2025 (7) TMI 990 - HC - GST

Legality and validity of the impugned order DRC- 07 dated 09.06.2023 for the period 2018-19 2019-20 respectively - impugned order is cryptic non-speaking non-reasoned and laconic passed without application of mind - petitioners even after request in writing have not been afforded an opportunity of mandatory personal hearing - violation of principles of natural justice - HELD THAT - Section 75(4) of the MPGST Act provides some mandatory provision of opportunity of hearing where request is received in writing - Apart that principles of natural justice which are evolved from the legal maxim Audi Alteram Partem which means no person shall be judged without fair hearing. It puts emphasis on the fact that law and procedure which is followed should be just fair and reasonable and the same has been recognized by the Apex Court in catena of judgments including one A.S. Motors Private Limited vs. Union of India 2013 (2) TMI 702 - SUPREME COURT where it was held that A court examining a complaint based on violation of rules of natural justice is entitled to see whether the aggrieved party had indeed suffered any prejudice on account of such violation. To that extent there has been a shift from the earlier thought that even a technical infringement of the rules is sufficient to vitiate the action. Judicial pronouncements on the subject are legion. We may refer to only-some of the decisions on the subject which should in our opinion suffice. The authority has committed apparent error of law in not affording opportunity of personal hearing as statutorily provided under Section 75(4) of the MPGST Act which vitiates the proceedings. Hence these petitions succeed and are hereby allowed. The impugned order dated 09.06.2023 passed by the respondent No. 3 is hereby quashed. Cases are remanded back to the authority for deciding afresh after affording opportunity of personal hearing to the petitioners - Petition allowed by way of remand.

Summary

The core legal questions considered by the Court in these writ petitions under Article 226 of the Constitution of India are:

• Whether the impugned order passed under Section 74(9) of the Madhya Pradesh Goods and Services Tax Act, 2017 ("MPGST Act") is valid and legal, particularly in light of it being cryptic, non-speaking, non-reasoned, and passed without application of mind.
• Whether the petitioners were denied the mandatory opportunity of personal hearing as required under Section 75(4) of the MPGST Act before passing the impugned order, thereby violating the principles of natural justice.
• Whether the determination of tax/assessment under Section 74 of the MPGST Act can be based on estimated electricity consumption and Chartered Engineer's report rather than on material recovered or impounded during the search under Section 67(2) of the MPGST Act.
• Whether additions to turnover and levy of CGST, SGST, CESS, and penalty solely on the basis of electricity consumption is legally sustainable.
• Whether the impugned order ought to be quashed or remanded for fresh adjudication after affording the petitioner a reasonable opportunity of hearing.

Issue-wise Detailed Analysis:

1. Validity and legality of the impugned order under Section 74(9) of the MPGST Act

The impugned order was challenged on the ground that it was cryptic, non-speaking, and passed without application of mind. The petitioners contended that such an order violates the principles of natural justice and statutory mandates. The Court examined the procedural history, noting that the order was based on reports from the search wing and a Chartered Engineer regarding estimated electricity consumption, which formed the basis for additional tax demand.

The Court referred to the statutory framework under the MPGST Act, particularly Sections 67 (search and seizure), 74 (determination of tax not paid or short paid), and 75 (general provisions relating to determination of tax). The Court emphasized that any order passed under these provisions must be reasoned and comply with procedural fairness.

In this context, the Court found that the impugned order lacked adequate reasoning and was laconic, thereby failing the test of a speaking order. This deficiency contributed to the conclusion that the order was legally unsustainable.

2. Denial of mandatory opportunity of personal hearing under Section 75(4) of the MPGST Act

Section 75(4) mandates that an opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person. The petitioners asserted that despite written requests, no personal hearing was afforded, violating this mandatory statutory provision and the principles of natural justice.

The Court relied on authoritative precedents, including the judgment of the Supreme Court in A.S. Motors Private Limited vs. Union of India, which elucidates that natural justice, particularly the audi alteram partem rule, requires a fair and reasonable opportunity to be heard before any adverse decision is taken. The Court recognized that natural justice principles are flexible but emphasize fairness, impartiality, and reasonableness.

The Court also referred to the Division Bench decision in Ultratech Cement Ltd. vs. State of Madhya Pradesh, which held that personal hearing is mandatory before passing any adverse order under the GST Act. Furthermore, the Court cited the judgment in Technosys Security System (P) Ltd., which elaborated that Section 75(4) requires opportunity of hearing either upon written request or when an adverse decision is contemplated, without exception.

The Court rejected the State's argument that submission of a written reply to the show cause notice suffices as an opportunity of hearing. It held that the statutory language and form prescribed under the Act distinguish between submission of reply and personal hearing, and both are distinct stages in the adjudication process. The absence of personal hearing, especially when an adverse order is contemplated, vitiates the proceedings.

In the instant case, the Court found that no personal hearing was granted despite written requests, thereby violating Section 75(4) and natural justice principles.

3. Legality of basing tax determination and additions on estimated electricity consumption and Chartered Engineer's report

The petitioners contended that the additional tax demand was based solely on estimated electricity consumption and Chartered Engineer's report, rather than on material recovered or impounded during the search under Section 67(2). They argued that such additions are illegal and contrary to settled legal principles.

The Court noted the petitioners' submission that electricity consumption was already recorded in the books of account at the time of search and hence could not be a basis for additional tax demand. The petitioners relied on the principle that determination of tax under Section 74 must be based on tangible evidence recovered during search and not on speculative or estimated data.

The Court did not explicitly rule on the substantive legality of the basis of electricity consumption for tax demand in this order, as the primary focus was on procedural infirmity. However, the Court's decision to quash and remand the matter for fresh adjudication implicitly requires that the authority reassess the basis of tax determination in accordance with law and after proper hearing.

4. Quashing and remanding the impugned order for fresh adjudication

Given the procedural irregularity of denial of personal hearing and the laconic nature of the impugned order, the Court held that the impugned order dated 09.06.2023 is liable to be quashed. The Court remanded the matter to the adjudicating authority for fresh consideration.

The Court directed that a different officer, other than the one who passed the impugned order, shall consider the petitioners' reply, afford them the mandatory personal hearing as per Section 75(4), and pass a reasoned order in accordance with law within a stipulated timeframe. This approach aligns with precedents emphasizing impartiality and fairness in administrative adjudication.

Treatment of competing arguments

The Court carefully considered the State's contention that the impugned order was passed following due procedure and that no exception could be taken. However, the Court found that statutory mandates and principles of natural justice were not complied with. The Court gave precedence to statutory interpretation and established judicial precedents mandating personal hearing and reasoned orders, thereby overruling the State's arguments.

Significant Holdings:

"An opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person." (Section 75(4) of the MPGST Act)

"Rules of natural justice... are not rigid, immutable or embodied rules... What the courts in essence look for... is whether the affected party was given reasonable opportunity to present its case and whether the administrative authority had acted fairly, impartially and reasonably. The doctrine of audi alteram partem is thus aimed at striking at arbitrariness and want of fair play." (A.S. Motors Private Limited vs. Union of India)

"The language employed in sub-section 4 of Section 75 of the Act leaves no room for any doubt that the word 'or' is used by the law makers for a specific purpose... opportunity of hearing is required to be given, even in those cases where no such request is made but adverse decision is contemplated against such person." (Technosys Security System (P) Ltd.)

"The expression 'opportunity of hearing' includes the opportunity of 'personal hearing' and cannot be satisfied merely by receiving the reply to the show cause notice." (Technosys Security System (P) Ltd.)

"Admittedly, as per Section 75(4) of the Act, personal hearing is mandatory before passing any adverse order against the assessee." (Ultratech Cement Ltd.)

The Court concluded that the impugned order was passed in violation of Section 75(4) of the MPGST Act and principles of natural justice, rendering it liable to be quashed. The matter was remanded for fresh adjudication after affording the petitioners a personal hearing by a different officer.