Facts of the Case

The petitioner, M/s Aditya Construction Pvt Ltd, a private limited company operating through its partner in Bihar, filed a writ petition under Article 226 of the Constitution challenging an ex-parte assessment order dated 27.10.2021 passed by the Assistant Commissioner of State Tax, Buxar Circle. Along with this order, the summary demand notice in Form GST DRC-07 dated 29.10.2021 was also challenged.

The tax department had alleged non-payment or discrepancies in tax liabilities for the months of November 2020 and March 2021. The revenue raised substantial demands amounting to ₹46,70,637 and ₹82,70,629. The petitioner argued that these amounts were fully inclusive of Central Tax (CGST) and State Tax (SGST) and had already been duly deposited with the government treasury. To back this, the petitioner highlighted GSTR-3B filings indicating proper compliance and payments (e.g., ₹4,43,069.41 each under CGST and SGST for March of FY 2020-21). Despite these filings, the tax authorities proceeded to pass an ex-parte order and subsequently froze the petitioner’s HDFC Bank account on 25.06.2022 to recover the demanded sum.

Issues Involved

  • Whether the tax authorities violated the principles of natural justice by failing to afford a fair, reasonable, and sufficient opportunity of being heard to the taxpayer before passing an adverse ex-parte assessment order.
  • Whether an assessment order passed by a GST authority can be sustained in law if it fails to outline clear, decipherable reasons or calculations as to how the tax liability was quantified.
  • Whether the High Court can exercise its extraordinary writ jurisdiction under Article 226 to bypass the statutory remedy of appeal when there is an ex-facie violation of natural justice.
  • Whether the sudden freezing of a taxpayer’s bank account without an legally sound, reasoned order is justifiable under the CGST/BGST framework.

Petitioner’s Arguments

The petitioner’s counsel vehemently argued that the impugned order was legally unsustainable as it completely overlooked Rule 35 and the factual submissions regarding tax payments. It was maintained that the entire required tax liability for November 2020 and March 2021 had already been paid via electronic cash and credit ledgers, which was transparently verifiable through the petitioner's GSTR-3B returns.

Furthermore, the petitioner claimed that the department rushed into passing an ex-parte order without providing adequate time or a genuine personal hearing to explain the reconciliations. The subsequent attachment and freezing of their HDFC Bank account was labeled an aggressive, illegal, and high-handed action that completely paralyzed the petitioner’s ongoing business operations despite full tax compliance.

Respondent’s Arguments

The Revenue counsel, representing the State of Bihar and the Commercial Tax Department, initially defended the timeline but ultimately conceded during the hearings. Recognizing the procedural gaps in the adjudication process, the learned counsel for the Revenue stated that the department had no objection if the impugned orders were set aside and the entire matter was remanded back to the Assessing Authority for a fresh decision on its merits. The respondent also agreed that no coercive recovery measures would be pursued against the taxpayer during the pendency of such fresh proceedings.

Court Order / Findings

The Division Bench of the Patna High Court, comprising Hon'ble Chief Justice Sanjay Karol and Hon'ble Justice Partha Sarthy, took the statement of the Revenue on record and examined the validity of the order. The Court firmly held that despite the availability of an alternative statutory appellate remedy, the High Court is not precluded from intervening under writ jurisdiction if an order is ex-facie bad in law.

The Court set aside the impugned orders based on two primary legal errors:

  • Violation of Natural Justice: The Assessing Authority did not give the petitioner sufficient time or a fair opportunity to represent their case.
  • Lack of a Reasoned Order: The impugned order failed to assign any logical or decipherable reasons showing how the officer computed and arrived at the final demand figure.

The Court observed that any order passed in violation of natural justice carries severe adverse civil consequences. It emphasized that even if an authority is forced to proceed ex-parte due to non-appearance, it is still legally bound to look into all attending facts, circumstances, and available evidence to pass a balanced order.

Consequently, the High Court quashed the assessment order dated 27.10.2021 and the DRC-07 notice dated 29.10.2021. It directed the immediate de-freezing of the petitioner’s HDFC bank account. The matter was remanded back to the Assessing Officer with specific instructions to allow the petitioner to submit all necessary documents, grant a fair hearing (preferably through digital mode), and issue a fresh, comprehensive speaking order within two months. This relief was made subject to the petitioner depositing 20% of the raised demand within four weeks as a mutually agreeable condition, with any historical excess deposits eligible for a set-off or refund.

Important Clarification

  • Ex-Parte Orders Aren't Blank Checks: The Court made it clear that "ex-parte" does not mean an officer can write a brief, arbitrary order. Even in ex-parte proceedings, tax officials must detail all issues of fact and law, assess the records comprehensively, and write a clear, reasoned decision.
  • Writ Maintainability Over Alternative Remedy: If a tax order is passed without providing a proper hearing or lacks clear reasoning, a taxpayer can approach the High Court directly under Article 226. The existence of an alternative appellate authority will not block writ intervention when natural justice is denied.

Section Involved

  • Section 73 / Section 74 of the Central Goods and Services Tax (CGST) Act, 2017 and Bihar Goods and Services Tax (BGST) Act, 2017 (Determination of tax unpaid, short paid, or erroneously refunded).
  • Rule 35 of the CGST / BGST Rules, 2017.
  • Form GST DRC-07 (Summary of the order raising demand).
  • Article 226 of the Constitution of India (Writ Jurisdiction for enforcement of fundamental rights and principles of natural justice).

Link to download the order - https://mytaxexpert.co.in/uploads/1783143856_498compressed.pdf

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