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Facts of the Case

Party Time Hospitality, proprietor Smt. Punita Gupta, challenged an order dated 16.11.2021 confirming a demand under Section 74 of the GST Act and a further order dated 04.08.2023 dismissing the consequent appeal as time-barred, before the Lucknow Bench of the Allahabad High Court, after the original record was summoned and produced. The petitioner contended it had taken over a party lawn under a lease deed dated 01.08.2018 and had nothing to do with its affairs before that date. The show-cause notice dated 28.09.2021, based on a survey finding undeposited tax, was silent on how Section 74 (fraud/wilful misstatement) applied, and left the personal-hearing date, time and venue undisclosed, though it did specify a reply date.

Issues Involved

  1. Whether the show-cause notice, silent on the date, time and venue of personal hearing, and on the specific fraud or wilful misstatement alleged, satisfied the mandate of Section 75(4) of the GST Act.
  2. Whether the appellate authority was correct in dismissing the appeal solely on the ground of limitation without regard to the underlying natural-justice defect.

Petitioner's Arguments

  • The petitioner argued that the summary of the show-cause notice did not demonstrate what part of fraud, misrepresentation or wilful misstatement was alleged, making invocation of Section 74 questionable on its face.
  • It was submitted that no date, time or venue of personal hearing was disclosed in the show-cause notice, violating the mandatory requirement under Section 75(4) as interpreted in Mohini Traders v. State of U.P., Lari Almirah House v. State of U.P., and Bharat Mint & Allied Chemicals v. Commissioner of Commercial Tax.
  • It was contended that the petitioner had no involvement with the party lawn's affairs prior to the 01.08.2018 lease, bearing on the merits of any fraud allegation for the assessed period, July 2017 to March 2018.

Respondent's Arguments

  • Counsel for the respondent argued that the petitioner did not file any reply to the show-cause notice, and that the subsequent appeal was, in any event, correctly dismissed as filed beyond the prescribed limitation period under Section 107 of the GST Act.

Court Order / Findings

  • The Court found that admittedly no hearing had been accorded to the petitioner, which was contrary to the mandate of Section 75(4) of the GST Act, an expropriatory action requiring compliance with principles of natural justice regardless of whether a reply was filed.
  • Following its own precedents in Mohini Traders, Lari Almirah House, and Bharat Mint & Allied Chemicals, the Court held that the mandatory requirement of a personal hearing under Section 75(4) applies irrespective of whether the assessee has filed a reply, and non-compliance vitiates the resultant order.
  • Both the original demand order dated 16.11.2021 and the appellate order dated 04.08.2023 were set aside, and the matter remanded for a fresh order to be passed after affording an opportunity of hearing.

Important Clarification

  • The mandatory personal-hearing requirement under Section 75(4) of the GST Act applies even where the assessee has not filed any reply to the show-cause notice; non-grant of a hearing vitiates the resultant order regardless of the assessee's own default in responding.
  • A time-barred appeal does not immunise the original order from writ scrutiny where the underlying order itself suffers from a fundamental natural-justice defect such as denial of a mandatory hearing.

Sections Involved

  • Section 74, GST Act, 2017 – governs determination of tax not paid by reason of fraud, wilful misstatement or suppression of facts.
  • Section 75(4), GST Act, 2017 – mandates an opportunity of personal hearing before an adverse order.
  • Section 107, GST Act, 2017 – prescribes limitation for filing a first appeal.

Decision – In Favour of

The decision is in favour of the assessee. Both the Section 74 demand order and the appellate order dismissing the appeal as time-barred were set aside for denial of the mandatory personal hearing, with the matter remanded for fresh adjudication.

Case Details

Court: Allahabad High Court (Lucknow Bench)
Case No.: Writ Tax No. 176/2023
CNR / Citation: 2023:AHC-LKO:57456
Coram: Hon'ble Mr. Justice Pankaj Bhatia
Date of Order: 28 August 2023

Link to Download the Order

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