Court Rules: GST Department Can't Pass Orders Without Hearing Taxpayer Who Was Ill

The Hon'ble High Court of Calcutta in Kamakhya Construction and Company v. Commissioner of State Goods and Service Taxes (WPA 602 of 2025, decided on April 4, 2025) held that where an impugned order was passed ex-parte holding that the assessee was liable to pay interest on tax, and the assessee could not be represented due to illness, a last opportunity should be granted to the assessee to present its case. Accordingly, the impugned order was set aside with directions for fresh adjudication.

Facts of the Case

The Petitioner, Kamakhya Construction and Company, is a partnership firm engaged in construction services. The Assistant Commissioner, Cooch Behar, had passed an order dated December 15, 2023, holding that the Petitioner was liable to pay interest under Section 50(1) of the WBGST Act, 2017 and CGST Act, 2017 for the intervening period between the date of order and date of payment of tax. The Petitioner was directed to make payment of interest and penalty within the date mentioned in the said order.

The Petitioner sought to rely upon a Notification dated August 16, 2017, in support of its claim that it was not liable to pay GST for the majority of the items of work performed. This notification is significant as it specifically addresses the taxation of construction services and potentially provides exemptions or different tax treatment for certain categories of construction work. The applicability of this notification formed one of the core disputes in the matter.

The Petitioner contended that the partner of the firm who was handling indirect tax matters was seriously ill at the relevant point of time, which prevented the Petitioner from being represented before the adjudicating authority on the fixed date for hearing. The nature of the illness was such that it rendered the partner completely unable to attend to tax-related matters, including preparing for and attending the scheduled hearing. This circumstance, according to the Petitioner, was beyond their control and should be considered as a valid reason for non-appearance.

The Petitioner also raised substantial issues regarding the bifurcation of tax to be levied under the VAT Act and the GST Act for the relevant period, which was the subject matter of adjudication. The transition from the VAT regime to the GST regime had created complex scenarios for ongoing construction projects, particularly with respect to determining which portions of the work would be taxable under the respective tax regimes. This bifurcation issue is particularly prevalent in the construction sector where contracts span across the pre-GST and post-GST implementation periods.

Additionally, the Petitioner contended that the adjudicating authority lacked jurisdiction to pass the order of adjudication. The jurisdictional challenge was based on the specific provisions of the GST law regarding territorial and subject-matter jurisdiction of adjudicating authorities.

The Respondent's counsel disputed these submissions, arguing that notice of the hearing was duly served upon the Petitioner, but the Petitioner chose not to be represented at the time of hearing. The Respondent also submitted that the adjudicating authority had considered all relevant materials before arriving at a final conclusion. Furthermore, the Respondent pointed out that the impugned order was appealable, and the Petitioner had approached the writ Court directly after the expiry of the limitation period for filing an appeal.

The Respondent emphasized that an alternate remedy was available to the Petitioner, and the extraordinary jurisdiction of the High Court under Article 226 should not be invoked when statutory remedies have not been exhausted.

Issue

Whether the Petitioner should be granted an opportunity to present its case on facts and law when it claimed that it could not appear before the adjudicating authority due to reasons beyond its control, resulting in an ex-parte order?

Held by the Court

The Hon'ble High Court of Calcutta in WPA 602 of 2025 held that:

1. The Court acknowledged that it was not in dispute that the impugned order was appealable, but noted that it was passed ex-parte and the Petitioner could not raise its points before the adjudicating authority due to reasons beyond its control.

   
   

2. The Court observed that the issues raised by the Petitioner required adjudication on facts as well, which could not be decided in a writ petition through an exchange of affidavits. The Court specifically noted: "The issues raised by the petitioner in this writ petition requires an adjudication on facts as well, the same cannot be decided in this writ petition by way of exchange of affidavits."

   
   

3. The Court decided to afford a last opportunity to the Petitioner to present its case, both on facts and law, before the adjudicating authority. The Court stated: "This Court is, therefore, inclined to afford a last opportunity to the petitioner to present his case, both on facts as well as on law, before the adjudicating authority. Only for such reason this Court is inclined to interfere with the order impugned."

   
   

4. Accordingly, the Court set aside the impugned order and granted the Petitioner an opportunity to file a reply to the show-cause notice on or before April 21, 2025.

   
   

5. The Court directed the adjudicating authority to decide the matter afresh and dispose of the proceeding in accordance with law by fixing a date of hearing after April 21, 2025, giving an opportunity of hearing to the Petitioner or its authorized representative, and passing a reasoned order which shall be communicated to the Petitioner immediately thereafter.

   
   

6. The Court clarified that it had not entered into the merits of the Petitioner's claims, including the applicability of the Notification dated August 16, 2017, and the adjudicating authority was free to decide without being influenced by any observations made in the Court's order. This was explicitly stated: "It is, however, made clear that this Court has not entered into the merits of the claim made by the petitioner including the applicability of the Notification dated 16.08.2017 and the Adjudicating Authority will be free to decide without being influenced by any observation made in this order."

Analysis and Implications

This judgment highlights several important principles related to GST proceedings and procedural fairness:

1. Principles of Natural Justice: The Court's decision reinforces that tax proceedings must adhere to principles of natural justice, particularly the right to be heard before an adverse order is passed. This principle is fundamental to administrative law and applies with full force to GST proceedings.

2. Balancing Writ Jurisdiction with Alternative Remedies: While acknowledging the existence of statutory appeal remedies, the Court demonstrated that it may still exercise its extraordinary writ jurisdiction under Article 226 of the Constitution in cases where procedural fairness has been compromised. This approach balances respect for statutory appeal mechanisms with the need to ensure basic procedural rights.

3. Valid Reasons for Non-appearance: The Court implicitly recognized that serious illness of a key person handling tax matters could constitute a valid reason for non-appearance. This recognition is important for small and medium enterprises where specific individuals may be solely responsible for tax compliance.

4. Ex-parte Orders: The judgment suggests that ex-parte orders in GST proceedings, when passed without considering genuine reasons for non-appearance, are vulnerable to judicial review. This puts tax authorities on notice to ensure reasonable accommodations for taxpayers with legitimate constraints.

5. Implications for Construction Sector: The case is particularly significant for the construction sector, which has faced unique challenges in the GST regime, especially regarding the bifurcation of taxation between pre-GST and post-GST periods. The Court's willingness to allow reconsideration of these issues acknowledges their complexity.

6. Importance of Reasoned Orders: The Court specifically directed the adjudicating authority to pass a "reasoned order" after giving proper opportunity of hearing, emphasizing that tax orders must contain adequate reasoning to withstand judicial scrutiny.

Relevant Sections

"Section 50(1) of Central Goods and Services Tax Act, 2017/West Bengal Goods and Services Tax Act, 2017" - "Every person who is liable to pay tax in accordance with the provisions of this Act or the rules made thereunder, but fails to pay the tax or any part thereof to the Government within the period prescribed, shall for the period for which the tax or any part thereof remains unpaid, pay, on his own, interest at such rate, not exceeding eighteen per cent., as may be notified by the Government on the recommendations of the Council."

"Section 73 of Central Goods and Services Tax Act, 2017/West Bengal Goods and Services Tax Act, 2017" - "Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised not involving fraud or any wilful misstatement or suppression of facts."

"Article 226 of the Constitution of India" - Provides power to High Courts to issue writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, or any of them, for the enforcement of any of the rights conferred by Part III of the Constitution and for any other purpose.

Procedural Aspects in GST Adjudication

The case highlights several important procedural aspects of GST adjudication:

1. Show Cause Notice and Reply: The foundational step in GST adjudication is the issuance of a show cause notice under Section 73 or 74 of the GST Acts. The notice must clearly state the allegations and provide sufficient time for the assessee to respond.

2. Personal Hearing: After receiving a reply to the show cause notice, the adjudicating authority must provide an opportunity for personal hearing before passing any adverse order. This is a cornerstone of natural justice in tax proceedings.

3. Ex-parte Proceedings: While the GST law permits ex-parte adjudication when an assessee fails to appear, the adjudicating authority must be satisfied that the non-appearance is deliberate or without reasonable cause.

4. Reasoned Order: The final order must contain proper reasoning, addressing the contentions raised by the assessee and the basis for accepting or rejecting them.

5. Appeal Provisions vs. Writ Jurisdiction: Though statutory appeal mechanisms exist under the GST law, High Courts retain the constitutional power to intervene in cases where procedural fairness is compromised, even when statutory appeals are available.

Pari Materia / Cases Referred

No specific cases were referred to in the judgment. However, this judgment aligns with the established principles of natural justice that are consistently upheld by Indian courts in tax proceedings. The decision reinforces the fundamental principle that an assessee must be given a reasonable opportunity to be heard before an adverse order is passed, a principle that has been consistently upheld in various tax jurisprudence contexts, including under the erstwhile tax regimes. ____________________________________________________

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