Writ Tax No.174 of 2023

Facts of the Case

M/S Santosh Traders was served a show cause notice under Section 74 of the GST Act alleging short payment of tax for the period April 2018 to March 2019, culminating in a demand order dated 14.07.2021 with tax, interest and penalty. A prior notice under Section 61 dated 20.05.2019 had also flagged discrepancies in returns. The petitioner's appeal against the demand order was dismissed on 26.12.2022 as barred by limitation under Section 107 of the GST Act. The petitioner then approached the Allahabad High Court, contending that neither the Section 61 notice nor the Section 74 show cause notice specified any date or time for personal hearing, even though the petitioner had appeared on 18.03.2021 seeking further time to reply, on which application no order was ever passed before the demand was confirmed.

Issues Involved

  1. Whether the demand order was vitiated for failure to grant a personal hearing as mandated under Section 75(4) of the GST Act.
  2. Whether such a natural-justice defect could still be examined by the High Court even though the statutory appeal had already been dismissed as time-barred.

Petitioner's Arguments

  • Counsel submitted that no date of personal hearing was ever fixed in either the Section 61 notice or the Section 74 show cause notice, and that the petitioner's request for further time on 18.03.2021 was left undecided before the demand order was passed on 14.07.2021.
  • It was argued that Section 75(4) mandates an opportunity of hearing, and that this requirement applies regardless of whether the appeal against the resulting order was later dismissed on limitation.

Respondent's Arguments

  • The State's standing counsel defended the impugned orders on record, without disputing the absence of a specified date for personal hearing once the original file was summoned and examined by the Court.

Court Order / Findings

  • On examining the original file, the Court found that no opportunity of personal hearing was in fact granted to the petitioner, and that there was no allegation of fraud or misstatement specifically justifying invocation of Section 74 over Section 73.
  • Relying on its own precedent in Bharat Mint and Allied Chemicals, the Court held that the order was contrary to the mandate of Section 75(4) of the GST Act and in utter violation of the principles of natural justice, irrespective of the appeal having been dismissed on limitation.
  • The impugned order dated 14.07.2021 was quashed, with liberty to the respondent authority to pass a fresh order after affording an opportunity of hearing. The writ petition was allowed.

Important Clarification

  • A demand order passed without granting the mandatory personal hearing under Section 75(4) can be quashed in writ jurisdiction even where the taxpayer's own statutory appeal against that order was dismissed as time-barred, since the underlying natural-justice defect independently vitiates the order.
  • An undecided request for extension of time to file a reply, followed by confirmation of the demand without addressing that request, is itself indicative of a denial of a fair opportunity to be heard.

Sections Involved

  • Section 74, GST Act — determination of tax not paid by reason of fraud, wilful misstatement or suppression of facts.
  • Section 75(4), GST Act — mandates an opportunity of personal hearing before an adverse order is passed.
  • Section 107, GST Act — limitation for filing a first appeal against an order.

Decision – In Favour of

The decision is in favour of the assessee, with the demand order quashed and the department at liberty to pass a fresh order after affording a proper hearing.

Case Details

Court: High Court of Judicature at Allahabad (Lucknow Bench)
Case Number: Writ Tax No.174 of 2023
Coram: Hon'ble Mr. Justice Pankaj Bhatia
Date of Order: 28.08.2023

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