The Allahabad High Court while observing that an opportunity of ‘personal hearing’ was not afforded to the petitioner which is a mandatory requirement under Section 75(4) of the UP GST Act, 2017, quashed an order imposing tax and penalty on M/S K.J Enterprises.
A Single Bench of Justice Shekhar B Saraf passed this order while hearing a petition filed by M/S K.J Enterprises.
This is a writ petition under Article 226 of the Constitution of India wherein the petitioner M/S K.J Enterprises is aggrieved by the order dated September 26, 2022, passed by the Additional Commissioner, Grade – 2, (Appeals – 1st), Commercial Tax, Agra.
The facts of the case is:
a. Petitioner is a proprietorship firm carrying the business of job work of scrap, selling, and purchasing of iron machinery parts and hardware.
b. The petitioner, during the month of March 2018, purchased inputs from different registered firms, in which ITC claim was made as per the Uttar Pradesh Goods and Services Tax Act, 2017.
c. The petitioner also made transactions in the year 2019-20 and in the regard, bills were issued, in which details of the goods were mentioned.
d. On July 24, 2019, an inspection was carried out at the premises of the petitioner and at the time of inspection, the authorities asked the petitioner to deposit the amount in DRC – 03.
e. Thereafter, a summon was issued to the petitioner under Section 70 of the UP GST Act, 2017 directing the petitioner to appear before the concerned authority on August 13, 2019, at 11:00 am along with stock register and other relevant documents for verification.
f. A show cause notice was also issued by the respondents on July 22, 2020, under Section 74 of the UP GST Act, 2017 for tax period 2019-20, alleging that the petitioner wrongly availed input tax credit amounting to INR 22,00,00,000/- against bogus tax invoices and utilized the same by fraud or misstatement, suppression of facts, etc.
g. Another notice was issued on September 17, 2020, directing the petitioner to furnish a reply on October 6, 2020. Petitioner thereafter furnished reply on October 1, 2020.
h. Deputy Commissioner, State Tax, Sector – 4 (Respondent No 3) rejected the reply of the petitioner vide order dated August 10, 2021, passed under Section 74 of the UP GST Act, 2017 for the A.Y. 2019-20 and imposed tax and penalty, along with interest, upon the petitioner amounting to INR 6,78,12,667.92/-.
i. The petitioner preferred an appeal before the Respondent No 2 against the aforesaid order passed by the Respondent No 3. By an order dated September 26, 2022, the Respondent No 2 upheld the order of Respondent No 3, and imposed tax and penalty on the petitioner.
The Court observed that,
Without delving into the merits of the case, it is crystal clear that an opportunity of ‘personal hearing’ was not afforded to the petitioner which is a mandatory requirement under Section 75(4) of the UP GST Act, 2017.
Even if no request is received from the person chargeable with tax or penalty, an opportunity of personal hearing must be granted if any adverse decision is contemplated against such person.
When the word ‘or’ is used in a statute, it serves as a disjunctive conjunction, indicating two or more alternatives. Each option presented is to be considered independently. It is crucial to recognize that the disjunctive nature of “or” precludes its interpretation as a conjunctive conjunction, such as “and”. Unlike, “and”, which implies a requirement for the simultaneous fulfilment of multiple conditions, “or” allows for flexibility and choice by permitting compliance with any one of the alternatives presented. Attempting to read “or” as “and” in a statute would fundamentally alter its meaning and undermine the legislative intent behind its use. Such an interpretation would impose stricter criteria or conditions than intended by the statute, potentially leading to absurd or unreasonable outcomes.
Courts have consistently upheld the disjunctive nature of “or” in statutory interpretation, adhering to the principle of giving effect to the plain and ordinary meaning of the language used in the statutes. This principle, known as the plain meaning rule or the literal rule of interpretation, emphasizes the importance of interpreting statutes based on their plain and ordinary meaning, as understood by the average person reading the text of the statute.
Moreover, the disjunctive function of “or” in statutes is essential for upholding principles of fairness, equity, and access to justice. By offering alternative paths or options, statutes accommodate diverse individual needs and situations, promoting inclusivity and mitigating potential disparities or injustices. This is particularly significant in areas of law concerning rights, benefits, and entitlements, where the flexibility provided by “or” ensures that legal provisions can be applied in a manner that reflects the realities and complexities of human experiences.
“The significance of the word “or” in Section 75(4) of the UP GST Act, 2017 cannot be underestimated. The usage of the word “or” extends beyond its disjunctive function; it serves as a pivotal indicator of legislative intent regarding the necessity of providing an opportunity for personal hearing. By incorporating “or” into the statutory language, lawmakers explicitly delineate two distinct scenarios in which the opportunity of personal hearing must be afforded: either upon application by the individual subject to penalty or tax imposition, or in the event of contemplation of an adverse order. Personal hearing represents a fundamental aspect of procedural fairness and natural justice, ensuring that individuals have the opportunity to present their case, respond to allegations, and address any concerns or mitigating factors directly to the decision-maker. It is a vital safeguard against arbitrary or unjust decisions. The inclusion of “or” in Section 75(4) of the UP GST Act, 2017, emphasizes the dual nature of the obligation to provide a personal hearing, accommodating both proactive requests from individuals seeking to defend their interests and reactive responses to adverse orders contemplated by tax authorities. In either scenario, the statutory mandate remains clear: the individual must be afforded an opportunity for personal hearing before any final determination is made regarding tax or penalty imposition.
Moreover, the statutory mandate for personal hearing reflects an acknowledgement of the complex and multifaceted nature of tax and penalty determinations, which often involve intricate legal and factual considerations. Personal hear-ing provides a forum for nuanced discussion and exploration of these complexities, enabling decision-makers to make well-informed and equitable decisions based on a comprehensive understanding of the circumstances at hand.
From a bare reading of the order dated August 10, 2021 passed by the Respondent No 3 it is palpably clear that no opportunity of personal hearing was afforded by the Respondent No 3 to the petitioner, which is a statutory obligation under Section 75(4) of the UP GST Act, 2017. Furthermore, the Respondent No 2, while dismissing the appeal failed to correct this glaring impropriety in its order dated September 26, 2022. These orders cannot be allowed to pass through the legislative barriers of natural justice, erected to safeguard individual rights and prevent abuse of power”, the Court further observed while allowing the petition.
“In light of the aforesaid discussion, let there be a writ of certiorari issued against the order dated August 10, 2021 passed by the Respondent No 3 and order dated September 26, 2022, passed by the Respondent No 2. These orders are quashed and set aside. Consequential relief to follow. The Respondent No 2 is directed 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 from date”, the Court ordered.