M/S Patanjali Ayurved Limited Through ... vs The State Of Madhya Pradesh on 22 January, 2024

1. Outcome

The High Court allowed the writ petitions, setting aside the impugned adjudication orders (GST DRC-07) that demanded excess Input Tax Credit (ITC), interest, and penalty. The Court directed the respondents to provide a fresh opportunity of personal hearing to the petitioners, to be conducted by an officer other than the one who issued the initial show cause notice. The Court explicitly stated that it did not express any opinion on the merits of the case.

2. Core Issue

The core issue was whether the adjudicating authority violated the principles of natural justice and the statutory mandate under Section 75(4) of the CGST/MPGST Act, 2017 by passing an adverse order without providing an opportunity of personal hearing to the taxpayer, especially when an adverse decision was contemplated against them.

3. Key Facts

• Patanjali Ayurved Limited challenged an adjudication order (GST DRC-07) dated 15.07.2022, issued by the Deputy Commissioner of State Tax, demanding Rs. 78,49,607/- for alleged excess ITC availed, along with interest and equivalent penalty under Section 74 of the CGST/MPGST/IGST Acts.
• Patanjali had submitted a reply dated 13.05.2022 to the show cause notice.
• The impugned order was passed without considering Patanjali's submissions and, critically, without providing an opportunity of personal hearing.
• Patanjali contended that this omission violated the principles of natural justice and specific provisions of the GST law.

4. Arguments (Taxpayer vs Revenue)

• Taxpayer (Patanjali Ayurved Limited):
  • The impugned order was passed in utter disregard of the settled principles of natural justice, specifically "Audi Alteram Partem."
  • Section 74(9) of the CGST/MPGST Act mandates that the proper officer shall pass an order only after considering the representation made by the assessee. Their reply dated 13.05.2022 was not considered.
  • Section 75(4) of the CGST/MPGST Act is mandatory, requiring an "opportunity of hearing" in two situations: (i) when a written request is received from the person chargeable with tax/penalty, OR (ii) where any adverse decision is contemplated against such person.
  • The use of the word "or" signifies that even if no specific request for a personal hearing was made, it was incumbent upon the authority to provide one, given that an adverse decision (levy of tax, interest, and penalty) was contemplated.
  • "Opportunity of hearing" in this context includes "personal hearing," as different stages for personal hearing (submission of reply and a separate date for hearing) are contemplated by the law.
• Revenue (State of Madhya Pradesh):
  • Patanjali misinterpreted Section 75(4). This provision speaks only of "opportunity of hearing," not specifically "personal hearing."
  • Pursuant to the show cause notice (Form DRC-01), Patanjali was required to opt for a personal hearing, which they admittedly did not do. Therefore, the respondents were not at fault.
  • The principles of objective opinion formation and reasonable discretion, as held by the Supreme Court, should apply.

5. Court’s Reasoning

• The Court emphasized the plain and unambiguous language of Section 75(4) of the GST Act.
• It clarified that "opportunity of hearing" must be granted in two distinct situations, connected by the word "or": (a) a specific written request from the taxpayer, OR (b) when an adverse decision is contemplated against the taxpayer.
• The Court held that the word "or" is crucial and indicates that even in the absence of a specific request, a personal hearing is mandatory if an adverse decision is contemplated.
• The Court rejected the Revenue's argument that "opportunity of hearing" does not include "personal hearing," stating that lawmakers themselves visualize different stages for personal hearing (reply submission and a dedicated hearing).
• Since an adverse decision was clearly contemplated against Patanjali, it was obligatory and mandatory for the respondents to provide an opportunity of personal hearing, which was admittedly not done. This vitiated the decision-making process and violated natural justice and statutory requirements.
• To ensure fairness and avoid bias, the Court directed that the fresh hearing be conducted by an officer different from the one who issued the original show cause notice.

6. Statutory References

• Article 226 of the Constitution of India, 1950 (Jurisdiction for Writ Petitions)
• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Section 74 (Determination of tax not paid or short paid etc. by reason of fraud/wilful misstatement/suppression of facts)
  • Section 74(9) (Order to be passed after considering representation)
  • Section 75(4) (General provisions relating to determination of tax – mandatory opportunity of hearing)
• Madhya Pradesh Goods and Services Tax Act, 2017 (MPGST Act):
  • Section 74
  • Section 74(9)
  • Section 75(4)
• Integrated Goods and Services Tax Act, 2017 (IGST Act):
  • Section 20 (Applicability of CGST Act provisions)

7. Precedents Cited

• By Taxpayer (Patanjali Ayurved Limited):
  • Ultratech Cement Ltd. Vs. Union of India (2023) 4 Centax 198 (M.P.) (19.01.2023)
  • Graziano Trasmissioni India Pvt. Ltd. Vs. State of Gujarat 2022 (66) G.S.T.L. 38 (Guj.) (23.06.2022)
  • M/s. BL Pahariya Medical Store Vs. State of U.P. And another 2023 (8) TMI 1091, Allahabad High Court
• By Revenue (State of Madhya Pradesh):
  • Union of India and Another vs. Jesus Sales Corporation (1996) 4 SCC 69
• By Court:
  • Nelson Motis Vs. Union of India (1992) 4 SCC 711 (for statutory interpretation principles)
  • M/s. BL Pahariya Medical Store (supra) (supported the Court's interpretation of Section 75(4))
  • Graziano Trasmissioni India Pvt. Ltd. (supra) (supported the need for personal hearing when adverse decision contemplated)
  • Ultratech Cement Ltd. (supra) (supported the direction for hearing by a different officer)