HC Sets Aside GST Appellate Order for Enhancing Tax Without Hearing

The dispute began with a show-cause notice issued over mismatches in GST returns for FY 2017-18. The petitioner claimed the notice went unnoticed as it was uploaded in a less-visible section of the GST portal, resulting in an ex parte order raising tax demand. While the petitioner partly succeeded in the appeal, particularly on ITC reversal, the appellate authority went a step further and increased the tax liability by reclassifying certain zero-rated supplies as taxable.

The petitioner argued that this enhancement came as a complete surprise, without any prior notice or opportunity to respond. It was also pointed out that the figures relied upon were outdated and had already been corrected in subsequent returns.

Main Issue: Whether an appellate authority can enhance tax liability on a new ground without granting an opportunity of hearing under Section 107(11).

HC’s Decision: The Court found the approach of the appellate authority to be legally flawed. It held that any enhancement of tax liability must be preceded by a proper opportunity of hearing, as clearly mandated under the law. Introducing a new ground at the appellate stage without notice was held to be a violation of natural justice.

The Court also flagged lack of proper application of mind, noting that corrected figures in later returns were ignored. Thus, the enhancement portion of the order was set aside and the matter was sent back for fresh consideration, with directions to grant a fair hearing before taking any decision.

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