M/S K.J. Enterprises vs State Of U.P. And 2 Others on 1 February, 2024

1. Outcome
The writ petition was allowed. The impugned assessment order dated August 10, 2021, passed by the Deputy Commissioner, State Tax (Respondent No. 3), and the appellate order dated September 26, 2022, passed by the Additional Commissioner (Appeals - 1st) (Respondent No. 2), were quashed and set aside. The matter was remanded back to Respondent No. 2 with a direction to grant an opportunity of personal hearing to the petitioner and thereafter pass a reasoned order in accordance with the law within a period of two months.

2. Core Issue
The core issue was whether the GST authorities violated the principles of natural justice by failing to provide an opportunity of personal hearing to the petitioner before passing an adverse order imposing tax and penalty, as mandated by Section 75(4) of the Uttar Pradesh Goods and Services Tax Act, 2017 (UPGST Act, 2017).

3. Key Facts
* The petitioner, M/S K.J. Enterprises, a proprietorship firm engaged in job work of scrap, selling, and purchasing of iron machinery parts and hardware, availed Input Tax Credit (ITC) during March 2018 and made transactions in 2019-20.
* An inspection on July 24, 2019, led to a request to deposit an amount in DRC-03 and a summon under Section 70 of the UPGST Act, 2017.
* A show cause notice was issued on July 22, 2020, under Section 74 for the tax period 2019-20, alleging wrong availment of ITC amounting to INR 22,00,00,000/- against bogus invoices due to fraud/misstatement/suppression.
* The petitioner submitted a reply on October 1, 2020.
* The Deputy Commissioner, State Tax (Respondent No. 3), rejected the petitioner's reply via an order dated August 10, 2021, passed under Section 74, imposing tax, penalty, and interest totaling INR 6,78,12,667.92/-.
* The petitioner's appeal against this order was dismissed by the Additional Commissioner (Appeals - 1st) (Respondent No. 2) on September 26, 2022, upholding the demand.
* Crucially, no opportunity of personal hearing was afforded to the petitioner either at the original assessment stage or during the first appeal proceedings, a fact admitted by the respondents in their counter-affidavit.

4. Arguments (Taxpayer vs Revenue)
* Taxpayer (Petitioner): The petitioner contended that the orders were passed in clear violation of Section 75(4) of the UPGST Act, 2017, which mandates a personal hearing, especially when an adverse decision is contemplated. This fundamental procedural safeguard, constituting a principle of natural justice, was entirely overlooked.
* Revenue (Respondents): The respondents admitted that, apart from allowing the petitioner to reply to the show cause notice, no opportunity for a personal hearing was provided. They also raised the objection that the writ petition was not maintainable due to the availability of an alternative remedy of appeal under Section 107 of the Act.

5. Court’s Reasoning
* Interpretation of Section 75(4): The Court emphasized the disjunctive nature of the word "or" in Section 75(4) of the UPGST Act, 2017, holding that a personal hearing is mandatory in either scenario: (a) if requested in writing, or (b) if any adverse decision is contemplated against the person. The Court clarified that the word "or" cannot be read as "and," and even without a specific request, a hearing must be granted if an adverse order is intended.
* Mandatory Requirement of Natural Justice: The Court held that providing a personal hearing is a fundamental aspect of procedural fairness and natural justice. It is a vital safeguard against arbitrary or unjust decisions, allowing individuals to present their case and respond to allegations.
* Gross Violation: The Court found it "crystal clear" and noted the respondents' admission that no personal hearing was granted. This omission constituted a "patent breach of principles of natural justice" and a statutory obligation under Section 75(4).
* Maintainability of Writ Petition: The Court rejected the argument regarding the alternative remedy, affirming that a writ petition under Article 226 of the Constitution is maintainable where an order is passed in gross violation of the principles of natural justice.
* Binding Precedents: The Court heavily relied on its own Division Bench judgments and Supreme Court pronouncements, which consistently uphold the mandatory nature of a personal hearing before imposing tax and penalties, especially when such decisions entail civil consequences.

6. Statutory References
* Article 226 of the Constitution of India
* Section 70 of the Uttar Pradesh Goods and Services Act, 2017 (UPGST Act, 2017)
* Section 74 of the Uttar Pradesh Goods and Services Act, 2017
* Section 75(4) of the Uttar Pradesh Goods and Services Act, 2017
* Section 107 of the Uttar Pradesh Goods and Services Act, 2017

7. Precedents Cited
* Commissioner of Sales Tax, Uttar Pradesh -v- The Modi Sugar Mills Ltd., MANU/SC/0276/1960 (on interpreting taxing statutes strictly based on express words).
* Bharat Mint and Allied Chemicals v. Commissioner Commercial Tax and Others, 2022 SCC OnLine All 1088 (on mandatory personal hearing under Section 75(4)).
* Mohini Traders v. State of U.P. and Others, MANU/UP/2440/2023 (reiterating Bharat Mint and emphasizing the mandatory nature of personal hearing irrespective of assessee's choice).
* M/s Primeone Work Force Pvt. Ltd. v. Union of India, 2024:AHC-LKO:3533-DB (on mandatory hearing for tax and penalty imposition).
* Dharampal Satyapal Limited v. Deputy Commissioner of Central Excise, Guhati and Others, (2015) 8 SCC 519 (on importance of personal hearing in decisions with civil consequences).
* A.K. Kraipak case, (1969) 2 SCC 262 (on applicability of natural justice to administrative inquiries).
* Maneka Gandhi v. Union of India, (1978) 1 SCC 248 (on extending principles of natural justice to administrative actions).
* C.B. Gautam v. Union of India, (1993) 1 SCC 78 (on natural justice being applicable even without statutory requirement for decisions implying tax evasion).
* Maharashtra State Financial Corpn. v. Suvarna Board Mills, (1994) 5 SCC 566 (on the flexible nature of natural justice rules, but necessity of notice before adverse civil consequences).