Demand Order Under Section 73(9) Set Aside for Denial of Personal Hearing, Remanded for Fresh Adjudication.

Issue:

Whether a demand order passed under Section 73(9) of the Central Goods and Services Tax Act, 2017 (CGST Act) / Delhi Goods and Services Tax Act, 2017 (DGST Act) (based on the context from previous similar questions), is sustainable if it is issued without providing an opportunity of personal hearing to the assessee, especially when the assessee filed a reply to the show cause notice and the authority had sufficient time to grant a hearing.

Facts:

For the period April 2020 to March 2021, the petitioner-assessee was initially issued a notice under Section 61, indicating discrepancies in their return after scrutiny. The assessee filed a reply to this notice. Dissatisfied with the reply, a show cause notice (SCN) under Section 73 was then issued to the assessee. The assessee filed a reply to this SCN. A personal hearing was scheduled for January 3, 2025. However, the assessee’s response to the SCN was filed after this scheduled date, on January 17, 2025. Subsequently, without providing or offering any further opportunity of personal hearing to the petitioner, the impugned order was passed under Section 73(9) on February 28, 2025, creating a demand against the assessee.

Decision:

In favor of the assessee (Matter remanded): The court observed that while the assessee filed their reply after the initial hearing date (January 3, 2025), the impugned order was passed on February 28, 2025. This meant there was “sufficient time available to the authority between January 17, 2025, to February 28, 2025,” to schedule and provide a personal hearing. The court held that not fixing a date for providing a personal hearing was contrary to the spirit of Section 75(4) of the CGST Act, which inter alia requires the grant of an opportunity of personal hearing before passing an adverse order. The court further reasoned that given the nature of the response filed by the assessee and the deficiencies found by the Assistant Commissioner, if a personal hearing had been provided, the pleas raised by the assessee could have been properly substantiated. Therefore, the matter was remanded back to the Assistant Commissioner with a direction to provide an opportunity of personal hearing to the assessee and pass a fresh order in accordance with law.

Key Takeaways:

Mandatory Personal Hearing (Section 75(4)): This judgment strongly reiterates the mandatory nature of providing a personal hearing under Section 75(4) of the CGST Act, especially when an adverse order is contemplated. Even if the assessee’s initial response is delayed, the tax authority is obligated to ensure a fair hearing if sufficient time exists before the final order is passed.
“Sufficient Time Available”: The court specifically pointed out the period between the assessee’s reply and the order passing date, indicating that the authority had ample opportunity to schedule a hearing. This implies that authorities cannot hastily pass orders without considering the possibility of a hearing, even if the assessee’s timeline isn’t perfectly synchronized with the initial schedule.
Purpose of Hearing: The court recognized that a personal hearing allows the assessee to substantiate their written reply, clarify ambiguities, and address the specific deficiencies noted by the tax authority, thus ensuring a comprehensive and fair adjudication.
Breach of Natural Justice: The failure to provide a proper opportunity of hearing, despite the availability of time and the assessee’s participation (by filing a reply), constitutes a breach of the principles of natural justice, rendering the order liable to be set aside.
Remand for Procedural Rectification: As is common in such cases, the court did not quash the demand on merits but set aside the order on procedural grounds, remanding it back to the original authority to cure the defect by providing a hearing and then passing a fresh order.

HIGH COURT OF ALLAHABAD

Priya Enterprises

State of U.P.

Arun Bhansali, CJ.
and Kshitij Shailendra, J.

WRIT TAX No. 2051 of 2025

MAY 7, 2025

Ajay Kumar Kashyap and Ravindra Kumar Rastogifor the Petitioner. Ankur Agarwal, SC for the Respondent.

ORDER

1. This petition has been filed by the petitioner aggrieved of the order dated 28.02.2025, Annexure – 6, passed by the respondent no. 2/Assistant Commissioner – I, Dhampur under Section 73 of the U.P. Goods and Services Act, 2017 (‘Act’) for the period April, 2020 to March, 2021.

2. The petitioner was issued notice under Section 61 of the Act indicating discrepancies in the return after scrutiny. The petitioner filed its reply to the said notice on 28.09.2024. However, dissatisfied with the reply filed, a show cause notice under Section 73 of the Act was issued to the petitioner, wherein the petitioner was required to file reply by 28.12.2024 and date of personal hearing was fixed as 03.01.2025. The petitioner filed reply to the show cause notice on 17.01.2025. Whereafter, it appears that without providing opportunity of personal hearing, the order impugned dated 28.02.2025 under Section 73(9) of the Act has been issued creating demand against the petitioner.

3. Learned counsel for the petitioner made submissions that once the reply to the show cause notice under Section 73 of the Act was filed by the petitioner, before passing the order impugned, it was incumbent on the Assistant Commissioner to afford opportunity of personal hearing, which was denied.

4. Submission has been made that it was specific case of the petitioner that it had not claimed excess ITC but by mistake the same was claimed in wrong head i.e. the petitioner availed ITC in IGST head by mistakenly claiming the same in CGST – SGST head at the time of filing the GSTR 3B and that the allegations made were revenue neutral. However, as no opportunity of personal hearing was accorded, the petitioner could not substantiate the response to the show cause notice and the Assistant Commissioner, finding deficiency in the response which was not put to the petitioner, has passed the order impugned, which resulted in injustice to the petitioner.

5. Further submission has been made that action of the authority in not providing opportunity of personal hearing is contrary to the provisions of Section 75(4) of the Act and therefore, the order impugned deserves to be quashed and set aside.

6. Learned Standing Counsel supported the order impugned. Submission has been made that the plea raised by the petitioner by filing reply to the show cause notice has been appropriately considered by the authority and in case the petitioner has any grievance qua the merit of the order, it must file appeal under Section 107 of the Act and filing of the writ petition bypassing the alternative remedy cannot be permitted and therefore, the petition be dismissed.

7. We have considered the submissions made by counsel for the parties and perused the material available on record.

8. It may be seen that when the notice under Section 73 of the Act was issued to the petitioner, 03.01.2025 was fixed the date of personal hearing. However, the response was filed after the said date on 17.01.2025 and order impugned came to be passed on 28.02.2025, without providing/offering opportunity of personal hearing to the petitioner despite the fact there was sufficient time available to the authority between 17.01.2025 to 28.02.2025. Not fixing a date for providing personal hearing, is contrary to the spirit of the provisions of Section 75(4) of the Act, which inter alia requires grant of opportunity of personal hearing before passing an adverse order.

9. Looking to the nature of response filed by the petitioner and the deficiency found by the Assistant Commissioner, in case opportunity of personal hearing was provided, the plea as raised could have been substantiated. An attempt to substantiate the plea raised could have been made by the petitioner from which it has been deprived of.allowed

10. Consequently, the writ petition is allowed. The order impugned dated 28.02.2025 passed by respondent no. 2 is quashed and set aside.

11. The matter is remanded back to the Assistant Commissioner – I, State Tax, Dhampur to provide opportunity of personal hearing to the petitioner and pass a fresh order in accordance with law.