2025 (6) TMI 1497 - HC - GST

Service of SCN - Ex-parte order - neither alleged show cause notice was ever brought to the knowledge of the petitioner nor service of the same was physically ever effected upon petitioner - violation of principles of natural justice - H ELD THAT - It is a settled legal principle evolved in a catena of decisions by this Court and the Supreme Court that provisions contained under tax statute have to be very strictly construed the hence provisions providing for a particular pre-requisite like opportunity of oral hearing before passing of final order have to be complied with by the authority. Authority cannot take it for granted that provisions providing for personal hearing is an empty formalities and representation to notice would suffice the need. In the case of Commissioner of Customs (Import) Mumbai v. Dilip Kumar and Company and others 2018 (7) TMI 1826 - SUPREME COURT (LB) in which the Supreme Court vide paragraph 24 has very clearly observed The penal statute which tends to deprive a person of right to life and liberty has to be given strict interpretation or else many innocents might become victims of discretionary decision-making. Insofar as taxation statutes are concerned Article 265 of the Constitute prohibits the State from extracting tax from the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because the State cannot at their whims and fancies burden the citizens without authority of law. In other words when the competent Legislature mandates taxing certain persons/ certain objects in certain circumstances it cannot be expanded/ interpreted to include those which were not intended by the legislature. It is thus directed that the order passed by the assessing officer dated 15th April 2021 shall be taken to be notice within the meaning of Section 74 of the GST Act 2017 to enable the petitioner to file his objections and place its documents before assessing officer/ competent authority for its consideration. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

- Whether the order passed by the assessing officer under Section 74 of the Goods and Services Tax Act, 2017 (GST Act) was valid when the show cause notice initiating proceedings was not served upon or brought to the knowledge of the petitioner, resulting in an ex-parte order.

- Whether the petitioner was denied the fundamental right to be heard due to lack of opportunity to respond to the show cause notice and absence of a personal hearing before passing the order.

- Whether the rejection of the petitioner's statutory appeal on the ground of delay was justifiable, given the petitioner's lack of knowledge of the original order and proceedings.

- The applicability of precedents concerning the requirement of service and communication of notices/orders under the GST Act, and the necessity of affording an opportunity of hearing before passing adverse orders.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the ex-parte order passed without service of show cause notice

The petitioner contended that the assessing officer's order imposing tax liability under Section 74 of the GST Act was passed ex-parte, as the show cause notice (GST DRC-01) was never physically served or brought to the petitioner's knowledge. The petitioner only became aware of the order when it was uploaded on the GST portal under the tab "view additional notices and orders." The petitioner thus had no opportunity to file a reply or defend itself against the allegations of tax liability.

The Court examined the statutory framework under the GST Act, which mandates issuance and service of a show cause notice before passing an order under Section 74. The Court emphasized that the legislature's intent is to ensure that no person is condemned unheard, and that the procedural safeguards embodied in the Act must be strictly complied with.

Reliance was placed on recent Division Bench decisions of this Court, notably in Ola Fleet Technologies Pvt. Ltd., Shyam Roshan Transport, and Atul Agrwal, where it was held that failure to serve or bring the show cause notice to the notice of the party renders the order unsustainable. The Court reiterated the principle that an ex-parte order without notice violates the fundamental right to be heard and the statutory mandate.

The Court further noted that the show cause notice was not reflected under the "view notices and orders" tab on the GST portal, corroborating the petitioner's claim of non-receipt. This created a valid dispute as to whether the petitioner had any opportunity to submit documents or replies that could have negated the tax liability.

Accordingly, the Court held that the order dated 15th April 2021 passed by the assessing officer could not be sustained as a valid order under Section 74 of the GST Act, and must be treated as a notice to enable the petitioner to file objections and documents.

Issue 2: Denial of opportunity of personal hearing before passing the order

The petitioner argued that no personal hearing was granted before the order was passed, and only a notation "NA" (not applicable) was recorded by the assessing authority. The petitioner contended that even if the written reply opportunity was lost due to non-receipt of the show cause notice, the right to oral hearing under Section 75 of the GST Act could not be denied.

The Court referred to the judgment in M/s Sai Dham Residency, where it was held that non-compliance with the show cause notice may close the opportunity to submit a written reply, but the statutory right to participate in an oral hearing remains intact. The Court underscored that the provisions for personal hearing are not mere formalities but essential procedural safeguards that must be complied with.

Further, the Court relied on the Supreme Court's ruling in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company, which emphasized strict construction of taxation statutes and the necessity of providing procedural fairness. The Court observed that the assessing authority cannot bypass the requirement of personal hearing by treating it as a formality or relying solely on written communications.

On this basis, the Court concluded that the failure to provide an opportunity of personal hearing rendered the order liable to be set aside.

Issue 3: Rejection of the statutory appeal on the ground of delay due to lack of knowledge

The petitioner submitted that the appeal against the assessing officer's order was dismissed as barred by limitation, but this delay was attributable to the petitioner's ignorance of the order and proceedings, since the show cause notice and order were not communicated effectively.

The Court noted that the petitioner's lack of knowledge of the order and proceedings was a direct consequence of the assessing authority's failure to serve the show cause notice and communicate the order. The Court observed that denying the petitioner remedy solely on the ground of delay, when the delay arose due to non-communication of the order, would be unjust and render the petitioner remediless.

The Court referred to the principle that limitation periods in tax matters must be considered in light of actual knowledge and receipt of notice, and that procedural fairness demands that a party should not be penalized for delay caused by administrative lapses.

Accordingly, the Court found the rejection of the appeal on the ground of delay to be unsustainable.

Issue 4: Application of precedents and legal principles on notice and hearing requirements

The Court extensively relied on recent Division Bench decisions of this Court, including Ola Fleet Technologies Pvt. Ltd., Shyam Roshan Transport, Atul Agrwal, and M/s Akriti Food Industry LLP, which uniformly held that service of show cause notice and opportunity of hearing are indispensable prerequisites under the GST Act before passing orders imposing tax liability.

The Court emphasized the principle that no person should be condemned unheard, and that the legislature's inclusion of notice and hearing provisions reflects a clear intent to safeguard the rights of taxpayers.

Furthermore, the Court cited the Supreme Court's ruling in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company, which mandates strict construction of tax statutes and procedural safeguards to prevent arbitrary or unjust taxation.

The Court rejected any contention that mere uploading of orders on the GST portal without proper notice or communication suffices as valid service. It held that the assessing authority must ensure actual notice and opportunity to respond to the party concerned.

3. SIGNIFICANT HOLDINGS

- "The legislature while incorporating the provision of notice/show cause notice, intended that nobody should be condemned unheard."

- "The provisions contained under tax statute have to be very strictly construed and hence provisions providing for a particular pre-requisite like opportunity of oral hearing before passing of final order, have to be complied with by the authority."

- "Non-compliance of that show cause notice may have only led to closure of opportunity to submit written reply. However by virtue of the express provision of Section 75 of the Act, even in that situation the petitioner did not lose its right to participate at oral hearing and establish at that stage itself that the adverse conclusions proposed to be drawn against the petitioner, may be dropped."

- "Taxation statute has to be interpreted strictly because the State cannot at their whims and fancies burden the citizens without authority of law."

- The order dated 15th April 2021 passed by the assessing officer under Section 74 of the GST Act, without service of show cause notice and without opportunity of hearing, is not sustainable and shall be treated as a notice enabling the petitioner to file objections and documents.

- The petitioner shall be given eight weeks to file its reply and documents, and the assessing officer shall consider the objections and grant opportunity of hearing before passing a fresh order within four weeks thereafter.