Facts of the Case

The petitioner, M/s. Ujjain Steel Processors, a registered partnership firm engaged in the trading of iron and steel, purchased goods from M/s. Maa Kali Steel, a registered GST dealer during March 2018. The petitioner claimed Input Tax Credit (ITC) after making payment of the full purchase consideration, including GST.

Subsequently, the State GST Department issued an intimation alleging that the supplier was a non-existent dealer and proposed reversal of ITC along with interest and penalty. The petitioner's electronic credit ledger was blocked even before issuance of the show cause notice.

Although proceedings under Section 74 were dropped, the department initiated proceedings under Section 73 of the Jharkhand GST Act and passed an ex-parte adjudication order along with DRC-07 demand, leading the petitioner to challenge the proceedings before the Jharkhand High Court.

Issues Involved

  • Whether the GST authorities could pass an adjudication order without supplying the documents relied upon against the taxpayer.
  • Whether denial of personal hearing violated the mandatory provisions of Section 75(4) of the JGST Act.
  • Whether an ex-parte assessment order passed without following principles of natural justice could be sustained.
  • Whether the proceedings initiated under Section 73 were legally sustainable in the facts of the case.

Petitioner’s Arguments

The petitioner submitted that:

  • Proceedings under Section 73 itself established that there was no allegation of fraud, wilful misstatement or suppression of facts.
  • The supplier was a validly registered dealer during the relevant period and had duly filed GSTR-1 and GSTR-3B returns.
  • The GST portal reflected matching transactions and there was no mismatch between supplier and recipient returns.
  • The department initiated proceedings merely on the basis of an intelligence note without supplying the relied-upon documents.
  • No opportunity of personal hearing was granted as required under Section 75(4) of the JGST Act.
  • The adjudicating authority passed the order mechanically without examining the documents available on record or independently recording reasons.
  • The impugned order deserved to be quashed for violation of statutory provisions and principles of natural justice.

Respondent’s Arguments

The State contended that:

  • Investigation revealed that the petitioner had fraudulently availed ITC from a non-existent supplier.
  • Intimation under Rule 142 and subsequent show cause notice under Section 73 were duly issued.
  • The petitioner failed to discharge the tax liability despite issuance of notices.
  • Adequate opportunities had allegedly been granted during the proceedings.
  • The petitioner had an alternative statutory remedy by way of appeal under the GST Act.

However, during the hearing, the State was unable to produce any record demonstrating that a personal hearing had actually been granted to the petitioner.

Court Order / Findings

The Jharkhand High Court observed that:

  • The department failed to provide the relied-upon documents forming the basis of the allegations.
  • No personal hearing was granted before passing the adverse order.
  • The assessment proceedings violated the mandatory requirements contained in Section 75(4) and Section 75(5) of the JGST Act.
  • The principles of natural justice require that every taxpayer must be supplied with the documents relied upon by the department so that an effective defence can be made.
  • The department also failed to maintain any proper assessment order sheet, despite directions issued by the Court.
  • The adjudication order had been passed mechanically without considering electronically available records or independently appreciating the evidence.
  • Consequently, the adjudication order dated 15.09.2020 was quashed and the matter was remanded to the proper officer with directions to:
    • issue a fresh notice,
    • provide all relied-upon documents,
    • grant personal hearing, and
    • pass a fresh speaking order after complying with the principles of natural justice.

Important Clarification

This judgment reiterates that:

  • Personal hearing under Section 75(4) is a mandatory safeguard before passing any adverse GST order.
  • Relied-upon documents must be furnished to the taxpayer before adjudication.
  • Ex-parte assessment orders passed without compliance with statutory procedure are liable to be quashed.
  • Mere reliance on intelligence reports without supplying supporting material violates principles of natural justice.
  • Proper maintenance of assessment records and independent application of mind by adjudicating authorities are essential for a valid GST adjudication.

Sections Involved

  • Section 73 of the Jharkhand Goods and Services Tax Act
  • Section 75(4) of the Jharkhand Goods and Services Tax Act
  • Section 75(5) of the Jharkhand Goods and Services Tax Act
  • Rule 142 of the Jharkhand Goods and Services Tax Rules

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785395432_2341compressed.pdf

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