Facts of the Case

The petitioner, M/s Pankaj Kumar Mishra, an individual firm, challenged proceedings arising from a tax demand under Section 74 of the Bihar Goods and Services Tax Act, 2017.

The Assistant Commissioner of State Taxes, Munger Circle, Munger, had passed an ex parte order dated 03.03.2020 and issued a summary of the order in Form GST DRC-07 dated 05.03.2020, imposing liability towards tax, interest and penalty under Section 74 of the BGST Act, 2017.

The petitioner preferred an appeal against the said ex parte order. However, the Additional Commissioner of State Taxes (Appeals), Bhagalpur Division, Bhagalpur, by order dated 14.03.2021 in Appeal Case No. M.G.G.S.T. 44/20-21, rejected the appeal on the ground that it was barred by limitation.

Thereafter, the petitioner sought rectification of the appellate order. The rectification request was also rejected by order dated 04.10.2021.

The petitioner consequently approached the Patna High Court seeking quashing of:

  1. the appellate order dated 14.03.2021 rejecting the appeal on limitation;
  2. the rectification rejection order dated 04.10.2021;
  3. the ex parte assessment/adjudication order dated 03.03.2020; and
  4. the summary order in Form GST DRC-07 dated 05.03.2020.

The petitioner further contended that the tax liability had already been admitted and discharged against payments received from the concerned employer in January 2019 through the return filed for March 2019. On this basis, it was asserted that no tax component remained due and that the proceedings under Section 74 were without jurisdiction.

Issues Involved

The principal issues before the Court were:

  1. Whether an ex parte order imposing tax, interest and penalty under Section 74 of the BGST Act could be sustained when sufficient opportunity of hearing had not been afforded to the petitioner.
  2. Whether an ex parte order having civil consequences could survive when it did not disclose sufficient reasons showing how the amount due and payable by the assessee had been determined.
  3. Whether the authorities were required to adjudicate all relevant issues of fact and law even where the proceedings were conducted ex parte.
  4. Whether the High Court could exercise writ jurisdiction despite the availability of a statutory remedy where the impugned order was ex facie bad in law and suffered from violation of the principles of natural justice.
  5. Whether the appellate rejection on limitation and the subsequent rejection of the rectification request could continue when the underlying ex parte order itself suffered from fundamental procedural defects.

Petitioner’s Arguments

The petitioner challenged the appellate order dated 14.03.2021 on the ground that the appeal had been rejected merely as barred by limitation without adjudication on merits.

The petitioner also challenged the rejection of the rectification request dated 04.10.2021 as erroneous.

It was further contended that the original order dated 03.03.2020 and the summary in Form GST DRC-07 dated 05.03.2020 were passed ex parte under Section 74 of the BGST Act.

The petitioner asserted that the admitted tax liability had already been discharged through the return filed for March 2019 in relation to payments received in January 2019. Therefore, according to the petitioner, no tax component remained due and the entire proceeding initiated under Section 74 was non-est and without jurisdiction.

The petitioner also sought protection against coercive recovery of the disputed tax, interest and penalty.

Respondents’ Arguments

Learned counsel appearing for the Revenue stated before the Court that there was no objection if the matter was remanded to the Assessing Authority for fresh adjudication.

The Revenue further stated that limitation would not be allowed to come in the way and that the matter could be decided on merits.

It was also stated that, during the pendency of the proceedings, no coercive steps would be taken against the petitioner.

The Court accepted and took the statement of the Revenue on record.

Court Order / Findings

The Patna High Court held that the existence of a statutory remedy did not preclude the Court from interfering where the impugned order was ex facie bad in law.

The Court identified serious defects in the proceedings, including the following:

1. Violation of Principles of Natural Justice

The Court found that sufficient time had not been afforded to the petitioner to represent its case. The absence of a fair and adequate opportunity of hearing constituted a violation of the principles of natural justice.

2. Ex Parte Order Without Sufficient Reasons

The Court observed that the ex parte order did not assign sufficient reasons, even discernible from the record, explaining how the officer had determined the amount due and payable by the assessee.

Since the order entailed civil consequences, such an unreasoned ex parte determination could not be sustained.

3. Failure to Adjudicate Relevant Facts and Law

The Court found that the authorities had failed to adjudicate the matter in light of the attending facts and circumstances.

The Court clarified that all issues of fact and law ought to have been dealt with even where proceedings were ex parte in nature.

4. Impugned Orders Quashed and Set Aside

The Court quashed and set aside:

  • the appellate order dated 14.03.2021 passed by the Additional Commissioner of State Taxes (Appeals), Bhagalpur Division, Bhagalpur;
  • the ex parte order dated 03.03.2020;
  • the summary order dated 05.03.2020 issued in Form GST DRC-07 under Section 74 of the BGST Act; and
  • the rectification rejection order dated 04.10.2021.

5. Deposit Conditions

The Court recorded the petitioner’s statement that 10% of the total amount, being the prerequisite condition for hearing of the appeal, had already been deposited.

The Court directed that if such amount had not been deposited for any reason, the same should be deposited before the next date.

The petitioner also undertook to additionally deposit 10% of the demand raised before the Assessing Officer within four weeks.

The Court clarified that such additional deposit would be without prejudice to the respective rights and contentions of the parties and would remain subject to the order passed by the Assessing Officer.

If the petitioner’s deposit was ultimately found to be in excess, the excess amount was directed to be refunded within two months from the date of passing of the order.

6. De-freezing / De-attachment of Bank Accounts

The Court directed immediate de-freezing or de-attachment of the petitioner’s bank account or accounts, if attached in connection with the proceedings forming the subject matter of the writ petition.

7. Fresh Adjudication on Merits

The petitioner undertook to appear before the Assessing Authority on 30.11.2022 at 10:30 A.M., if possible through digital mode.

The Assessing Authority was directed to decide the case afresh on merits after complying with the principles of natural justice.

8. Adequate Opportunity of Hearing

The Court directed that the parties must be afforded an opportunity of hearing and permitted to place all essential documents and materials on record, if required and desired.

9. No Coercive Steps During Pendency

The Court directed that no coercive steps should be taken against the petitioner during the pendency of the proceedings.

10. Speaking and Reasoned Order

The Assessing Authority was directed to pass a fresh order only after providing adequate opportunity to all concerned, including the writ petitioner.

The fresh adjudication was to be completed expeditiously, preferably within two months from the petitioner’s appearance.

The authority was specifically directed to pass a speaking order assigning reasons and to supply a copy thereof to the parties.

11. All Issues Left Open

The Court expressly clarified that it had not expressed any opinion on the merits of the dispute and that all issues remained open.

The petitioner was granted liberty to challenge the fresh order, if required and desired, and the parties were also permitted to avail other remedies available in accordance with law.

Important Clarification

This judgment is significant for the proposition that the availability of a statutory remedy does not create an absolute bar against exercise of writ jurisdiction where an order is ex facie bad in law, particularly because of violation of the principles of natural justice.

A GST demand under Section 74 involving tax, interest and penalty cannot be sustained merely because the proceedings were conducted ex parte. Even in ex parte proceedings, the adjudicating authority is required to:

  • afford a fair and adequate opportunity of hearing;
  • examine the attending facts and circumstances;
  • deal with relevant issues of fact and law;
  • disclose the basis of computation and determination of liability;
  • assign sufficient reasons; and
  • pass a speaking order.

The Court did not adjudicate the substantive tax liability on merits. Therefore, the judgment should not be understood as a final determination that no tax, interest or penalty was payable by the petitioner. The matter was remanded for fresh adjudication and all issues were expressly left open.

Sections Involved

Section 74 of the Bihar Goods and Services Tax Act, 2017 – Proceedings concerning determination of tax liability in cases covered by the statutory provision, together with consequential interest and penalty.

Form GST DRC-07 – Summary of the order reflecting the demand determined by the proper officer.

Related Case Law Principles

The judgment reflects established judicial principles concerning natural justice and writ jurisdiction. The following related authorities are relevant to understanding the broader legal position:

Whirlpool Corporation vs Registrar of Trade Marks, Mumbai

The Supreme Court recognised that the existence of an alternative statutory remedy does not operate as an absolute bar to writ jurisdiction in recognised exceptional situations, including violation of fundamental rights, violation of principles of natural justice, and proceedings taken wholly without jurisdiction or where the vires of legislation is challenged.

Harbanslal Sahnia and Another vs Indian Oil Corporation Ltd. and Others

The Supreme Court reiterated that the rule requiring exhaustion of alternative remedy is a rule of discretion rather than an absolute rule and that writ jurisdiction may be exercised in recognised exceptional circumstances.

Radha Krishan Industries vs State of Himachal Pradesh and Others

The Supreme Court restated the principles governing the exercise of writ jurisdiction where an alternative remedy exists and recognised established exceptions, including breach of fundamental rights, violation of natural justice, excess of jurisdiction and challenge to vires.

State of Orissa vs Dr. (Miss) Binapani Dei and Others

The Supreme Court emphasised that an administrative order involving civil consequences must conform to the principles of natural justice and affected persons must receive a fair opportunity.

Kranti Associates Pvt. Ltd. and Another vs Masood Ahmed Khan and Others

The Supreme Court emphasised the importance of recording reasons in judicial and quasi-judicial decision-making. A reasoned order promotes fairness, accountability and transparency and enables meaningful judicial review.

Oryx Fisheries Private Limited vs Union of India and Others

The Supreme Court stressed the requirement of fairness in quasi-judicial proceedings and the need for authorities to approach adjudication with an open mind and in conformity with natural justice.

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