An opportunity of personal hearing must be granted before an adverse decision is passed

The Hon’ble Andhra Pradesh High Court in the case of Sri Srinivasa Lorry Transport v. Assistant Commissioner ST [W.P. Nos. 5385 & 5456 of 2021 dated September 11, 2024] set aside the assessment and penalty orders on the ground that an opportunity of personal hearing must be granted before an adverse decision is taken, even if not explicitly requested and held that prior authorization is not required for assessment under Section 63 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”). It was also clarified that Section 75(5) of the CGST Act does not mandate a minimum of three adjournments before an order is passed.

Facts:

M/s Sri Srinivasa Lorry Transport, (“the Petitioner”), was carrying a lorry transport business. The premises of the Petitioner were inspected by the Assistant Commissioner (ST) (“the Respondent”), on November 7, 2019. At that time the Petitioner was not a registered dealer under the Andhra Pradesh Goods and Services Tax Act, 2017 (“the APGST Act”) or the CGST Act, 2017. A Show-Cause Notice dated December 17, 2019 was issued on the basis of the said inspection. This notice was received by the Petitioner on December 26, 2019, after receipt of this notice, the Petitioner had submitted a letter dated January 4, 2020, seeking time to file objections. The said letter was received by the Respondent on January 21, 2020. Thereafter, an order dated September 21, 2020 (“the Impugned Order-1”) was passed, apart from this, order dated November 9, 2020 (“the Impugned Order-2”) of penalty was also passed. The Petitioner had filed objections to the assessment in October-2020, after the Impugned Orders had been passed.

Thus, aggrieved by the Impugned Orders, the Petitioner has filed the present writ petitions.

Issues:

• Whether prior authorization is required under Section 63 of the CGST Act for an assessment based on inspection or audit?
• Whether three adjournments are mandatory under Section 75 of the CGST Act before an order is passed?
• Whether an opportunity for personal hearing is required even if not explicitly requested?

Held:

The Hon’ble Andhra Pradesh High Court in W.P. Nos. 5385 & 5456 of 2021 held as under:

• Noted that, Section 67 of the CGST Act requires previous authorization from the competent authority before any officer of the tax department can inspect the premises of the dealer or conduct an audit of the accounts of a dealer. In the present case, such previous authorization had already been given on November 5, 2019. 
• Observed that, Section 63 of the CGST Act regulates the assessment of un-registered persons. This provision authorizes the appropriate officer to assess the tax liability of any taxable person who has not obtained registration even though he is liable to obtain such registration. The language in Section 63 of the CGST Act does not provide for any prior authorization being necessary where the assessment has been done by the proper officer. The term “proper officer” is defined, in Section-2(91) of the CGST Act, to mean an officer to whom any function to be performed under the CGST Act is assigned by the Commissioner. The territorial limit of each assessing officer is assigned by the Commissioner. It is stated that the Adanki circle was the territorial circle for the area in which the Petitioner was carrying on business and it was subsequently disbanded and merged into Ongole-1 circle by way of G.O.Ms.No.502, Revenue (CT-1) Department, dated July 1, 2022, which was published in Andhra Pradesh Gazette on July 5, 2022.
• Opined that, the language in this provision is clear and unambiguous. The said provision only places an outer limit on the number of adjournments that can be granted and the said language does not lend itself to an interpretation that a minimum of three adjournments have to be given before any order can be passed.
• Held that, the Respondent was the appropriate assessing authority and as the territorial assessing authority did not require any authorization under Section 63 of the CGST Act. Further, Section 75 of the CGST Act only places an outer limit on the number of adjournments that can be granted and does not lend itself to an interpretation that a minimum of three adjournments have to be given before any order can be passed. Thereby, setting aside the Impugned Orders, while leaving it open to the Respondent to undertake a fresh assessment proceeding and consequential proceeding, if any, after giving an opportunity of personal hearing to the Petitioner.

Our Comments:

Section 63 of the CGST Act, governs “Assessment of unregistered persons”. It provides that notwithstanding anything to the contrary contained in Section 73 of the CGST Act or Section 74 of the CGST Act, where a taxable person fails to obtain registration even though liable to do so or whose registration has been cancelled under sub-section (2) of Section 29 of the CGST Act but who was liable to pay tax, the proper officer may proceed to assess the tax liability of such taxable person to the best of his judgment for the relevant tax periods and issue an assessment order within a period of five years from the date specified under section 44 for furnishing of the annual return for the financial year to which the tax not paid relates. However, no such assessment order shall be passed without giving the person an opportunity of being heard

Section 75 of the CGST Act, governs “General provisions relating to determination of tax”. Section 75(4) of the CGST Act, stipulates that 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. Section 75(5) of the CGST Act states that the proper officer shall, if sufficient cause is shown by the person chargeable with tax, grant time to the said person and adjourn the hearing for reasons to be recorded in writing.However,no such adjournment shall be granted for more than three times to a person during the proceedings.

Section 67 of the CGST Act, governs “Power of inspection, search and seizure”. It stipulates that no inspection of any dealer can be carried out unless the previous authorization is obtained from the Joint Commissioner or the Commissioner.

This judgment upholds that assessee must be heard before adverse decisions are taken thereby, aligning this decision with previous natural justice rulings. The judgment also clarifies procedural aspects of assessment under Section 63 of the CGST Act.

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