Facts of the Case

The petitioner, M/s Ahluwalia Contractors India, challenged the legality of an order passed under Section 73 of the Bihar Goods and Services Tax Act, 2017, whereby its claim for carry forward of Transitional Input Tax Credit (ITC) amounting to ₹32,29,195 through TRAN-1 under Rule 140(1) was rejected. Consequent to such rejection, a Form GST DRC-07 demand notice raising a demand of ₹43,75,560 towards tax, interest and penalty was issued.

The petitioner also challenged the appellate order passed by the Additional Commissioner (Appeal), which upheld the assessment order. It was contended that both the assessment as well as the appellate orders were passed ex parte, without providing an adequate opportunity of hearing and without assigning proper reasons.

Issues Involved

  1. Whether the assessment order rejecting the TRAN-1 transitional ITC claim under Section 73 of the BGST Act was sustainable when passed ex parte.
  2. Whether the appellate authority was justified in affirming the assessment order without considering the principles of natural justice.
  3. Whether a demand raised through Form GST DRC-07 based on an ex parte order could be sustained.
  4. Whether the High Court could exercise writ jurisdiction despite the existence of statutory remedies where natural justice had been violated.

Petitioner's Arguments

  • The assessment order rejecting the TRAN-1 claim was passed without granting an effective opportunity of hearing.
  • The petitioner was entitled to transitional input tax credit of ₹32,29,195, which had been denied due to technical reasons.
  • The consequential demand raised through Form GST DRC-07 was illegal since it was founded upon an invalid assessment order.
  • The appellate authority mechanically affirmed the assessment order without addressing the factual and legal issues involved.
  • The impugned orders violated the principles of natural justice and therefore deserved to be quashed.

Respondents' Arguments

The Revenue fairly submitted before the High Court that it had no objection if the matter was remanded to the Assessing Authority for fresh adjudication on merits.

The Revenue also stated that during the pendency of fresh proceedings, no coercive action would be taken against the petitioner.

Court Order / Findings

The Patna High Court observed that although statutory remedies ordinarily exist under the GST law, the High Court is not precluded from exercising its writ jurisdiction where the impugned order is ex facie bad in law, particularly on account of violation of natural justice.

The Court held that:

  • The petitioner was not granted a sufficient opportunity of hearing before passing the assessment order.
  • The assessment order was ex parte and failed to assign proper reasons explaining how the tax liability had been determined.
  • Orders having civil consequences must strictly comply with the principles of natural justice.
  • Since the assessment and appellate orders were legally unsustainable, both deserved to be quashed.

Accordingly, the Court:

  • Quashed the appellate order dated 05.12.2020.
  • Quashed the assessment order dated 19.06.2019.
  • Quashed the consequential Form GST DRC-07 demand notice.
  • Directed the petitioner to deposit an additional 10% of the disputed demand before the Assessing Authority.
  • Directed immediate de-freezing/de-attachment of the petitioner's bank accounts, if attached.
  • Directed the Assessing Authority to decide the matter afresh on merits after granting adequate opportunity of hearing.
  • Directed that a reasoned speaking order be passed.
  • Ordered that no coercive action shall be taken during the pendency of fresh adjudication.
  • Clarified that if any excess amount is ultimately found to have been deposited by the petitioner, the same shall be refunded within two months.
  • Left all questions of law and fact open for fresh adjudication without expressing any opinion on merits.

Important Clarification

This judgment reiterates that:

  • Ex parte GST assessment orders cannot survive judicial scrutiny when adequate opportunity of hearing has not been granted.
  • Speaking orders containing proper reasons are mandatory under GST proceedings.
  • High Courts may invoke writ jurisdiction despite alternate statutory remedies where there is a clear violation of natural justice.
  • Consequential demand notices issued through Form GST DRC-07 cannot survive once the foundational assessment order is quashed.
  • Fresh adjudication must strictly comply with the principles of natural justice by providing reasonable opportunity to the taxpayer.

Sections Involved

  • Section 73, Bihar Goods and Services Tax Act, 2017
  • Rule 140(1), Central Goods and Services Tax Rules, 2017
  • Transitional Input Tax Credit (TRAN-1)
  • Form GST DRC-07
  • Principles of Natural Justice
  • Article 226 of the Constitution of India (Writ Jurisdiction)

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785569791_2539compressed.pdf 

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