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

Here's a summary of the judgment by the Madhya Pradesh High Court in M/S Patanjali Ayurved Limited Indore ... vs The State Of Madhya Pradesh on 22 January, 2024:

1. Outcome

The High Court set aside the impugned adjudication orders (GST DRC-07) in both writ petitions. It directed the respondents to provide a fresh opportunity of hearing (personal hearing) to the petitioners. This fresh hearing is to be conducted by an officer different from the one who originally issued the show cause notice. The Court clarified that it had not expressed any opinion on the merits of the case.

2. Core Issue

The core issue was whether the adjudicating authority's failure to provide an opportunity of personal hearing to the taxpayer, when an adverse decision was contemplated, violated the principles of natural justice and the mandatory provisions of Section 75(4) of the Central Goods and Services Tax Act, 2017 (CGST Act) and Madhya Pradesh Goods and Services Tax Act, 2017 (MPGST Act).

3. Key Facts

• M/S Patanjali Ayurved Limited filed two writ petitions challenging an adjudication order (Form GST DRC-07, reference no. ZD230722004961P dated 15.07.2022).
• The order raised a demand for excess Input Tax Credit (ITC) amounting to Rs. 78,49,607/- (CGST, MPGST, IGST) along with interest and equivalent penalty under Section 74 of the CGST/MPGST Act.
• The petitioner contended that the order was passed without considering their submissions (reply dated 13.05.2022) and without providing an opportunity of hearing.
• The petitioner argued that this violated the principles of natural justice and statutory provisions.

4. Arguments

• Taxpayer (M/S Patanjali Ayurved Limited):

  • The impugned order violated Section 74(9) of the CGST/MPGST Act as the adjudicating authority failed to consider the petitioner's detailed reply.
  • The order also violated Section 75(4) of the CGST/MPGST Act, which mandates an "opportunity of hearing" where an adverse decision is contemplated, irrespective of whether a specific request for personal hearing was made. The use of the word "or" in Section 75(4) makes it clear that an opportunity of hearing is mandatory in either scenario: a written request or contemplation of an adverse decision.
  • The absence of a personal hearing despite an adverse order being passed constituted a gross violation of natural justice (Audi Alteram Partem).
  • Cited: Ultratech Cement Ltd. Vs. Union of India, Graziano Trasmissioni India Pvt. Ltd. Vs. State of Gujarat, and M/s. BL Pahariya Medical Store Vs. State of U.P. And another.

• Revenue (State of Madhya Pradesh):

  • Section 75(4) refers to "opportunity of hearing," not specifically "personal hearing."
  • The petitioner did not specifically opt for a "personal hearing" in response to the show cause notice issued in Form DRC-01. Therefore, no fault could be attributed to the respondents.
  • Cited: Union of India and Another vs. Jesus Sales Corporation.

5. Court’s Reasoning

• The Court adopted a plain reading of Section 75(4) of the GST Act, emphasizing that an "opportunity of hearing" must be granted in two distinct situations: (a) upon a specific written request from the person chargeable, or (b) when any adverse decision is contemplated against such person.
• The Court held that the word "or" used by the lawmakers is crucial, making the provision for hearing mandatory even when no specific request is made, provided an adverse decision is contemplated. Since the impugned order levied tax and penalty, an adverse decision was indeed contemplated.
• The Court rejected the State's argument that "opportunity of hearing" does not include "personal hearing," noting that even statutory forms envisage different stages for personal hearing, including after a reply is submitted.
• The Court found that the respondents' failure to provide a personal hearing, given the contemplation of an adverse decision, was an obligatory and mandatory requirement. This omission vitiated the decision-making process, contravening both natural justice and the statutory mandate of Section 75(4).
• The Court further directed that the fresh opportunity of hearing be provided by a different officer, aligning with the precedent set in Ultratech Cement Ltd.

6. Statutory References

• Article 226 of the Constitution of India, 1950
• Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act)
• Section 74(9) of the CGST Act
• Section 75(4) of the CGST Act
• Madhya Pradesh Goods and Services Tax Act, 2017 (MPGST Act)
• Integrated Goods and Services Tax Act, 2017 (IGST Act)
• Section 20 of the IGST Act, 2017

7. Precedents Cited

• By Petitioner:
  • 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 Respondent:
  • Union of India and Another vs. Jesus Sales Corporation (1996) 4 SCC 69
• By Court (in reasoning):
  • Nelson Motis Vs. Union of India (1992) 4 SCC 711
  • M/s. BL Pahariya Medical Store (supra)
  • Graziano Trasmissioni India Pvt. Ltd. (supra)
  • Ultratech Cement Ltd. (supra)