2025 (6) TMI 89 - HC - GST

Challenge to communication SCN and summary order - fair opportunity of hearing not provided - violation of principles of natural justice - HELD THAT - A perusal of the material on record would indicate that while the impugned order relates to the financial year July 2017 to March 2018 which is the relevant tax period the very same petitioner herein had preferred WP M/S SEEMA CATERERS VERSUS THE STATE OF KARNATAKA THE COMMERCIAL TAX OFFICER THE BANK MANAGER CANARA BANK 2025 (4) TMI 1648 - KARNATAKA HIGH COURT in relation to the financial year / tax period from April 2018 to March 2019 which was disposed of by this Court vide final order dated 08.04.2025 which reads A perusal of the material on record including the impugned orders would indicate that it is an undisputed fact that the petitioner did not respond/reply to the show cause notice and the impugned ex-parte orders have been passed without hearing the petitioner. Under these circumstances in view of the specific assertion on the part of the petitioner with regard to inability and omission to submit the reply to the show cause notice and participate in the proceedings was due to bona fide reasons unavoidable circumstances and sufficient cause by adopting a justice oriented approach and in order to provide one more opportunity to the petitioner I deem it just and appropriate to set aside the impugned orders and remit the matter back to the respondent for reconsideration afresh in accordance with law by issuing certain directions. In view of the aforesaid order passed by this Court in relation to the very same petitioner the present petition also deserves to be disposed of in terms of the said order. Conclusion - Adherence to the principles of natural justice is mandatory in GST adjudication proceedings and failure to provide a fair hearing renders the orders liable to be quashed. The matter is remitted back to the respondent No.2 for reconsideration afresh from the stage of the petitioner submitting its reply to the show-cause notice dated 30.03.2023 in accordance with law - petition allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this writ petition are:

• Whether the impugned orders and notices issued under various provisions of the GST Act, including sections 74, 78, and 79, for the financial year 2017-18 are just, fair, and within the jurisdiction (intra vires) of the authorities issuing them.
• Whether the petitioner was afforded a fair opportunity of hearing before passing adverse orders, specifically in relation to show cause notices and adjudication orders under the GST Act.
• Whether the ex-parte orders passed against the petitioner due to non-submission of replies to show cause notices can be sustained in law when the petitioner claims bona fide reasons and unavoidable circumstances for non-participation.
• Whether the procedural safeguards under the GST Act and principles of natural justice were complied with before issuance of impugned orders.
• Whether the impugned orders and notices should be quashed and the matter remitted back for fresh consideration after providing the petitioner an opportunity to be heard.
• Whether the freezing of the petitioner's accounts pursuant to the impugned orders was justified and whether such accounts should be unfrozen pending reconsideration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and Jurisdiction of Impugned Orders under GST Act

The impugned orders and notices relate to alleged discrepancies and tax liabilities for the financial year 2017-18 under sections 74 (detention, seizure and release of goods and conveyances in transit), 78 (recovery of tax), and 79 (power to arrest) of the GST Act. The petitioner challenged these orders as unjust, unfair, and ultra vires.

The Court examined the statutory framework of the GST Act, which mandates adherence to procedural safeguards including issuance of show cause notices, opportunity to reply, and adjudication before passing final orders. The Court noted that the impugned orders were issued by the Deputy Commissioner of Commercial Tax and the Joint Commissioner of Commercial Tax, who have jurisdiction under the GST Act to initiate proceedings for recovery of tax and related enforcement actions.

However, the Court emphasized that jurisdiction alone does not validate the orders if procedural fairness and principles of natural justice are violated. The Court referred to established precedents which hold that exercise of statutory powers must be within the bounds of law and must not be arbitrary or oppressive.

Issue 2: Compliance with Principles of Natural Justice and Fair Hearing

The petitioner contended that the show cause notices and other communications were not properly served, resulting in non-submission of replies and consequent ex-parte orders. The Court scrutinized the record and found that the petitioner did not respond to the show cause notices, leading to adjudication orders passed without hearing the petitioner.

The Court acknowledged the petitioner's assertion of bona fide reasons and unavoidable circumstances for non-participation. It held that principles of natural justice require that before adverse orders are passed, the affected party must be given a reasonable opportunity to present their case.

In this context, the Court relied on precedents emphasizing that failure to serve notices or provide hearing vitiates the proceedings. The Court took a justice-oriented approach, recognizing that procedural lapses should not result in irreversible prejudice to the petitioner.

Issue 3: Validity of Ex-Parte Orders and Need for Reconsideration

Given the non-participation of the petitioner and the ex-parte nature of the impugned orders, the Court found that the orders were liable to be set aside. The Court held that the matter must be remitted to the appropriate authority for fresh consideration after affording the petitioner an opportunity to submit replies, documents, and pleadings.

The Court noted that such remand serves the interest of justice and equity, ensuring that the petitioner's rights are protected and the authorities' actions are within legal bounds.

Issue 4: Freezing and Unfreezing of Petitioner's Accounts

The impugned orders resulted in freezing of the petitioner's accounts. The petitioner sought de-freezing of accounts pending reconsideration. The Court directed the concerned respondent to de-freeze the accounts immediately upon receipt of the copy of the order.

The Court reasoned that since the impugned orders were set aside and the matter remitted for fresh adjudication, the freezing of accounts without a valid subsisting order would cause undue hardship to the petitioner. This direction aligns with the principle of proportionality and prevents irreparable harm.

Issue 5: Application of Precedent Order Relating to Subsequent Financial Year

The petitioner had earlier challenged orders relating to the subsequent financial year (April 2018 to March 2019) in a separate writ petition, which was allowed by the Court on similar grounds of non-compliance with natural justice and failure to provide opportunity to reply. The Court noted that the present petition concerning the financial year 2017-18 deserved similar treatment.

This cross-reference reinforced the principle that consistent procedural safeguards must be maintained across different tax periods and that failure to do so invalidates the proceedings.

3. SIGNIFICANT HOLDINGS

"It is an undisputed fact that the petitioner did not respond/reply to the show cause notice and the impugned ex-parte orders have been passed without hearing the petitioner. Under these circumstances, in view of the specific assertion on the part of the petitioner with regard to inability and omission to submit the reply to the show cause notice and participate in the proceedings was due to bona fide reasons, unavoidable circumstances and sufficient cause, by adopting a justice oriented approach and in order to provide one more opportunity to the petitioner, I deem it just and appropriate to set aside the impugned orders and remit the matter back to the respondent for reconsideration afresh in accordance with law by issuing certain directions."

"Liberty is reserved to the petitioner to submit pleadings, documents etc. which shall be considered after providing sufficient and reasonable opportunity."

"Respondent No.3 [and Respondent No.5] is directed to de-freeze the account of the petitioner forthwith, immediately upon receipt of the copy of this order."

The Court established the core principle that adherence to the principles of natural justice is mandatory in GST adjudication proceedings and failure to provide a fair hearing renders the orders liable to be quashed. The Court emphasized a justice-oriented approach, allowing for remission and fresh consideration rather than outright dismissal or confirmation of ex-parte orders.

Final determinations included setting aside all impugned orders and notices issued under the GST Act for the financial year 2017-18, remitting the matter for fresh adjudication after opportunity to the petitioner, and directing immediate de-freezing of the petitioner's accounts.