Allahabad HC: Quasi-Judicial Order Cannot Be Imposed on a Person Without an Opportunity to Be Heard

The Allahabad High Court While deciding a case relating to Input Tax Credit carried that a quasi-judicial body should furnish a chance of hearing to a person before charging obligation on them.

The Division Bench comprising Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit carried that as per the doctrine of audi alteram partem (let the other side be heard) the orders could not be passed without furnishing the taxpayer a chance to present their matter. It was carried that the documents laid on via the authorities at the time of passing the orders should be furnished before the party who is being obligated.

“Documents that are relied upon by the department are necessarily required to be provided to a person upon whom a liability is being fastened so that, the person can deny and/or dispute the said documents. Non-production of these documents to the assessee would amount to a violation of the principles of natural justice unless the authority can show that the documents were not necessary and did not form part of the order passed wherein the liability was fastened on the assessee.”

Case Background

On 27.12.2022 the applicant’s business was investigated. It was discovered that the corporation had incorrectly claimed and refunded the Input tax credit on the purchase of glycerine, fatty acid, and finishing chemicals made of a perfumery compound. It was discovered that during the same year, the applicant had not produced proof for the cancellation of 115 e-ways bills. Therefore a notice was furnished proposing the applicant to refund the excess usage of ITC including a penalty.

The applicant in answer refuses the allegations made against it and specifies the absence of proof in the issued notice. But another SCN was furnished before the applicant dated 04.04.2024 under section 74 of the Goods and Services Tax Act, 2017 where the amount of tax and penalty was revised to a higher figure.

The applicant has furnished a response refusing the allegations made against it. It was cited that the above-said compounds were not utilised for its business but were just raw materials utilised in the manufacturing procedure. The applicant has furnished explanations for the 115 e-way bills that were cancelled in the year 2021-22.

Even after submitting its response a reminder dated 08.08.2024 was furnished before the seeking it to appear for a personal hearing and furnish a response by 06.09.2024. The applicant notified the respondent that it had furnished a reply in response to the SCN. The respondent authority has passed an order on 12.09.2024 u/s 74 of the act, levying a demand of tax and penalty including an interest. Dissatisfied with that the applicant has approached the HC.

It was argued by the applicant that the impugned order was a copy-paste of the furnished reply in answer to the show cause notice. It was claimed that the explanations provided were not regarded reasonably. It was claimed that the raw materials have been utilised for the manufacture of fabrics and not directly in the business, a fact that had not been appreciated by the respondents.

Allahabad High Court Decision

It was carried by the court that it was a precise matter that the SCN and the order were both speculative. It ruled that there was inadequate proof to conclude that the compounds were not being utilised without conducting a test of the manufactured fabrics. It was marked by the court that it shall not interrupt with an order u/s 74 of the act as there is a provision for the legal appeal. But under the fact that the applicant was not being granted a chance of hearing, the court interrupted.

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It was carried by the court that the authority passed the order was a copy of the reply provided via the applicant. It was carried out that it was the respondents’ obligation to have looked into whether the raw materials were used for making the fabrics, under the expert certificates furnished via the applicant. In the absence of it and the fact that no additional chance of hearing was furnished, the court ruled that the passed orders were not legal and without any authority under the law.

In M/s Eastern Machine Bricks and Tiles Industries v. State of U.P. and Ors., the Allahabad High Court ruled that

“Audi alteram partem, which is a part of the doctrine of natural justice, finds its roots primarily in the constitutionally guaranteed idea of equality. This principle ensures that no one is condemned, penalized, or deprived of their rights without a fair and reasonable opportunity of hearing. It acts as a safeguard against arbitrary decision-making, upholding the principle of due process while also providing a crucial foundation for just and equitable legal or administrative proceedings.”

It was carried by the court that the doctrine of audi alteram partem acted as a safeguard against arbitrary and furnished a significant foundation for equitable proceedings. It carried that the judicial authority decisions must merely be incurred after acknowledging the related contentions raised. It was marked that the department was obligated to furnish a person with the documents that were being utilised to levy an obligation on them, which has been performed in the existing matter.

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It was marked by the court that the court needed to entertain a complaint which is based on the breach of natural justice to witness whether the aggrieved had suffered damages and not merely move on a violation of technicalities.

“As discussed above, the non-production of certain documents to the petitioner that were relied upon by the authorities, coupled with how no proper opportunity of hearing was granted to the petitioner leads us to the conclusion that severe prejudice has been caused to the petitioner. Ergo, the impugned order cannot be sustained and is liable to be quashed and set aside,” the bench headed by Justice Saraf noted.

The court while permitting the writ petitions asked the respondents to furnish the applicant with a fresh chance of hearing.