Personal Hearing Mandatory in GST Penalty Cases Even Without Request if Adverse Decision Contemplated: Allahabad High Court - 2025-04-21

Allahabad High Court: Personal Hearing Must Be Granted in GST Penalty Cases Even Without Explicit Request

Allahabad, India – In a significant judgment, the Allahabad High Court has reiterated the mandatory nature of providing a personal hearing in Goods and Services Tax (GST) penalty and tax imposition cases, even if the assessee does not explicitly request one. The ruling came in the case of M/S K.J. Enterprises v. State of U.P. AND OTHERS , where Justice Shekhar B.Saraf presided over the matter. The court quashed orders imposing tax and penalty on M/S K.J. Enterprises, citing a violation of natural justice due to the denial of a personal hearing.

Case Background

M/S K.J. Enterprises, a proprietorship firm engaged in scrap job work and hardware trading, was accused of wrongly availing Input Tax Credit (ITC) amounting to INR 22,00,00,000/- against alleged bogus invoices for the tax period 2019-20. Following an inspection and show cause notices, the Deputy Commissioner, State Tax, Sector – 4, passed an order imposing tax, penalty, and interest totaling INR 6,78,12,667.92/-. This order was subsequently upheld by the Additional Commissioner, Grade – 2, (Appeals – 1st), Commercial Tax, Agra. Aggrieved by these orders, M/S K.J. Enterprises filed a writ petition before the Allahabad High Court under Article 226 of the Constitution of India.

Court's Observation: Mandatory Personal Hearing Under Section 75(4) UPGST Act

The High Court, without delving into the merits of the tax evasion allegations, focused on a critical procedural lapse: the denial of a personal hearing to the petitioner. Justice Saraf highlighted Section 75(4) of the Uttar Pradesh Goods and Services Tax Act, 2017, which states:

> “75(4) An opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.”

The court emphasized the disjunctive nature of the word "or" in the provision. Even in the absence of a written request from the assessee, a personal hearing becomes mandatory if an adverse decision is being considered against them.

> "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."

The judgment underscored that "or" presents alternatives and should not be interpreted as "and," which would impose a stricter and unintended condition.

Reliance on Precedents and Principles of Natural Justice

The court drew support from several precedents to reinforce its stance on the importance of personal hearings. It cited the Supreme Court's ruling in Commissioner of Sales Tax, Uttar Pradesh -v- The Modi Sugar Mills Ltd. , which emphasized the literal interpretation of taxing statutes, focusing on what is "clearly expressed."

Furthermore, the Allahabad High Court referred to its own Division Bench decisions in cases like 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 . These judgments consistently upheld the mandatory requirement of a personal hearing under Section 75(4) of the UPGST Act, even without a specific request, when an adverse decision is contemplated.

> “From perusal of Section 75(4) of the Act, 2017 it is evident that opportunity of hearing has to be granted by authorities under the Act, 2017 where either a request is received from the person chargeable with tax or penalty for opportunity of hearing or where any adverse decision is contemplated against such person. Thus, where an adverse decision is contemplated against the person, such a person even need not to request for opportunity of personal hearing and it is mandatory for the authority concerned to afford opportunity of personal hearing before passing an order adverse to such person.” - Bharat Mint and Allied Chemicals v. Commissioner Commercial Tax and Others

The court also cited the Supreme Court’s Dharampal Satyapal Limited v. Deputy Commissioner of Central Excise, Guhati and Others judgment, highlighting the broader principle of natural justice and the necessity of a hearing even in administrative actions that may result in civil consequences.

> "Personal hearing represents a fundamental aspect of procedural fairness and natural justice, ensuring that individuals have the opportunity to present their case, respond to allegations, and address any concerns or mitigating factors directly to the decision-maker. It is a vital safeguard against arbitrary or unjust decisions."

Final Verdict and Implications

Finding a clear violation of Section 75(4) and principles of natural justice, the Allahabad High Court quashed both the order passed by the Deputy Commissioner, State Tax, Sector – 4, and the appellate order passed by the Additional Commissioner, Grade – 2, (Appeals – 1st), Commercial Tax, Agra.

The court directed the Respondent No. 2 (Additional Commissioner, Grade – 2, (Appeals – 1st), Commercial Tax, Agra) to grant a personal hearing to M/S K.J. Enterprises and pass a reasoned order within two months, in accordance with the law.

This judgment reinforces the importance of procedural fairness in tax proceedings and clarifies that tax authorities are obligated to provide a personal hearing in cases involving potential penalties and tax liabilities, irrespective of whether the assessee explicitly requests it, especially when an adverse decision is being considered. This ruling serves as a significant reminder to tax authorities to adhere to the principles of natural justice and statutory mandates to ensure fair and equitable tax administration.