A Personal Hearing is Mandatory for Adverse GST Orders, Even if Unrequested.

A Personal Hearing is Mandatory for Adverse GST Orders, Even if Unrequested.

Issue

Whether a personal hearing under Section 75(4) of the CGST Act is a mandatory procedural requirement before an adverse order is passed, even if the taxpayer does not explicitly request one after filing their written reply to the show-cause notice.

Facts

• The assessee received a Show Cause Notice (SCN) in Form DRC-01, alleging an excess claim of Input Tax Credit (ITC).
• The assessee duly filed a written reply to the notice in Form DRC-06.
• After the reply was filed, the assessing authority, without granting any personal hearing, proceeded to pass a final adverse order confirming the demand for the excess ITC.
• The Revenue contended that the order was valid because the assessee had not made any express request for a personal hearing after filing their reply, citing the Bright Steels case as precedent.

Decision

• The Madras High Court quashed the portion of the impugned order relating to the excess ITC claim.
• It held that Section 75(4) of the CGST Act mandates a personal hearing if an adverse decision is contemplated, regardless of whether the assessee makes a specific request for it.
• The court clarified that the opportunity to file a written reply and the right to a personal hearing are two distinct and cumulative requirements, not alternatives.
• The court distinguished the Revenue’s reliance on the Bright Steels case, noting that in that case, multiple hearing opportunities had been provided, whereas, in the present case, no opportunity for an oral hearing was given at all after the reply was filed.
• The matter was remanded for de novo (fresh) adjudication on the specific issue, with a direction to the authority to pass a fresh order on merits within three months, only after affording the assessee a proper personal hearing.

Key Takeaways

• Hearing is a Mandatory Right, Not a Choice: The right to a personal hearing under Section 75(4) is not contingent on a taxpayer’s request. It is a mandatory obligation on the adjudicating authority if they intend to pass an order adverse to the taxpayer.
• “Adverse Decision” is the Trigger: The moment an officer contemplates passing an order that is against the interests of the taxpayer, the requirement to grant a hearing is automatically triggered.
• Written Reply is Not a Substitute for Hearing: The act of filing a written reply does not absolve the authority of their duty to provide an oral hearing. The two components of natural justice are separate and must both be fulfilled.
• Procedural Defect Vitiates the Order: Failure to grant a mandatory personal hearing is a fundamental procedural defect and a breach of the principles of natural justice, rendering the resulting order legally unsustainable and liable to be quashed.