September 6, 2021

Demand order passed without giving opportunity of being heard is liable to be set aside

Held by Hon’ble High Court of Andhra Pradesh

In the matter of Ocean Sparkle Ltd. v. Assistant Commissioner (ST) (Writ Petition No. 9162 of 2021 dated April 28, 2021)

In the given case, the respondent issued a show cause notice to the petitioner on 20th January, 2021. However, the petitioner failed to file a response to such notice. Therefore, The respondent passed a demand order for tax liability, interest and penalty on 17th March, 2021. The petitioner filed a written objection against such a demand order on 18th March, 2021. The petitioner also filed a writ petition before Hon’ble High Court contending that impugned order is liable to be set aside on ground of violation of mandatory provisions of Section 75(4) of CGST Act, 2017. The respondent contended that the petitioner has failed to file a reply to show cause notice. Also, the petitioner is available with an alternate remedy of filing an appeal before Appellate Authority.

Hon’ble High Court Held that as per Section 75(4) of CGST Act, 2017, an opportunity of being heard is required to be granted when a request has been received from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person. In case of adverse action, opportunity of hearing is indispensable and is required to be followed scrupulously. Therefore, in the given case, impugned order is liable to be set aside not only on grounds of violation of Section 75(4) of CGST Act, 2017 but also on ground of violation of principle of natural justice.

1. Brief Facts of the case

The Petitioner (Ocean Sparkle Limited) has received the Assessment Order (Ref. No. ZD370321001535W dated 17th March, 2021) from Assessing Authority (“The Respondent”) regarding the Tax demand and the penalty for the period of July 2017 to March 2018.
The Respondent issued a show cause notice to the petitioner under section 73 of CGST Act, 2017 read with Rule 142(1) of CGST Rules, 2017 on 20th January, 2021.
However, the petitioner failed to respond to such Show Cause Notice. However, written objections were filed on 18th March, 2021.
The Petitioner contended that such demand order is liable to be set aside on the ground of non-compliance of mandatory provisions of Section 75(4) of CGST Act 2017.
Therefore, the Petitioner filed a writ petition before Hon’ble High Court challenging the validity of assessment order.

2. Relevant Legal Extracts

Chapter XV of CGST Act, 2017 deals with “Demand & Recovery”.
Section 73 deals with “Determination of tax not paid or short paid or erroneously refunded o/r input tax credit wrongly availed or utilized for any reason other than fraud or any willful misstatement or suppression of facts”.
Section 74 deals with “Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful misstatement or suppression of facts”.
Section 75 deals with “General provisions relating to determination of tax”.
Section 75 (4) is relevant for the matter under discussion and relevant extract of which reiterated below for ready references

“Section 75 – General provisions relating to determination of tax

[…….]

(4) An opportunity of 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.”

3. Contentions of the Petitioner

The Petitioner contended following points:

The petitioner could not file an objection to the show cause notice within the stipulated time period due to various reasons.
However, a written objection was filed on 18th March, 2021.
The Respondent have not followed the mandatory provisions of GST law. Therefore, impugned order is liable to be set aside.

4. Contentions of Respondent

The Respondent contended that:

The petitioner has failed to file response to show cause notice dated 20th January, 2021. Therefore, now it is not open for the petitioner to raise any objection against impugned order.
The respondent has passed the impugned order only after granting the full fledged opportunity to the petitioner.
Further, in case of any objection, the petitioner has alternate remedy available under Section 107 of CGST Act to file an appeal before Appellate Authority. Therefore, writ petitioner before Hon’ble High Court is not maintainable.

5. Analysis by Hon’ble High Court

Hon’ble High Court interpreted following points:

As per Section 75(4) of CGST Act, 2017, in each of the following scenarios, opportunity of being heard is required to be granted:
1. when a request has been received from the person chargeable with tax or penalty, or
2. where any adverse decision is contemplated against such person.
In case of adverse action, opportunity of hearing is indispensable and is required to be followed scrupulously.
In the given case, the respondent has issued a show cause notice to the petitioner proposing an adverse action.
However, on the ground that the petitioner failed to respond to show cause notice, the respondent confirmed the demand order.
When a course of action is prejudicial to the interest of the assessee, provisions of Section 75(4) of CGST Act, 2017 is required to be follow carefully.
Therefore, impugned order is liable to be set aside not only on ground of violation of Section 75(4) of CGST Act, 2017 but also on ground of violation of principle of natural justice.
Further, contention of the respondent of availability of alternate remedy is liable to be rejected.

6. Decision of Hon’ble High Court

The impugned order is liable to be set aside on following 2 grounds:
- Violation of mandatory provisions of Section 75(4) of the CGST Act, 2017, and
- Violation of principles of natural justice.
The matter is remanded back to the respondent for reconsideration of the issue and for passing an appropriate order afresh after issue afresh after giving notice of hearing to the petitioner.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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