2025 (7) TMI 464 - HC - GST

Challenge to impugned order - impugned order vitiated by non-application of mind - non-consideration of detailed submissions canvassed by the Petitioner in its replies - violation of principles of natural justice - HELD THAT - In the case of Piramal Enterprises Limited vs. The State of Maharashtra Anr. 2024 (6) TMI 489 - BOMBAY HIGH COURT a Co-ordinate Bench of this Court set aside the impugned order after finding that there was no independent application of mind but the contents of a notice issued by the Service Tax Authorities was verbatim copied/borrowed by the VAT authorities. The Petitioner has put forward several contentions relying on at least nine precedents they claim support their position as well as the Board Circular dated 20 September 2021. From the impugned order it is observed that although there may be a reference to this Circular and the decisions these have not been addressed. The impugned order does not specify why such decisions are irrelevant or distinguishable nor why the cited Circular does not apply. This was expected of the adjudicating authority. The failure to consider the contentions raised or the precedents relied upon combined with the cut-and-paste approach mentioned earlier also suggests a lack of proper consideration which invalidates the impugned order. Section 73(9) of the Central Goods and Services Tax Act 2017 (CGST Act) which is similar to the corresponding provisions in the Maharashtra Goods and Services Tax Act 2017 (MGST) provides that the proper officer shall after considering the representation if any made by person chargeable with tax determine the amount of tax interest and a penalty equivalent to ten percent of tax or ten thousand rupees whichever is higher due from such person and issue an order - Section 75(6) of the CGST Act provides that the proper officer in his order shall set out the relevant facts and the basis of his decision. The emphasis of this provision is on the basis of decision . This means the emphasis is on the reasons that support the decision. Merely cutting and pasting the allegations from the show cause notice does not amount to giving any independent reasons after due consideration the assessee s contentions or after due application of mind to those contentions. The impugned order warrants interference on the ground urged - the matter is remanded to the adjudicating authority for fresh consideration and disposal of the show cause notice within three months of the uploading of this order - petition allowed by way of remand.

Summary

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

1. Whether the impugned order confirming the GST demand was vitiated by non-application of mind and failure to consider the detailed submissions made by the Petitioner.

2. Whether the impugned order was unreasoned and violated principles of natural justice by merely reproducing the allegations in the show cause notice without independent analysis.

3. Whether the Petitioner was required to exhaust alternate statutory remedies such as appeal before approaching the Court directly.

4. The correct legal interpretation of the classification of the services provided by the Petitioner under GST law, specifically whether the services qualify as export of services or are intermediary services liable to IGST.

Issue-wise Detailed Analysis:

Issue 1: Non-application of mind and failure to consider submissions

The legal framework governing this issue includes the requirement under Section 73(9) of the CGST Act, 2017, which mandates that the proper officer must consider the representations made by the taxable person before issuing an order determining tax liability. The term "consider" has been judicially interpreted to mean a deliberate, attentive mental process involving weighing and reflecting upon the merits of the submissions.

The Court examined the show cause notice, the Petitioner's replies, and the impugned order. It was found that the adjudicating authority had not applied its mind independently but had instead copied verbatim large portions of the show cause notice into the impugned order. This "cut and paste" approach was demonstrated through a comparative chart submitted by the Petitioner, which showed identical language and findings in both documents.

Precedent was drawn from a co-ordinate Bench decision involving similar facts, where an order was set aside for non-application of mind due to verbatim copying of a service tax demand notice by VAT authorities. The Court emphasized that merely reproducing allegations without addressing the Petitioner's detailed replies or providing reasons for rejecting their contentions amounts to a lack of deliberation and is violative of natural justice.

The Court rejected the Respondents' contention that the Petitioner had not raised this ground, noting that the petition clearly alleged non-application of mind and failure to consider submissions, supported by relevant case law.

The Court underscored that the proper application of mind requires the adjudicating authority to state reasons supporting its decision, not just transcribe the show cause notice. The impugned order's failure to analyze or distinguish the precedents and Board Circular cited by the Petitioner further demonstrated the lack of proper consideration.

Issue 2: Whether the impugned order was unreasoned and violated natural justice

The Court reiterated the settled principle that an order must be reasoned, stating relevant facts and the basis for the decision. Section 75(6) of the CGST Act requires the proper officer's order to set out the basis of the decision, which was not done in the impugned order.

The Court referred to authoritative dictionary definitions and judicial pronouncements clarifying that "consider" entails careful thought and weighing of factors. The impugned order's mechanical reproduction of allegations without addressing the Petitioner's contentions or legal authorities was found to be a breach of natural justice and fair play.

The Court emphasized the focus on the decision-making process rather than the substantive correctness of the outcome, holding that a fair procedure is fundamental to the validity of administrative orders.

Issue 3: Requirement to exhaust alternate remedies

The Respondents argued that the Petitioner should have pursued appeal remedies instead of directly approaching the Court. The Court held that this objection did not hold in the circumstances of this case because:

• No appeal had been filed against the impugned order under challenge.
• An earlier appeal against a different order dated 1 April 2022 was not determinative of the present matter.
• The present case involved a clear breach of natural justice due to non-application of mind, which is an exception to the general rule of exhausting statutory remedies before seeking judicial intervention.

Thus, the Court found it appropriate to intervene directly without relegating the Petitioner to pursue alternate remedies.

Issue 4: Classification of services under GST law

The substantive question related to whether the services provided by the Petitioner qualified as "export of services" or were "intermediary services" liable to IGST. The relevant legal provisions considered included Sections 2(6), 7, 8, and 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 (IGST Act).

The adjudicating authority's reasoning, as reflected in the impugned order, was that the Petitioner's services involved direct access to the contractor's customers and their documents, thereby constituting intermediary services rather than export of services. Under Section 13(8)(b), the place of supply of intermediary services is the location of the supplier, which in this case was India, making the services taxable under IGST.

The Court noted that the impugned order reproduced this reasoning verbatim from the show cause notice without independent analysis. While the Court did not decide the substantive correctness of this classification, it acknowledged the legal framework and the adjudicating authority's view that the services did not qualify as export of services.

Significant Holdings:

The Court held that:

"The adjudicating authority has failed to independently apply its mind to the various contentions raised in the replies filed on behalf of the Petitioner. Instead, the adjudicating authority has chosen to copy or rather cut and paste verbatim the allegations in the show cause notice dated 28 November 2024 to pass them off as reasons supporting the impugned order."

It was further held that:

"The term 'consider' means examining or weighing the merits of matters. Merely transcribing the contents of the representation without any discussion on the contentions raised, and reaching a conclusion is not consideration. The impugned order's cut-and-paste approach does not amount to application of mind."

On the natural justice aspect, the Court stated:

"Simply cutting and pasting the allegations in the show cause notice or mechanically reciting them verbatim does not inspire confidence that due consideration has been shown to the cause, and the decision is made after its due consideration. These are aspects of natural justice principles that should guide the decision-making process."

Regarding the alternative remedy, the Court observed:

"A clear breach of natural justice is an exception to the general rule that statutory remedies should usually be exhausted before seeking this Court's extraordinary intervention."

Consequently, the Court quashed and set aside the impugned order dated 24 February 2025 and remanded the matter for fresh consideration in accordance with the principles of natural justice, directing the adjudicating authority to give an opportunity of hearing and consider all contentions on merits within three months.