M/S. Sri Surya Developers vs. Commissioner Of Central Tax

Facts

M/s. Sri Surya Developers (the petitioner) filed a writ petition challenging an Order-in-Original dated November 1, 2022, passed by the Commissioner of Central Tax, Ranga Reddy GST Commissionerate (respondent No. 1). The impugned order confirmed a demand of Rs. 3,94,53,998/- against the petitioner under Section 73(2) of the Finance Act, 1994, along with interest under Section 75 and a penalty of Rs. 3,94,53,998/- under Section 78. Penalties under Section 77 and late fees under Section 70(1) were also imposed. The petitioner contended that the order was passed in violation of principles of natural justice, as show cause notices were not effectively served, and no personal hearing was provided, especially during the Covid period. The petitioner also argued that the proceedings contravened a master circular dated March 10, 2017, which mandates at least three opportunities for personal hearing.

Held

The Court held that the impugned Order-in-Original dated November 1, 2022, was unsustainable and deserved to be set aside/quashed. The primary reasoning was the violation of the principles of natural justice, particularly the lack of a proper opportunity for personal hearing. The Court noted that the Department's own master circular dated March 10, 2017, clause 14.3, clearly envisages providing fair opportunities for replying to show cause notices and mandates at least three opportunities for personal hearing with sufficient intervals. The Court found that there was no record to substantiate that these instructions were followed, and crucially, the Department's counsel admitted that there were no documents to prove the effective service of notice for personal hearing upon the petitioner. Consequently, the matter was remitted back to respondent No. 1 for fresh proceedings. The impugned order itself was to be treated as the Show Cause Notice, and the petitioner was directed to submit a reply by January 19, 2024. Thereafter, the respondents were to provide a date for personal hearing in accordance with the guidelines, and an appropriate decision was to be passed on merits. The ratio decidendi is that an order passed without providing a proper opportunity for personal hearing, especially when mandated by departmental circulars, is violative of natural justice and liable to be quashed.

Key Issues

1. Whether the impugned Order-in-Original No. HYD-EXCUS-004-COM-015-2022-23 dated 01.11.2022, passed by Respondent No. 1, is illegal and arbitrary for being in violation of the principles of natural justice, specifically concerning the lack of effective service of show cause notices and the absence of a personal hearing, as mandated by the master circular dated 10.03.2017? (Question of law and mixed fact and law, turning on principles of natural justice and the master circular). Petitioner's contentions: The impugned order is unsustainable as it violates the principles of natural justice. Show cause notices were not effectively served, and the petitioner could not effectively defend the proceedings due to the Covid-19 pandemic. Crucially, no personal hearing was provided, which is mandated by the guidelines. The petitioner relied on the master circular dated 10.03.2017, specifically clause 14.3, which stipulates that at least three opportunities for personal hearing should be given with sufficient intervals. Respondents' contentions: The learned Senior Standing Counsel for CBIC appeared for the respondents. On a specific direction from the Court to provide proof of service of notice for personal hearing, the counsel submitted that there were no documents to prove effective service of the notice of personal hearing upon the petitioner.