Alkem Laboratories Limited vs Union Of India on 4 February, 2021

1. Outcome

The High Court of Gujarat allowed the Special Civil Application, quashing and setting aside the adjudication order dated 21st October, 2020, and the consequential attachment order dated 17th December, 2020. The entire matter was remitted to the Assistant Commissioner of State Tax (Respondent No. 2) for fresh consideration, with a specific direction to grant the writ applicant an opportunity of personal hearing.

2. Core Issue

The core issue was whether the impugned adjudication order, fixing GST liability, interest, and penalty, was passed in violation of the principles of natural justice, specifically the denial of a personal hearing despite a written request from the taxpayer. A secondary issue concerned the premature initiation of recovery proceedings.

3. Key Facts

• Taxpayer: Alkem Laboratories Limited, a public limited company.
• Impugned Order: An adjudication order dated 21st October, 2020, passed by the Assistant Commissioner of State Tax (Enforcement) Division-6, Vadodara, demanding CGST, SGST, interest, and 100% penalty totaling approximately Rs. 7.12 Crore.
• Basis of Demand: The demand was raised on the grounds that the taxpayer's transaction of "lease or license to occupy land" (sub-division and sub-lease of industrial plots) constituted a supply of "real estate services" taxable under Heading No. 9972 of Notification No. 11/2017-Gujarat State Tax (Rate) dated 30.06.2017.
• Tax Period: 1st July 2017 to 31st March 2018.
• Taxpayer's Contention: The taxpayer had responded to an initial intimation (FORM GST DRC-01A) on 18th February, 2020, stating that the transaction was a "sale of land / transfer of title / interest" falling under Entry 5 of Schedule III to Section 7 of the CGST Act, 2017, and therefore, neither a supply of goods nor services.
• Request for Hearing: After receiving a Show Cause Notice (FORM GST DRC-01) dated 5th March, 2020, the taxpayer, on 27th March, 2020, explicitly requested a "personal hearing" in the matter.
• Adjudication without Hearing: Despite the written request for a personal hearing, the Assistant Commissioner passed the impugned order without providing one.
• Recovery Action: A recovery notice (Form GST DRC-16) dated 17th December, 2020, was issued, attaching the factory premises of the taxpayer under Section 79 of the CGST Act, 2017, within approximately one month of the adjudication order being uploaded (24th November, 2020).

4. Arguments (Taxpayer vs Revenue)

• Taxpayer (Alkem Laboratories Limited):
  • The impugned order was passed in gross violation of the principles of natural justice, specifically Section 75(4) of the CGST Act, as no opportunity for personal hearing was provided despite a clear written request.
  • The transaction involved a sale/transfer of land, falling under Schedule III of the CGST Act, and thus not taxable under GST.
  • The recovery proceedings, including the attachment of factory premises, were initiated prematurely, violating Section 78 of the CGST Act, which mandates a three-month period from the date of service of the order before recovery can be commenced.
• Revenue (Union of India/State Respondents):
  • Ample opportunities were provided to the taxpayer to respond to various notices (FORM DRC-01A, FORM GST DRC-01, and subsequent requests for details on 15.06.2020 and 29.07.2020).
  • The taxpayer failed to avail these opportunities.
  • Under Section 75(5) of the GGST Act, the discretion to grant adjournments for showing "sufficient cause" lies with the authorities, and in this case, no sufficient cause was shown by the taxpayer.

5. Court’s Reasoning

• Violation of Natural Justice: The Court found a clear and undeniable violation of the principles of natural justice. It noted that Section 75(4) of the CGST Act explicitly mandates granting an opportunity of hearing where a written request is received from the person chargeable with tax or penalty, or when an adverse decision is contemplated. The revenue's affidavit did not provide any evidence that a specific notice for a personal hearing was issued or that the taxpayer failed to appear for a scheduled hearing. The Court concluded that despite a specific written request for a personal hearing (dated 27th March, 2020), no such opportunity was afforded before passing the adverse order.
• Premature Recovery Proceedings: The Court further observed that Section 78 of the CGST Act stipulates a period of three months from the date of service of the order before recovery proceedings can be initiated. In this case, recovery proceedings, including the attachment of the factory premises, were initiated within one month of the order being uploaded, which was a clear violation of this statutory provision.
• Remand for Fresh Adjudication: While acknowledging that the order was appealable, the Court exercised its writ jurisdiction due to the gross violation of natural justice. It refrained from delving into the merits of the taxability of the transaction, limiting its decision solely to the procedural impropriety.

6. Statutory References

• Constitution of India:
  • Article 226
• Central Goods and Services Tax Act, 2017 (CGST Act, 2017):
  • Section 7 (Scope of supply)
  • Schedule III, Entry 5 (Activities or Transactions which shall be treated neither as a supply of goods nor a supply of services)
  • Section 50(3) (Interest on delayed payment of tax)
  • Section 74(1) (Determination of tax not paid or short paid or erroneously refunded etc. by reason of fraud etc.)
  • Section 74(5) (Intimation of tax ascertained as being payable)
  • Section 75(4) (Opportunity of hearing)
  • Section 75(5) (Adjournment of hearing)
  • Section 78 (Initiation of recovery proceedings)
  • Section 79 (Recovery of tax)
  • Section 107 (Appeals to Appellate Authority)
• Gujarat Goods and Services Tax Act, 2017 (GGST Act, 2017):
  • Section 4(9) (Cited for penalty provision, likely a reference to a penalty section within the Act, e.g., Section 74(9)).
  • Section 75(5)
• Notifications:
  • Notification No. 11/2017-Gujarat State Tax (Rate) dated 30.06.2017, Entry No. 16 (Heading No. 9972, Real Estate Services).
• Forms:
  • FORM GST DRC-01A (Intimation of tax ascertained as being payable)
  • FORM GST DRC-01 (Show Cause Notice)
  • FORM GST DRC-16 (Recovery notice)

7. Precedents Cited

No external judicial precedents were cited by the Court in this judgment. The decision was based on the interpretation of statutory provisions and fundamental principles of natural justice.