Principle of Natural Justice is not Natural Anymore

[Kamal Aggarwal]

In a recent decision in the case of M/S MODERN STEEL VERSUS ADDITIONAL COMMISSIONER AND ANOTHER - 2023 (10) TMI 1076 - ALLAHABAD HIGH COURT , the hon’ble High Court of Allahabad has, held that in case where no reply has been given by the assessee, the opportunity of being heard was not required to be given before passing an adverse order.

The relevant para of the judgment (supra) are reproduced below:

“10. Section 75(4) of the Act provides for an opportunity of hearing to an assessee where a request is received in writing from the person chargeable with tax or penalty or whether adverse decision is contemplated against such person. It is not in dispute that a show cause notice was issued to the petitioner-assessee on 17.02.2022. The notice remained unattended and was not replied. The Taxing Authorities proceeded with the matter and passed order under Section 74(9) on 22.03.2022.

11. The decision relied upon by the assessee in case of M/s Mohan Agencies (supra) and M/s Viswkarma Furniture (supra) are distinguishable in the present set of case, as in both the cases the notice was replied by the assessee but opportunity of personal hearing was not accorded and thus the Court proceeded to quash the order and remanded back the matter for deciding afresh. In the instant case, no reply was given by the assessee, thus, provisions of Section 75(4) would not be attracted as neither any request was made for granting opportunity of hearing nor any explanation was furnished to the contents of notice. The argument raised by the assessee's counsel cannot be accepted as the assessee having knowledge of the notice did not appear before the authorities and now, at this stage, seek quashing of the show cause notice as well as order passed by the authorities.”

Basis, the position that the assessee has not submitted any reply to the SCN, the hon’ble High Court has held that the provisions of Section 75(4) would not be attracted. The provisions of Section 75(4) are being reproduced below for ready reference:

“(4) 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.“

Evidently, the opportunity of hearing is to be granted in case where adverse decision is contemplated against such assessee and not only in case of a request by the assessee. The significance of the word “or” cannot be ignored under the provisions of Section 75(4).

The hon’ble High Court of Allahabad in the case of BHARAT MINT AND ALLIED CHEMICALS VERSUS COMMISSIONER COMMERCIAL TAX AND 2 OTHERS - 2022 (3) TMI 492 - ALLAHABAD HIGH COURT vide its judgment dated March 4, 2022 has clearly held that person/assessee is not required to request for opportunity of personal hearing and it is mandatory upon the Assessing Authority to afford such opportunity before passing an adverse order.

The relevant para of the judgment (supra) is reproduced below:

“9. From perusal of Section 75(4) of the Act, 2017 it is evident that opportunity of hearing has to be granted by authorities under the Act, 2017 where either a request is received from the person chargeable with tax or penalty for opportunity of hearing or where any adverse decision is contemplated against such person. Thus, where an adverse decision is contemplated against the person, such a person even need not to request for opportunity of personal hearing and it is mandatory for the authority concerned to afford opportunity of personal hearing before passing an order adverse to such person.”

Relying on the judgment (supra) in another matter the Chief Justice’s Court of Allahabad in the matter of M/S MOHINI TRADERS VERSUS STATE OF U.P. AND ANOTHER - 2023 (6) TMI 531 - ALLAHABAD HIGH COURT vide its order dated May 11, 2023 has held that even if the assessee has signified ‘No’ in column meant to mark the assessee’s choice to avail personal hearing, it would bear no legal consequence meaning thereby that even if the assessee has signified ‘No’ to personal hearing, under the principles of natural justice, an opportunity of personal hearing must be provided.

The relevant para(s) of the judgment (supra) is reproduced below:

“7. We find ourselves in complete agreement with the view taken by the coordinate bench in Bharat Mint & Allied Chemicals (supra). Once it has been laid down by way of a principle of law that a person/assessee is not required to request for "opportunity of personal hearing" and it remained mandatory upon the Assessing Authority to afford such opportunity before passing an adverse order, the fact that the petitioner may have signified 'No' in the column meant to mark the assessee's choice to avail personal hearing, would bear no legal consequence.

8. Even otherwise in the context of an assessment order creating heavy civil liability, observing such minimal opportunity of hearing is a must. Principle of natural justice would commend to this Court to bind the authorities to always ensure to provide such opportunity of hearing. It has to be ensured that such opportunity is granted in real terms. Here, we note, the impugned order itself has been passed on 25.11.2022, while reply to the show-cause notice had been entertained on 14.11.2022. The stand of the assessee may remain unclear unless minimal opportunity of hearing is first granted. Only thereafter, the explanation furnished may be rejected and demand created.

9. Not only such opportunity would ensure observance of rules of natural of justice but it would allow the authority to pass appropriate and reasoned order as may serve the interest of justice and allow a better appreciation to arise at the next/appeal stage, if required.”

It has been clearly held time and again by several courts that minimal opportunity must be granted before passing an adverse order. It is difficult to understand that inspite of settled principle of natural justice, how non furnishing of reply by the assessee be a ground for denial of opportunity of being heard. While the hon’ble Allahabad High Court has done exactly that, it appears that the principle of natural justice is not natural anymore.