Facts of the Case

The petitioner, M/s. Bhawani Castings Pvt. Ltd., sought quashing or reading down of Section 16(2)(c) of the Central GST Act/Punjab GST Act, 2017 (which denies Input Tax Credit unless the tax charged has actually been paid to the Government by the supplier). After receiving show-cause notices dated 03.02.2023 under Section 74, the petitioner filed a reply on 04.03.2023 and specifically opted, on the reply form itself, for a personal hearing — which was not granted before adverse orders dated 05.06.2023 were passed against it.

Issues Involved

  1. Whether adverse orders passed under Section 74 of the CGST/PGST Act without granting a personal hearing, despite the petitioner having specifically requested one under Section 75(4), could be sustained.
  2. Whether Section 16(2)(c) of the CGST/PGST Act was liable to be read down or struck down as unconstitutional (kept for a later stage).

Petitioner's Arguments

  • Section 75(4) of the CGST/PGST Act mandates that an opportunity of hearing be granted where a written request is received from a person chargeable with tax or penalty before any adverse order is passed pursuant to a show-cause notice under Section 74; the petitioner had specifically opted for a personal hearing in its reply, which was not granted.
  • Reliance was placed on the same Court's own precedents in M/s. Naresh Aggarwal Agencies Pvt. Ltd. v. State of Punjab (CWP-26101-2021, decided 21.12.2021) and M/s. Raghunandan Iron & Steel Company v. State of Punjab (CWP-13852-2021, decided 28.07.2021), both of which were disposed of by granting an opportunity of hearing in similar circumstances.

Respondent's Arguments

  • Learned Senior Deputy Advocate General, Punjab, appearing on notice of motion, was unable to dispute the applicability of Section 75(4) of the CGST Act mandating a hearing where specifically requested.

Court Order / Findings

  • The Court held that, since the petitioner had specifically opted for a personal hearing in its reply to the show-cause notices dated 03.02.2023 and the State was unable to dispute the mandatory nature of Section 75(4) of the CGST Act, the orders dated 05.06.2023 passed without such a hearing could not be sustained.
  • The petition was disposed of directing the respondents to grant the petitioner an opportunity of hearing on the show-cause notices and thereafter pass a fresh order in accordance with law, setting aside the orders dated 05.06.2023.
  • The petitioner's separate challenge to the vires of Section 16(2)(c) of the CGST/PGST Act was expressly kept open for consideration at a later stage.

Important Clarification

Section 75(4) of the CGST/PGST Act makes a personal hearing mandatory before any adverse order is passed pursuant to a Section 74 show-cause notice, whenever the noticee has specifically requested such a hearing in writing (including by selecting that option on the reply form); non-compliance renders the resulting order liable to be set aside for a fresh hearing, regardless of the underlying merits of the tax demand.

Sections Involved

  • Section 16(2)(c) of the CGST Act/Punjab GST Act, 2017 – conditions availment of Input Tax Credit on actual payment of tax by the supplier to the Government, the provision whose vires the petitioner sought to challenge.
  • Section 74 of the CGST Act/Punjab GST Act, 2017 – governs determination of tax not paid by reason of fraud, wilful misstatement or suppression.
  • Section 75(4) of the CGST Act/Punjab GST Act, 2017 – mandates an opportunity of personal hearing before an adverse order, where requested in writing.

Decision – In Favour of

The decision was in favour of the Assessee on the procedural hearing issue, with the adverse orders set aside and a fresh hearing directed; the substantive constitutional challenge to Section 16(2)(c) was left undecided and kept open.

Case Details

  • Court: High Court of Punjab and Haryana at Chandigarh
  • Case Number: CWP-15288-2023
  • Neutral Citation: 2023:PHHC:091496-DB
  • Coram: Hon'ble Ms. Justice Ritu Bahri and Hon'ble Mrs. Justice Manisha Batra
  • Date of Order: 20 July 2023

Link to Download the Order

Click here to view/download the full order

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.