75(4) UPGST Act| Even If There Is No Request For Personal Hearing, Must Be Heard Before Adverse Decision: Allahabad High Court

The Allahabad High Court has held that before taking any adverse decision under the Uttar Pradesh Goods and Service Tax Act 2017, an opportunity of hearing must be provided to the assesee even if there is no request on his part.

Relying on various decisions of the Allahabad High Court regarding mandatory opportunity of hearing under Section 75(4) of the UPGST Act, Justice Shekhar B. Saraf held that

“Even if no request is received from the person chargeable with tax or penalty, an opportunity of personal hearing must be granted if any adverse decision is contemplated against such person”

Section 75(4) of the UPGST Act provides that an opportunity of hearing must be granted if requested in writing or where any adverse action is contemplated against such person.

The Court held that the word 'or' in Section 75(4) is disjunctive in nature. It has held that the legislature has deliberately used the word 'or' to provide two separate scenarios in which opportunity of hearing must be given to an assesee.

“The inclusion of “or'' in Section 75(4) of the UPGST Act, 2017, emphasizes the dual nature of the obligation to provide a personal hearing, accommodating both proactive requests from individuals seeking to defend their interests and reactive responses to adverse orders contemplated by tax authorities. In either scenario, the statutory mandate remains clear: the individual must be afforded an opportunity for personal hearing before any final determination is made regarding tax or penalty imposition.”

Factual Background

In March 2018, petitioner purchased inputs from different registered firms, in which ITC claim was made as per the UPGST Act, 2017. Further, transactions were made in 2019-20 for which bills were raised. During survey of the petitioner's premises, petitioner was made to deposit certain amount in DRC-03

Petitioner was issued summons to appear before the authorities along with stock register and other relevant documents for verification. Thereafter, a show cause notice was issued under Section 74 of the UPGST Act, 2017 for tax period 2019-20, alleging that the petitioner had wrongly availed input tax credit amounting to Rs. 22,00,00,000/- against bogus tax invoices and utilized the same by fraud or misstatement, suppression of facts, etc.

Subsequently, another show cause notice was issued to the petitioner to which the petitioner replied. The Deputy Commissioner, State Tax, Sector- 4 rejected the reply of the petitioner and imposed tax and penalty amounting to Rs. 6,78,12,667.92/-. The appellate authority upheld the tax and penalty imposed on the petitioner.

High Court Verdict

The Court observed that opportunity of hearing under Section 75(4) was not provided to the petitioner.

The Court held that the word 'or' in Section 75(4) being disjunctive in nature provides two scenarios in which it is mandatory for the authorities to provide the assessee with an opportunity of hearing.

“Moreover, the statutory mandate for personal hearing reflects an acknowledgement of the complex and multifaceted nature of tax and penalty determinations, which often involve intricate legal and factual considerations. Personal hearing provides a forum for nuanced discussion and exploration of these complexities, enabling decision-makers to make well-informed and equitable decisions based on a comprehensive understanding of the circumstances at hand.”

The Court relied on the division bench decisions of the Allahabad High Court in Bharat Mint and Allied Chemicals v. Commissioner Commercial Tax and Others, Mohini Traders v. State of U.P. and Others, and M/s Primeone Work Force Pvt. Ltd. v. Union of India, where it has been held that opportunity of hearing before passing of an adverse order is mandatory.

The Court also relied on Dharampal Satyapal Limited v. Deputy Commissioner of Central Excise, Guhati and Others, where the Supreme Court held that opportunity of hearing is must for before any administrative action is taken which results into civil consequences.

Since no opportunity of personal hearing was granted to the petitioner under Section 75(4) of the UPGST Act and this error had been overlooked by the appellate authority, the Court quashed the penalty order as well as the order of the appellate authority.

Case Title: M/s K.J. Enterprises vs. State of U.P. and others 2024 LiveLaw (AB) 73 [Writ Tax No. 1544 of 2022]

Case citation: 2024 LiveLaw (AB) 73

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