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Not giving opportunity of hearing on penalty case under GST is violation of natural justice: Allahabad High Court

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The Allahabad High Court has considered a violation of natural justice for not giving an opportunity of being heard before the assessment of tax and imposition of penalty under GST and also cancelled the tax and penalty recovery order with interest.

The Division Bench of Justice Surya Prakash Kesarwani and Justice Jayant Banerji passed this order, while hearing a petition filed by Bharat Mint And Allied Chemicals.

The writ petition has been filed praying for the following relief:

“1. The Court may be pleased to issue a writ, order or direction in the nature of certiorari, calling for the Record of proceedings from Revenue and to thereafter be further pleased to set aside and quash the impugned order of Adjudication Dt. 09.11.2021 and connected demand of tax which is made is gross violation of the principles of natural Justice; NO oral hearing in the matter was afforded to Petitioner, adverse material has not been confronted to Petitioner resulting in a most unfair trial.

2. The Court may be pleased to issue a writ, order or direction in the nature of certiorari to set aside and quash the impugned  order of Adjudication Dt. 09.11.2021 which is made is gross disregard to Judicial Discipline and without meeting the mandate of Law as contained under Section 74(2) of the GST Act.

3. The Court may be pleased to issue a writ, order or direction in the nature of mandamus commanding Revenue authorities to reconsider the case of the Petitioner, lawfully and in good-faith, in the light of submissions filed by Petitioner, and with supplying of relief upon documents and after affording due and proper opportunity of hearing.”

Counsel for the petitioner submitted that the assessment order creating demand of tax, interest and penalty, has been passed without affording opportunity of hearing contemplated in Section 75(4) of the Central Goods and Services Tax, 2017/ U.P Goods and Services Tax, 2017 and thus, the impugned order being patently in breach of principles of natural justice, is unsustainable and deserves to be quashed.

Standing counsel submitted that the petitioner has an alternative remedy of appeal under Section 107 of the Act, 2017. Therefore, the writ petition is not maintainable.

The Court noted that Section 75(4) of the Act, 2017 provides that opportunity of personal 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.

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 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.

“In the counter affidavit the respondents have taken the stand that no opportunity of hearing is required before passing the assessment order. In support of their contention, the respondents have relied upon the judgment of the Supreme Court in Union of India and Others Vs. M/s. Jesus Sales Corporation AIR 1996 SC 1509. Perusal of the judgment in the case of M/s Jesus Sales Corporation (supra) shows that the observation was made by the Supreme Court while interpreting 3rd proviso to Section 4 M(1) of the Imports and Exports (Control) Act 1947.

“The aforequoted 3rd provision of Section 4 M (1) of the Act 1947 does not contemplate any opportunity of personal hearing in contrast to the provisions of Section 75(4) of the CGST/UP GST Act, 2017 which specifically mandates for opportunity of hearing before passing the order. The counter affidavit has been filed by an Officer of the rank of Joint Commissioner, Corporate Circle Commercial Tax, Bareilly who has either not read the aforesaid judgment of the Supreme Court or was not able to understand it and in a casual manner the counter affidavit has been filed in complete disregard to the statutory mandate of Section 75(4) of the Act 2017.”

The Court noted that it has also been admitted in the counter affidavit that except permitting the petitioner to reply to the show cause notice, opportunity of personal hearing has not been afforded to the petitioner. Thus the legislative mandate of Section 75(4) of the Act to the authorities to afford opportunity of hearing to the assessee i.e. to follow principles of natural justice, has been completely violated by the respondents while passing the impugned order.

The Court further held that the stand taken by the respondents in the counter affidavit that the writ petition is not maintainable as the petitioner has an alternative remedy of appeal under Section 107 of the Act, can also not be accepted inasmuch as it is settled law that availability of alternative remedy is not a complete bar to entertain a writ petition under Section 226 of the Constitution of India. Certain exceptions have been carved out by Hon’ble Supreme Court that a writ petition under Article 226 of the Constitution of India may be entertained even if there is an alternative remedy. One of the principles in this regard is that if the order impugned has been passed in gross violation of principles of natural justice. It is admitted in the case of the respondents that no opportunity of personal hearing, as contemplated under Section 75(4) of the Act, 2017, was afforded to the petitioner before passing the impugned order.

During the course of hearing of this writ petition, standing counsel has produced before us a photo stat copy of the order of the Assessing Authority relating to the impugned order and perusal thereof shows that no opportunity of hearing as contemplated under Section 75(4) of the Act, 2017 was not afforded to the petitioner. Thus, there being patent breach of principles of natural justice, the writ petition is maintainable against the impugned order, the Court observed.

Article 226 of the Constitution of India confers very powers on High Courts to issue writs but this power is discretionary and the High Court may refuse to exercise the discretion if it is satisfied that the aggrieved person has adequate or suitable remedy elsewhere. It is a rule of discretion and not a rule of compulsion or the rule of law. Even though there may be an alternative remedy, yet the High Court may entertain a writ petition depending upon facts of each case. It is neither possible nor desirable to lay down inflexible rules to be applied rigidly for entertaining a writ petition, the Court said.

“For all the reasons aforestated, the order dated November 9, 2021 under Section 74 of the Act for the tax period April (year 2019-20) can not be sustained and is hereby quashed.

Liberty is granted to the respondents to pass an order afresh in accordance with law, after affording opportunity of personal hearing to the petitioner.

Writ petition is allowed to the extent indicated above with cost of Rs10,000/-.

A copy of the order be sent by the Registrar General of this Court to the Commissioner, Commercial Tax UP Lucknow, who shall ensure that principles of natural justice as contemplated under Section 75(4) of the CGST/UP GST Act 2017 be followed by Proper Officers / Assessing Authorities in the State of Uttar Pradesh”, the Court ordered.

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