Facts of the Case

The petitioner, Khani Khyatigrasta Gramya Committee, a registered taxpayer holding GSTIN 21AABAK1223B1ZQ with its place of business at Jajanga, Bamebari, Keonjhar, is engaged in transportation of iron ore for Rungta Mines Limited and supplies other taxable services such as manpower/recruitment, rent-a-cab, works contract and cargo handling. It regularly filed monthly GSTR-3B and GSTR-1 returns for July 2017 to March 2018. A scrutiny notice dated 26.10.2022 was issued under Section 61 of the CGST/OGST Act, 2017 in Form GST ASMT-10, alleging an understatement of Rs.3,30,279 in GSTR-3B against outward supply of Rs.31,78,214 shown in GSTR-1; the notice marked "NA" against the fields for date, time and venue of personal hearing. Without any personal hearing, the Additional State Tax Officer passed an order dated 31.01.2023 under Section 73 of the Act demanding tax, interest and penalty, even though the transportation service supplied to Rungta Mines Limited fell under the Reverse Charge Mechanism, with Rungta Mines Limited having already discharged the CGST/OGST liability.

Issues Involved

  1. Whether a Section 73 assessment order can stand where no personal hearing was afforded, despite Section 75(4) of the GST Act making it mandatory in cases of an adverse decision.
  2. Whether tax can again be demanded from a supplier of services covered by the Reverse Charge Mechanism where the recipient has already discharged that tax.
  3. Whether marking "NA" against the personal-hearing fields in a Section 61 scrutiny notice amounts to a valid denial of hearing.

Petitioner's Arguments

  • The petitioner was a registered taxpayer with a valid GSTIN, regularly filing returns, and was willing to produce documents/records, but the authority pre-emptively indicated that no personal hearing would be given, effectively closing its mind before passing the order.
  • The demand overlooked that tax on the transportation service was payable — and had already been paid — by the recipient, Rungta Mines Limited, under the Reverse Charge Mechanism; sustaining the demand would result in double taxation.
  • Denial of personal hearing violated the mandatory requirement under Section 75(4) of the GST Act.
  • Relied on Commercial Steel Ltd., Godrej Sara Lee, and the Allahabad High Court's rulings in B.L. Pahariya Medical Store and Mohini Traders for the proposition that personal hearing is mandatory regardless of a specific request.

Respondent's Arguments

  • The Standing Counsel submitted that since the petitioner did not comply with the Section 61 scrutiny notice read with Rule 99, the authority rightly proceeded to determine tax liability under Section 73.
  • The order was well within the statutory provisions and did not warrant interference by the writ court.

Court Order/Findings

  • The Court held that marking "NA" against the personal-hearing fields in the Section 61 notice, and thereafter passing the Section 73 order without any hearing, amounted to non-compliance with the principles of natural justice.
  • Since the recipient, Rungta Mines Limited, had already discharged CGST/OGST under the Reverse Charge Mechanism, no tax was payable by the petitioner-supplier on the same transaction, and the demand under Section 73 could not be sustained.
  • Following Commercial Steel Ltd., Godrej Sara Lee, and the Allahabad High Court's B.L. Pahariya and Mohini Traders rulings, the Court held that personal hearing under Section 75(4) is mandatory even where the assessee has not specifically requested it.
  • The Section 61 scrutiny notice dated 26.10.2022 and the Section 73 order dated 31.01.2023 were quashed, and the matter was remanded for de novo proceedings from the stage of the Section 61 notice, with a direction to afford due opportunity of hearing. No order as to costs.

Important Clarification

  • Personal hearing under Section 75(4) of the CGST/OGST Act is mandatory before any adverse assessment order; an assessee need not separately request it, and an authority cannot pre-emptively mark "NA" against hearing fields in a scrutiny notice.
  • Tax already discharged by the recipient under the Reverse Charge Mechanism cannot again be demanded from the supplier for the same transaction, as this would amount to impermissible double taxation.
  • Availability of an alternative statutory remedy does not oust High Court writ jurisdiction where the issue is a pure question of law involving breach of natural justice.

Sections Involved

  • Section 61, CGST/OGST Act, 2017 — scrutiny of returns and issuance of discrepancy notices.
  • Section 73, CGST/OGST Act, 2017 — determination of tax not paid/short paid where fraud is not alleged.
  • Section 75(4), CGST/OGST Act, 2017 — mandates personal hearing before an adverse order.
  • Section 9(3), CGST Act, 2017 — Reverse Charge Mechanism.
  • Rule 99, CGST/OGST Rules, 2017 — procedure for scrutiny of returns.

Decision – In Favour of

The decision is in favour of the Assessee. The Orissa High Court quashed both the Section 61 scrutiny notice and the Section 73 demand order and remanded the matter for de novo adjudication with a mandatory personal hearing, also holding on the merits that the Reverse Charge Mechanism payment already made by the recipient precluded a fresh demand on the supplier.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Orissa at Cuttack
  • Case No.: W.P.(C) No. 27946 of 2023
  • CNR: Not available on record
  • Coram: Hon'ble Acting Chief Justice Dr. B.R. Sarangi and Hon'ble Mr. Justice Murahari Sri Raman
  • Decision Date: 9 November 2023
  • Disposal Nature: Writ petition disposed of; Section 73 order and Section 61 notice quashed and remanded for de novo proceedings

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