Assessee Denied Hearing as GST DRC-07 Order Voided for Excess Input Tax Credit

Patanjali Ayurved Limited Vs State of Madhya Pradesh (Madhya Pradesh High Court)

Facts:

1. The case involves W.P. No. 8123/2023 and W.P. No. 8125/2023 filed under Article 226 of the Constitution of India, challenging the adjudication order in form GST DRC-07.
2. The Deputy Commissioner of State Tax, Division – I, Indore, issued an order (dated 15.07.2022) raising a demand for excess Input Tax Credit (ITC) amounting to Rs. 78,49,607/-.
3. The order also imposed interest and equivalent penalties under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act) and Madhya Pradesh Goods and Services Tax Act, 2017 (MPGST Act).
4. The petitioner argued that the order was passed without considering their submissions and without providing an opportunity for a hearing, violating the principles of natural justice.
5. Sections 74(9) and 75(4) of the CGST Act/MPGST Act mandate the consideration of representations and the provision of an opportunity of hearing before passing adverse orders.

Observations:

1. The court noted that the law requires granting an opportunity of hearing in two situations: upon specific written request or when an adverse decision is contemplated against the person.
2. The absence of a specific request for a personal hearing does not absolve authorities from providing such an opportunity when an adverse decision is likely.
3. The court emphasized that the term “opportunity of hearing” includes the opportunity for a personal hearing, distinct from merely submitting a written reply.
4. Despite no specific request for a personal hearing, the adverse decision contemplated against the petitioners necessitated the provision of a personal hearing.
5. The failure to provide a personal hearing rendered the decision-making process defective, contravening principles of natural justice and statutory requirements.

Conclusion:

1. The court set aside the impugned proceedings after the stage of replying to the show cause notices in both cases.
2. It mandated the authorities to provide the petitioners with an opportunity for a hearing by an officer other than the one who issued the show cause notice.
3. The court clarified that its ruling did not express any opinion on the merits of the case, focusing solely on upholding principles of natural justice.
4. This case serves as a reminder of the importance of procedural fairness and adherence to principles of natural justice in administrative proceedings, particularly in tax matters.

In summary, the court’s decision underscores the significance of ensuring fairness and due process in the adjudication of tax disputes, reflecting a commitment to upholding the rule of law and protecting the rights of taxpayers.

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