No Hearing, No Justice! HC Strikes Down GST Order on Fake ITC under section 74

In a battle between procedure and fairness, the assessee company, engaged in manufacturing and selling glass bottles, found itself locked in a taxing predicament. The company had availed of Input Tax Credit (ITC) on raw materials purchased from registered dealers in August 2021. However, the tax department issued a show-cause notice under Section 74(1) of the GST Act, accusing the company of fraudulent ITC claims. The company responded with a detailed reply, relying on tax invoices, bank statements, and their GSTR 2A. The department ceremoniously rejected the reply and instead passed a penalty order dated 10.05.2022, without conducting a hearing and without furnishing the survey report. The company went on an appeal against the penalty order, which was dismissed on 25.09.2024 by the Additional Commissioner (Appeals). Aggrieved, the company filed a writ petition before the High Court.

Issue Before the Court: When no clause in the GST Act specifically permits such a procedural diversion, could the adjudicating authority reserve judgment without informing the petitioner or giving them an opportunity to be heard at a later time?

HC Held: The Hon’ble High Court, after reviewing the records and the appellate authority’s personal affidavit, discovered a clear procedural error. Although the judgment was reserved on September 18, 2024, it was delivered a week later without informing the petitioner. There was no explanation, provision, or notification cited by the department that authorised such a practice. The petitioner’s right to a fair hearing had been compromised. The Court stressed that it is against the principles of natural justice to deliver a judgment without notice after reserving it, citing its own precedent in M/s Wonder Enterprises v. Addl. Commissioner.

Therefore, the High Court set aside the appellate order dated 25.09.2024 and remanded the matter back for fresh adjudication. Importantly, it directed the Additional Commissioner (Appeals), Mainpuri, to reconsider the case de novo, ensuring a proper opportunity for hearing to all stakeholders. The Court thereby ordered to complete the entire process within three months, once a certified copy of the order is provided.