GST | Opportunity Of Hearing Must Before Taking Adverse View: Allahabad High Court Quashes Penalty Order

The Allahabad High Court has held that principles of natural justice must be complied with before drawing any adverse inference.

While quashing the penalty order and subsequent order of the appellate authority, Justice Piyush Agrawal held, “Once the authorities intend to take an adverse view, the petitioner has to be informed and put to notice to rebut the same and therefore, the impugned order cannot be sustained in the eyes of law.”

Factual Background

Goods of the petitioner were in transit when they were intercepted. On physical weighment, weight of the goods was found lower than what was mentioned in the e-way bill. Accordingly, proceedings were initiated against the petitioner and penalty order was passed. Appeal against the same was dismissed.

Counsel for petitioner contended that due to mistake of the Accountant wrong weight of scrap iron was mentioned in the e-way bill. However, the mistake had been rectified before the movement of the goods from its originating place. It was submitted that correct copy of invoices and e-way bill had been produced before detention of goods. The penalty and consequential demand order were passed without considering the corrected documents.

It was further contended that the appellate authority had taken an adverse view regarding the intention of the petitioner without giving him an opportunity of hearing. Accordingly, the order of penalty and the appellate authority was liable to be set aside.

Per contra, Counsel for respondent stressed on the intention to evade tax as the petitioner had generated the corrected tax invoice on the same number as the old one.

High Court Verdict

The Court observed that if in the e-way bill more weight was mentioned than what was actually found, no adverse inference could be drawn against the petitioner.

The Court noted that after detaining the goods, show cause notice was issued. However, before the seizure order could be passed, correct e-way bill was produced cancelling the earlier e-way bill. Accordingly, the Court observed that “if, after issuance of show cause notice and before passing the seizure order, documents are produced, no adverse inference can be drawn, but in the case in hand, the petitioner has issued two bills of the same number with correct weight and the same was produced before the authorities below.”

The Court observed that only the appellate authority had drawn an adverse inference from the aforesaid fact. The penalty order did not record the same. The Court held that before taking an adverse view against the petitioner, an opportunity of hearing must be provided. Accordingly, the penalty order and order of the appellate authority were quashed and the case was remanded back for fresh consideration.

Case Title: M/S New India Traders vs. State Of U.P. And 2 Others 2023 LiveLaw (AB) 413 [WRIT TAX No. - 527 of 2023]

Citation: 2023 LiveLaw (AB) 413

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