M/S Madhu Filament vs. Assistant Commissioner (St) (Fac)

Facts

The petitioner, M/s. Madhu Filament, a manufacturer of knitted fabrics (Chapter Heading 6001, 5% GST), challenged assessment orders for the periods 2017-18 to 2021-22. The respondent, Assistant Commissioner (ST), alleged the petitioner also marketed and sold finished products like sacks, bags, and fishing nets (Chapter Head 3926, 18% GST) based on Indiamart.com listings. A surprise inspection on June 22, 2022, did not find these finished goods. The petitioner received notices in Form GST DRC-01A and DRC-01, and submitted replies. The impugned orders, dated November 3, 2023, were passed without considering the petitioner's reply dated October 10, 2023, and without providing a personal hearing after the DRC-01 notice.

Held

The Court held that the principles of natural justice were violated. While the petitioner did not explicitly request a personal hearing in their reply dated October 10, 2023, Section 75(4) of the GST Act, 2017, mandates an opportunity of hearing when an adverse decision is contemplated against a person. The Court noted that the respondent's officer confirmed that no personal hearing was provided after the notice in Form DRC-01 dated September 29, 2023. Furthermore, the inspection did not identify any finished goods in the petitioner's premises. Relying on its previous order in W.P. Nos. 4105, 4110, and 4108 of 2023, the Court found that the respondent ought to have provided an opportunity of personal hearing after considering the petitioner's reply dated October 10, 2023. Consequently, the impugned assessment orders were set aside and the matter was remanded back to the respondent for fresh consideration, with the petitioner directed to appear for a personal hearing on February 26, 2024. The respondent was to pass a decision within four weeks thereafter, considering the petitioner's reply, inspection report, and providing a personal hearing.

Key Issues

1. Whether the assessment orders passed by the respondent are liable to be quashed for violation of the principles of natural justice, specifically for not providing an opportunity of personal hearing after the petitioner submitted a reply to the notice in Form GST DRC-01, contrary to Section 75(4) of the GST Act, 2017? Petitioner's arguments: The petitioner contended that the respondent passed adverse orders without considering their reply dated October 10, 2023, and failed to provide a personal hearing as mandated by Section 75(4) of the GST Act, 2017, especially when an adverse decision was contemplated. They relied on a previous High Court order in W.P. Nos. 4105, 4110, and 4108 of 2023, which held that a personal hearing must be provided before any adverse decision. Respondent's arguments: The respondent argued that the assessment orders were based on available materials, including Indiamart.com listings. They asserted that notices were issued, and the petitioner participated in the inquiry and submitted replies. They claimed a personal hearing was provided on September 6, 2023, and therefore, no principles of natural justice were violated.