Importance of Personal Hearing in GST Assessment
The 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), reaffirmed the fundamental principle of natural justice—every taxpayer must be granted an opportunity for a personal hearing before an adverse tax decision is made. This ruling clarifies that even if an individual does not explicitly request a hearing, tax authorities must provide one before finalizing assessments or penalties.
Case Background
M/s Sri Srinivasa Lorry Transport, an unregistered transporter under the Andhra Pradesh Goods and Services Tax Act (APGST Act) and the Central Goods and Services Tax Act (CGST Act), was inspected by the tax department on November 7, 2019. Based on the findings, a show-cause notice was issued on December 17, 2019, which the petitioner received on December 26, 2019. The petitioner sought time to file objections, but before they could do so, assessment and penalty orders were issued in September and November 2020, respectively. This led the petitioner to challenge the orders on the grounds of denial of natural justice.
Key Issues Considered by the Court
- Is prior authorization required for assessment under Section 63 of the CGST Act?
- Are three adjournments mandatory under Section 75 of the CGST Act before issuing an order?
- Is a personal hearing necessary even if not explicitly requested?
Court’s Observations and Ruling
1. No Prior Authorization Needed for Section 63 Assessments
The Court clarified that while Section 67 of the CGST Act requires prior authorization for inspections, Section 63 does not impose such a requirement for assessments of unregistered persons. Proper officers have the authority to conduct assessments without prior approval, provided they act within their territorial jurisdiction.
2. Adjournment Rule Under Section 75
Section 75 of the CGST Act governs procedural aspects of tax determination. While it permits adjournments, the Court highlighted that the provision sets an upper limit of three adjournments but does not mandate that all three must be granted before an order is passed.
3. Mandatory Personal Hearing
The Court ruled that a personal hearing must be granted in cases where an adverse order is anticipated, even if the taxpayer has not explicitly requested one. Denying a hearing breaches the principles of natural justice, warranting the quashing of such orders. The Court set aside the penalty and assessment orders, directing fresh proceedings with a personal hearing.
Legal Provisions Highlighted
- Section 63 (Assessment of Unregistered Persons): Tax authorities can assess the tax liability of unregistered taxable persons based on their best judgment.
- Section 75 (General Provisions for Tax Determination): A hearing is required when an adverse decision is being considered, and adjournments must be granted if sufficient cause is shown.
- Section 67 (Power of Inspection, Search, and Seizure): Prior authorization from higher authorities is necessary before conducting inspections or searches.
Implications of the Ruling
This judgment reinforces that tax authorities must uphold taxpayers’ rights by ensuring procedural fairness. It sets a precedent for:
- Taxpayers’ Protection: Ensures that businesses, especially unregistered entities, receive a fair hearing before facing penalties.
- Clarification on Adjournments: The ruling eliminates confusion regarding the requirement of three adjournments under Section 75.
- Procedural Compliance for Tax Authorities: Encourages GST officers to adhere strictly to due process to avoid orders being struck down by courts.
Conclusion
The Andhra Pradesh High Court’s decision reaffirms the necessity of procedural fairness in GST assessments. Taxpayers must be heard before any adverse decision is made, strengthening the principles of natural justice and ensuring a transparent tax administration system.