders are cryptic, non-speaking, and evasive, thereby violating principles of natural justice and rendering the appeal proceedings ineffective.

- Whether the findings of irregular availing and passing on of Input Tax Credit (ITC) without underlying supplies, as recorded by the adjudicating authority and upheld by the appellate authority, are supported by credible evidence and proper application of law.

- Whether the appellate authority erred in relying on the original adjudicating order without independently examining the grounds raised in the appeal memos.

- The broader issue of the necessity and scope of the requirement to record reasons in quasi-judicial and administrative orders affecting rights, particularly in tax adjudication proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Requirement of Assigning Reasons in Quasi-Judicial Orders

Relevant Legal Framework and Precedents: The Court extensively relied on the principles laid down by the Supreme Court in Kranti Associates (P) Ltd. v. Masood Ahmed Khan, which elucidates the indispensability of reasoned orders in administrative, quasi-judicial, and judicial proceedings. The judgment underscores that recording cogent, clear, and succinct reasons is essential to uphold the principles of natural justice, judicial accountability, transparency, and to prevent arbitrariness.

Court's Interpretation and Reasoning: The Court reiterated that the appellate authority, being a quasi-judicial body, is under a statutory and constitutional obligation to provide a speaking order. The order must not be cryptic or evasive but must address each ground raised by the appellant, demonstrating the application of mind to relevant facts and legal principles. The Court emphasized that the failure to do so reduces the appeal to a hollow exercise, undermining faith in the justice delivery system.

Application of Law to Facts: The impugned appellate orders were found to be sketchy and non-speaking. The appellate authority merely reiterated the findings of the adjudicating authority without independently examining or assigning reasons on the elaborate grounds raised in the appeal memos. The Court held that such an order does not meet the minimum requirements of natural justice and the principles enshrined in Kranti Associates.

Treatment of Competing Arguments: While the respondents contended that the appellate authority's order was well-reasoned and based on cogent evidence, the Court rejected this contention on the ground that the order did not explicitly deal with the substantial grounds raised by the petitioners, including the right to cross-examine witnesses and alleged procedural lapses.

Conclusions: The Court concluded that the impugned appellate orders failed the test of reasoned decision-making and were liable to be set aside for non-application of mind and violation of principles of natural justice.

Issue 2: Validity of Findings on Irregular ITC Availment and Passing

Relevant Legal Framework and Precedents: The relevant provisions governing the availing and passing of Input Tax Credit under GST law require that such credit must be based on genuine underlying supplies. The adjudicating authority's findings of irregular ITC were based on detailed investigations and recorded statements indicating non-execution of physical supply of goods.

Court's Interpretation and Reasoning: The appellate authority upheld the findings of the adjudicating authority, holding that the appellants failed to produce credible evidence to rebut the allegations. The Court noted that the appellate authority relied on material evidence and not mere presumptions.

Key Evidence and Findings: The investigation involved statements from proprietors and accountants, establishing the non-genuine nature of transactions and irregular ITC claims. The adjudicating authority and appellate authority found these findings cogent and supported by evidence.

Application of Law to Facts: Despite the appellate authority's conclusion, the Court observed that the appellate order did not independently analyze or address the substantive grounds raised by the petitioners challenging the investigation's completeness, due process, and disclosure of material. The appellate authority's reliance on the original order without fresh reasoning was improper.

Treatment of Competing Arguments: The petitioners argued that the investigation was incomplete and the adjudication was presumptive and illegal due to lack of disclosure and opportunity to cross-examine. The appellate authority did not address these arguments, leading to the Court's finding of non-application of mind.

Conclusions: While the factual findings on irregular ITC were not directly overturned, the Court held that the appellate authority's failure to deal with the petitioners' grounds vitiated the appellate orders, necessitating fresh adjudication.

Issue 3: Reliance on Original Adjudicating Order by Appellate Authority

Court's Interpretation and Reasoning: The Court held that the appellate authority cannot mechanically rely on the Order-in-Original to reject the appeal grounds without independent examination. The appellate process requires fresh consideration of the grounds raised in the appeal memos and application of mind to those grounds.

Application of Law to Facts: The appellate authority's order indicated reliance on the original order's findings without addressing the petitioners' detailed grounds, including procedural and substantive contentions. This approach was held to be legally impermissible.

Conclusions: The appellate orders were set aside on this ground as well, and the matter was remanded for fresh hearing and decision.

3. SIGNIFICANT HOLDINGS

The Court's crucial legal reasoning includes the following verbatim excerpts from Kranti Associates (supra), which form the foundation of its decision:

"The face of an order passed by a quasi-judicial authority or even an administrative authority affecting the rights of parties, must speak. It must not be like the 'inscrutable face of a sphinx'."

"A quasi-judicial authority must record reasons in support of its conclusions."

"Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well."

"Reasons reassure that discretion has been exercised by the decision-maker on relevant grounds and by disregarding extraneous considerations."

"Reasons have virtually become as indispensable a component of a decision-making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies."

"Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or 'rubber-stamp reasons' is not to be equated with a valid decision-making process."

"Transparency in decision-making not only makes the judges and decision-makers less prone to errors but also makes them subject to broader scrutiny."

"The requirement to record reasons emanates from the broad doctrine of fairness in decision-making... the said requirement is now virtually a component of human rights."

The Court's final determinations on the issues are:

- The impugned appellate orders are cryptic, non-speaking, and fail to assign reasons addressing the grounds raised by the petitioners, thereby violating principles of natural justice and statutory mandates.

- The appellate authority's reliance on the original adjudicating order without independent examination of the appeal grounds constitutes non-application of mind.

- The findings of irregular ITC availing and passing, though supported by investigation, cannot be sustained without proper adjudication addressing all grounds raised.

- The impugned appellate orders are set aside, and the matter is remanded for fresh hearing and decision in accordance with law, ensuring compliance with the requirement of reasoned orders.