Facts of the Case

The petitioner, Thirugnanam Chandraprakash, Proprietor of Tvl. Sree Easwaren Tools and Services, challenged the order issued by the State Tax Officer reversing the transitional Input Tax Credit (ITC) allegedly wrongly availed and utilized under the GST law. The petitioner also sought a direction to the department to accept the manually filed TRAN-1 declaration and allow the transitional ITC claimed therein.

The petitioner contended that although objections had been filed, the assessing authority passed the adverse order without granting the mandatory personal hearing required under the law.

Issues Involved

  1. Whether an order reversing transitional Input Tax Credit can be passed without granting a personal hearing after receipt of the taxpayer's objections.
  2. Whether the mandatory requirement of personal hearing under Section 75(4) was complied with before passing the adverse order.
  3. Whether the impugned GST order was liable to be set aside for violation of the principles of natural justice.

Petitioner’s Arguments

  • The impugned order was passed in violation of Section 75(4), which mandates granting an opportunity of personal hearing whenever an adverse decision is contemplated.
  • Although objections were submitted, no personal hearing was provided after considering those objections.
  • A hearing notice issued before receiving the taxpayer's explanation cannot be treated as compliance with the statutory requirement.
  • The petitioner relied upon an earlier Madras High Court decision holding that the authority must first consider the explanation and only thereafter, if an adverse decision is contemplated, grant a personal hearing before passing the final order.

Respondent’s Arguments

The respondent defended the proceedings initiated for reversal of the transitional Input Tax Credit under the GST law. However, the Court primarily examined the procedural compliance relating to the mandatory requirement of personal hearing under Section 75(4).

Court Order / Findings

The Madras High Court held that the petitioner's contention regarding non-compliance with Section 75(4) had merit.

The Court reiterated that:

  • A personal hearing must be granted after considering the taxpayer's objections whenever the authority proposes to take an adverse decision.
  • Merely issuing a hearing notice before receiving the objections does not satisfy the statutory requirement.
  • Since no personal hearing was granted after receipt of the objections, the impugned order suffered from procedural illegality.

Accordingly, the High Court:

  • Set aside the impugned GST order.
  • Directed the State Tax Officer to grant the petitioner a personal hearing within four weeks from receipt of the Court's order.
  • Directed the authority to pass a fresh order on merits and in accordance with law after providing such opportunity.

Important Clarification

  • Personal hearing under Section 75(4) is mandatory whenever an adverse decision is contemplated.
  • A hearing granted before receipt of objections does not amount to valid compliance with the statutory requirement.
  • Authorities must first examine the taxpayer's explanation and thereafter provide a meaningful opportunity of hearing before passing an adverse order.
  • Orders passed without following this mandatory procedure are liable to be set aside for violation of the principles of natural justice.
  • The judgment reinforces procedural safeguards available to taxpayers in GST adjudication, particularly in disputes relating to transitional Input Tax Credit (TRAN-1).

Section Involved

  • Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017
  • Section 75(4) of the Tamil Nadu Goods and Services Tax Act, 2017
  • Article 226 of the Constitution of India

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785310251_2182compressed.pdf

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