Can GST recovery proceedings be initiated without providing opportunity of being heard to taxpayer?
Opportunity to be heard means the chance to appear before a court or tribunal to present evidence and argument before being punished by governmental authority. An opportunity to be heard before penalty or punishment is imposed for contempt is an indispensable essential to the administration of due process of law as contemplated by the constitutional inhibition.
According to Section 75 of the Income Tax Act, 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. The proper officer, shall, if sufficient cause is shown by the person chargeable with tax, grant time to the said person and adjourn the hearing for reasons to be recorded in writing Provided that no such adjournment shall be granted for more than three times to a person during the proceedings.
According to Section 78, any amount payable by a taxable person in pursuance of an order passed under this Act shall be paid by such person within a period of three months from the date of service of such order failing which recovery proceedings shall be initiated. Provided that where the proper officer considers it expedient I the interest of revenue, he may, for reasons to be recorded in writing, require the said taxable person to make such payment within such period less than a period of 3 months as may be specified by him.
Let us refer to the case of Alkem Laboratories Limited Vs Union of India (Gujarat High Court), where the question raised was whether could GST recovery proceedings be initiated without providing opportunity of being heard to taxpayer?
Facts of the Case:
- The subject matter of challenge in the present application was to the order passed by the Asst. Commissioner of State Tax (Enforcement), by which, the liability of the writ applicant to pay a particular amount towards service tax with penalty came to be fixed.
- According to the said order, any lease or license to occupy land is a supply of service under GST. Further service provided by the assessee was covered under entry at serial No.16 (Heading No.9972, Real Estate Services) of Notification No.11/2017-Gujarat State Tax (Rate) dated 30.06.2017.
- Accordingly, real estate services were liable to tax at 9% SGST and 9% CGST.
- Being dissatisfied with the aforesaid order, the writ applicant was before the HC with the present writ application.
Observations of the High Court (HC)
- It appeared from the materials on record that the order came to be passed without giving any opportunity of hearing to the writ applicant.
- In such circumstances, HC thought fit to entertain the writ application.
- The HC had previously passed an order and according to the concerned authority, many opportunities were given to the writ applicant by issuing various notices, however, the writ applicant failed to respond to such notices.
- A perusal of the provisions of Section 78 indicated that no recovery proceedings could be initiated against the assessee before the expiry of 3 months from the date of the service of the order.
- It was not in dispute that in the case on hand, within one month, the proceedings could to be initiated in the form of attachment of the factory premises.
- Having regard to the materials on record, one thing was for sure that no opportunity of personal hearing was given to the writ applicant by the concerned authority before passing the impugned order.
- Although a specific request in this regard was made, yet, the impugned order came to be passed without affording any opportunity of hearing.
- Section 75(4) made it abundantly clear that an opportunity of hearing had to be given, more particularly, in those cases where a request was received in writing from the person chargeable with tax or penalty and without any adverse decision was contemplated against such person.
- HC was of the view that they should give one opportunity to the writ applicant to appear before the respondent and make good his case. Therefore, the writ application was allowed.
- The impugned order passed by the respondent to this writ application was quashed and set aside.
- The entire matter was remitted to the respondent for fresh consideration.
- The respondent was directed to issue a notice to the writ applicant, fixing a particular date for hearing, and on that particular date, that may be fixed, the writ applicant himself or through his legal representative shall appear before the respondent and make his submissions.
- The respondent shall, thereafter, proceed to pass the final order in accordance with law.
- HC also clarified that they had otherwise not gone into the merits of the matter.
In simple words, GST recovery proceedings cannot be initiated without providing opportunity of being heard to taxpayer.