GST update No 275 on quashing of assessment order since no hearing was granted

The revenue authorities often fail to provide sufficient opportunity to the assessee thereby violating the principles of natural justice resulting into quashing of proceedings. The Court is flooded with number of cases wherein the importance of providing opportunity of hearing is explained. Once again, one more case on the same issue was reported before Madras High Court in the case of M/S ANANTHAM SILKS. The decision delivered in this case is the subject matter of discussion of our present update.The petitioner is engaged in trading of textiles and garments and having showrooms in other places as well. The partnership firm of the assessee was dissolved and a private limited company was formed which continued with the same trading activities. An inspection under Section 67 of CGST Act, 2017 was conducted in the three showrooms wherein the team pointed out at theirregularities in the transactions undertaken and revision of assessment was made based on the inspection report. Based on this, show cause notice was issued demanding explanation of the issue along with documentary evidence. It was submitted that communication was issued by the departmental officers in DRC-01A for the FY from 2017-18 to 2020-21 alleging the defects in tax liabilities and nonmaintenance of accounts. The petitioner requested time period of 30 days to submit the response vide letter dated 22.12.2021. The respondent directed the petitioner to appear for personal hearing vide letter dated 28.12.2021. The petitioner vide letter dated 03.1.2022 replied in Part-B of DRC-01A stating that the tax demanded is not correct on facts and law. Further, it was submitted tFurther, it was submitted that inspection and investigation was conducted by different officers in wrong manner which resulted into misunderstanding of facts and misinterpretation of provisions and notifications. It was argued that proceedings were carried out in completely perverse manner in complete violation of principles of natural justice. Therefore, DRC-01A should be rejected. The respondent without taking into consideration the seriousness of the objections of the petitioner intimated vide letter dated 11.01.2022 that final opportunity of hearing is to be provided and directed the assessee to appear for the same as on 24.01.2022. The authorised representative appeared and explained that personal hearing cannot be initiated at the stage of adjudicating proceedings and reiterated the submissions of the petitioner. It was contended that the order passed is in violation of principles of natural justice. It was submitted that no show cause notice was served before passing the order. It was further submitted that filing of appeal against the order would tantamount to acceptance of legality of the order. The appeal is preferred within the time limit as prescribed by the Law and the Suo moto extension of limitation by the Apex Court.142(1A) of CGST Rules, 2017. It was contended that the respondent vide DRC-09 directed the Branch Manager to recover the amount due from the petitioner consequent to the impugned order. The order passed is in gross violation of principles of natural justice and not following the procedures as prescribed under the Law. In this regard, reference was drawn to following circulars and rulings:• CIRCULAR NO. 10/2019 DATED 31.05.2019 • CIRCULAR NO. 72/2019 DATED 31.05.2019 • MAHINDRA AND MAHINDRA LTD. V/S JOINT COMMISSIONER (CT) APPEALS • MAHINDRA AND MAHINDRA LTD. V/S THE DEPUTY COMMISSIONER (CT)-II • M/S NKAS SERVICES PRIVATE LIMITED, KOLKATA V/S THE STATE OF JHARKHAND AND OTHERS • M/S V.R.S. TRADERS V/S ASSISTANT COMMISSIONER (STATE TAXES) • AGROMETAL VENDIBLES PVT. LTD. V/S STATE OF GUJARATThe respondent submitted that petitioner did not raise any objection to the inspection carried out and also agreed to the defects pointed out during the investigation and paid Rs. 89,52,450/-. Hence, the objections are not acceptable. Further it was argued that the burden of proof lies on the dealer wherein the adjudicating authority is to be satisfied that there is no evasion of tax on his end. Therefore it was argued that notice is issued and properly served in accordance with the provisions of the Act. It was further argued that the objections made by the appellant were not convincing and acceptable.The Court observed that the authorised representative of the assessee failed to provide proper explanation along with supporting documents. It was further observed that after issuance of notice in DRC-01A dated 06.12.2021, respondent issued DRC-01A. Thereafter, a show cause notice under Section 74 of CGST Act 2017 and then assessment order is to be issued. However, the said procedure was not followed and respondent issued a communication in DRC-09 directing the branch manager to recover the amount due from the petitioner under Section 79 of the CGST Act, 2017. Therefore, assessment orderswere quashed and recovery notice issued to the bank was also quashed. The respondent directed to issue notice after following procedures prescribed in accordance with law. The above decision is yet another epitome supporting the fact that proper adjudication process which is duly prescribed under law should be followed. There had been plethora of cases wherein Court delivered the decisions in favour of the assessees when there has been violation of the principles of natural justice. To illustrate, Andhra Pradesh High Court in the case of SREE CONSTRUCTIONS V/S THE ASSISTANT COMMISSIONER (ST) held that opportunity of hearing must be provided before imposing any tax/penalty of taking adverse decision. Judicial Pronouncements like these should be followed unconditionally by the lower authorities before initiating any action for recovery of demand against the taxpayers.

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GST update No 275 on quashing of assessment order since no hearing was granted

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