Violation of Natural Justice in GST Proceedings: Allahabad High
Court Quashes ₹11.74 Crore Demand
Case Title: M/s J.V.D.
Metals vs. State of Uttar Pradesh and Another
Case No.: Writ Tax No.
1411 of 2025
Date of Order: 2nd April 2025
Court: High Court of Judicature at Allahabad (Chief Justice’s Court)
Coram: Hon’ble Chief Justice Arun Bhansali and Hon’ble Justice Kshitij
Shailendra
Neutral Citation No.: 2025:AHC:54261-DB
Counsel for Petitioner: Shri Anil Prakash Mathur
Counsel for Respondent: Shri Ankur Agarwal, Standing Counsel
Summary of
the Case
The writ petition filed
by M/s J.V.D. Metals challenged a demand order dated 13.12.2024 passed
under Section 74 of the CGST/UPGST Act, 2017 by the Deputy Commissioner,
Sector-1, Khatauli, Muzaffarnagar. The order raised a tax demand of
₹11,74,37,329.16 based on the allegation of bogus purchases.
The petitioner contended
that the impugned order was passed without granting an opportunity of personal
hearing, in gross violation of the principles of natural justice and Section
75(4) of the Act. The court agreed with the petitioner’s contention and held
that absence of personal hearing vitiated the proceedings. The order was
quashed, and the matter remanded for fresh adjudication after providing an
opportunity to be heard.
Facts of
the Case
1. On
28.08.2023, an inspection was carried out at the business premises of
M/s J.V.D. Metals.
2. Based
on this inspection and a data analysis, the Deputy Commissioner, GST, issued a Show
Cause Notice dated 24.07.2024 under Section 74 of the GST Act.
3. The
notice alleged that:
o The
petitioner procured inward supplies from firms that had either not reported
purchases in GSTR-2A or whose registrations were already cancelled at the time
of transaction.
o These
suppliers were flagged as non-existent or fake, implying that the input tax
credit claimed was inadmissible.
4. The
petitioner was required to submit a reply to the SCN by 23.08.2024.
5. When
no reply was received, a reminder was issued on 14.10.2024, asking for a
reply by 30.11.2024.
6. Despite
receiving this reminder, the petitioner did not file any reply.
7. Consequently,
the impugned order dated 13.12.2024 was passed determining the tax
liability based on allegations in the SCN without granting a personal
hearing.
Submissions
by the Petitioner
Advocate Anil Prakash
Mathur, appearing for the petitioner, submitted that:
- The impugned order violates the
principles of natural justice, as no personal hearing was granted.
- The Show Cause Notice and Reminder
Notice explicitly mentioned 'N.A.' under the column for
personal hearing.
- The denial of hearing was
arbitrary, especially when the order proposes significant adverse
consequences (tax demand over ₹11 crores).
- Even if the petitioner did not submit
a written reply, Section 75(4) of the Act mandates an opportunity
of hearing whenever an adverse decision is contemplated.
- The absence of a written reply
does not eliminate the requirement of a personal hearing, where legal
and jurisdictional submissions can be raised orally.
Submissions
by the Respondents
Shri Ankur Agarwal,
Standing Counsel for the State, contended:
- The impugned order is appealable
under Section 107 of the GST Act, and the petitioner has not provided
adequate reasons for bypassing the appellate remedy.
- The petitioner was served with
both the Show Cause Notice and Reminder but chose not to file any reply.
- Since no written reply was submitted,
there was no basis to schedule a personal hearing.
- The requirement of a personal
hearing, as per the department's interpretation, only arises if a
reply is filed.
Court’s
Observations and Findings
The Division Bench
analyzed the matter in light of statutory provisions and fundamental principles
of administrative fairness. The key observations are as follows:
1. Violation of Section
75(4) of the GST Act
Section 75(4) of the GST
Act states:
"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 held that:
- A personal hearing is mandatory
when any adverse order is contemplated, even if no reply is filed.
- The authority pre-decided not to
grant a hearing by marking ‘N.A.’ in the SCN and reminder, which violates
Section 75(4).
- The authority cannot deny a
statutory right merely because a written reply is not filed.
2. Right to Be Heard Is
Independent of Filing Reply
The court clarified that:
- The right to personal hearing is
not conditional upon filing a reply.
- Even without a reply, an assessee may
raise legal contentions such as:
- Limitation
- Jurisdictional defects
- Procedural irregularities
Thus, denying the hearing
defeated a vital defense mechanism available to the assessee.
3. Pre-emptive Denial of
Hearing Not Justifiable
The court noted that:
- Denial of hearing through an
administrative tick box (‘N.A.’) prejudged the matter.
- It reflected a mechanical approach,
violating due process.
- This alone was sufficient to invalidate
the order, regardless of the merits of the allegations.
Judgment
The High Court passed the
following orders:
1. The
impugned order dated 13.12.2024 passed by the Deputy Commissioner, GST,
Muzaffarnagar, was quashed and set aside.
2. The
matter was remanded back to the same authority for fresh adjudication.
3. The
petitioner was granted liberty to file a reply to the Show Cause Notice by
30.04.2025.
4. The
department was directed to consider the reply and provide a personal
hearing, and thereafter pass a reasoned order in accordance with law.
Conclusion
The decision of the
Allahabad High Court in the case of M/s J.V.D. Metals vs. State of U.P.
is a significant reiteration of the importance of procedural fairness
under the GST regime. The court emphasized that:
- Natural justice is a cornerstone
of tax adjudication.
- The right to be heard is not a
formality, but a statutory and constitutional right.
- Administrative convenience cannot
override legal safeguards.
- Departments must not adopt a
mechanical or technical approach in denying personal hearings.
This judgment is a guiding
light for both taxpayers and authorities, reinforcing that compliance
with procedure is not optional, even in cases involving suspected tax
evasion or fraud.
Disclaimer: All
the Information is based on the notification, circular and order issued by the
Govt. authority and judgement delivered by the court or the authority
information is strictly for educational purposes and on the basis of our
best understanding of laws & not binding on anyone.
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