Facts of the Case

The petitioner, M/s Manjeet Cotton Pvt. Ltd., engaged in the business of trading in cotton bales, cotton yarn and allied products, received a Show Cause Notice under Section 73 of the CGST/GGST Act along with Form GST DRC-01 alleging wrongful availment of Input Tax Credit (ITC). The department alleged that the petitioner failed to reverse ITC attributable to exempt/nil-rated supplies under Section 17(2) read with Rule 42 of the CGST/GGST Rules, resulting in a proposed tax demand of ₹36,15,696 along with interest @24% per annum.

The petitioner sought 30 days' adjournment for filing a detailed reply. The adjudicating authority granted only 15 days, directing the petitioner to file a reply by 11.02.2022. However, neither was any reply filed nor did the petitioner appear for personal hearing. Subsequently, search proceedings under Section 67(2) were conducted, statements were recorded, and the petitioner voluntarily reversed a part of the ITC with interest. Believing that the matter stood resolved, the petitioner took no further action until recovery proceedings were initiated, including debit from the Electronic Credit Ledger and attachment of the bank account under Section 79(1)(c). The petitioner thereafter approached the Gujarat High Court challenging the assessment order primarily on the ground of violation of principles of natural justice.

 

Issues Involved

  1. Whether the assessment order passed under Section 73 was liable to be quashed for alleged violation of Section 75(4) and principles of natural justice.
  2. Whether the petitioner could contend that no effective opportunity of personal hearing was granted.
  3. Whether the petitioner should be permitted to file a statutory appeal despite expiry of the prescribed limitation period.
  4. Whether recovery proceedings including debit of Electronic Credit Ledger and freezing of bank account should continue pending appeal.

 

Petitioner's Arguments

  • The petitioner contended that the adjudication order was passed without granting an effective opportunity of personal hearing as required under Section 75(4) of the CGST Act.
  • It was argued that after the departmental search and reversal of ITC along with payment of interest, the petitioner bona fide believed that the proceedings had concluded.
  • Reliance was placed upon the Gujarat High Court judgment in Graziano Transmission India Private Limited vs State of Gujarat (Special Civil Application No.11332 of 2022), wherein the Court held that personal hearing is mandatory whenever an adverse decision is proposed, even where no specific request has been made by the taxpayer.
  • The petitioner requested either fresh adjudication after providing hearing or permission to pursue the statutory appellate remedy despite delay.

 

Respondent's Arguments

  • The State submitted that the petitioner himself requested adjournment, which was duly granted.
  • The GST portal reflected that the date fixed was not only for adjournment but also for personal hearing.
  • Despite sufficient opportunity, the petitioner neither submitted any written reply nor appeared before the adjudicating authority.
  • Therefore, there was complete compliance with Section 75(4) and the principles of natural justice.
  • The department argued that the assessment order was validly passed only after the petitioner failed to avail the opportunity granted.

 

Court Order / Findings

The Gujarat High Court did not accept the contention that principles of natural justice were violated.

The Court distinguished the judgment in Graziano Transmission India Private Limited, observing that the facts were materially different. In the present case:

  • The petitioner had specifically sought adjournment.
  • The authority granted an adjournment and fixed the matter for hearing.
  • The petitioner neither filed any reply nor appeared before the authority.
  • Therefore, the department could not be blamed for violation of natural justice since adequate opportunity had already been provided.

The Court further observed that after search proceedings and issuance of summons, the petitioner ought to have pursued the adjudication proceedings instead of assuming that the dispute had concluded merely because partial ITC had been reversed.

However, considering that the petitioner wished to avail the statutory appellate remedy, the High Court exercised its writ jurisdiction in the interest of justice.

The Court:

  • Permitted the petitioner to file an appeal before the Appellate Authority within two weeks.
  • Directed the Appellate Authority to decide the appeal independently on merits without being influenced by observations made by the High Court.
  • Directed that the petitioner may seek re-credit of recovered amounts (subject to statutory pre-deposit requirements).
  • Ordered that no further coercive recovery shall continue till the stay application is decided.
  • Permitted the petitioner to operate its bank account pending consideration by the Appellate Authority.

 

Important Clarification

This judgment clarifies that:

  • Section 75(4) does not assist a taxpayer who was actually granted an opportunity of hearing but deliberately or negligently failed to utilise it.
  • Courts will distinguish cases involving denial of opportunity from those involving failure to avail opportunity.
  • Even where writ relief against the assessment is declined, the High Court may protect the taxpayer's statutory appellate remedy in appropriate cases.
  • Interim protection against coercive recovery can be granted while directing the taxpayer to pursue the statutory appeal.

 

Sections Involved

  • Article 226 of the Constitution of India
  • Section 17(2) – Reversal of ITC attributable to exempt supplies
  • Section 67(2) – Search and Inspection
  • Section 73 – Determination of tax not paid/short paid
  • Section 75(4) – Mandatory opportunity of hearing
  • Section 79(1)(c) – Recovery from bank accounts
  • Section 107 – Appeal to Appellate Authority
  • Rule 42 of the CGST Rules, 2017

 

Link to Download the order-https://www.mytaxexpert.co.in/uploads/1783931225_189compressed.pdf

 

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