Can GST Penalty Be Imposed Without Personal Hearing? Section 75(4) & Bombay HC Insights

The principles of natural justice—specifically Audi Alteram Partem (hear the other side)—form the bedrock of tax jurisprudence in India. In recent GST litigation, a recurring issue before various High Courts, notably the Bombay High Court, is whether tax authorities can pass adverse demand or penalty orders under the Central Goods and Services Tax (CGST) Act, 2017, without granting a personal hearing to the taxpayer.

With the introduction of new assessment dynamics like Section 74A of the CGST Act, tax administrators often treat the issuance of a Show Cause Notice (SCN) and the receipt of a written response as a complete procedure. However, the statute explicitly mandates more. This article explores the statutory command under Section 75(4), judicial interpretations, and strategic action plans for CFOs, Tax Directors, and Chartered Accountants facing ex-parte or non-compliant GST orders.

Statutory Framework: Decoding Section 75(4) of the CGST Act

General provisions relating to the determination of tax are governed by Section 75 of the CGST Act. Clause (4) of Section 75 lays down an unconditional obligation on the proper officer regarding personal hearings.

A granular reading of Section 75(4) reveals two distinct scenarios triggering the mandatory requirement of a personal hearing:

• Scenario 1 (Upon Written Request): Where the taxpayer specifically submits a written request seeking an opportunity of personal hearing in their response to the SCN.
• Scenario 2 (Contemplated Adverse Decision): Where the proper officer contemplates passing an order that creates a tax liability, imposes a penalty, disallows Input Tax Credit (ITC), or causes any adverse financial or legal impact on the taxpayer.

Crucially, the word used in Section 75(4) is "OR", making these conditions disjunctive. Even if a taxpayer does not explicitly request a hearing in their written reply, the moment the proper officer decides to pass an adverse decision, granting a personal hearing becomes mandatory by law.

The Emerging Challenge: Section 74A and Adjudication Procedural Lapses

With statutory amendments establishing Section 74A to streamline the determination of tax defaults (combining aspects of fraud and non-fraud provisions for subsequent period assessments), field officers are handling vast volumes of notices. In the hurry to finalize proceedings, proper officers often commit severe procedural infirmities:

1. Summary Rejections: Issuing summary orders without providing a specific date, time, or link (for virtual hearings) for a personal hearing.
2. Pre-fixed Portal Status: Marking the portal column for personal hearing as "N/A" or "Not Requested" despite contemplating adverse tax demands.
3. Non-Reasoned Orders: Passing boilerplate demand orders that fail to evaluate written submissions or evidence presented during proceedings.

Judicial Precedents: The Bombay High Court's Firm Stance

The Bombay High Court has consistently held that statutory provisions mandating a personal hearing are not mere procedural formalities; they are mandatory conditions precedent. In recent matters concerning proceedings under Section 73, Section 74, and the newly operational Section 74A, the High Court observed that failure to grant a personal hearing renders the adjudication order null and void.

The Mandatory 5-Step Adjudication Lifecycle

For any GST assessment or penalty order to be legally enforceable, the proper officer must strictly follow the complete 5-step lifecycle illustrated below:

1. Show Cause Notice (SCN) → 2. Written Reply Submission → 3. Opportunity of Personal Hearing → 4. Evaluation of Evidence & Oral Arguments → 5. Reasoned Speaking Order

If step 3 (Personal Hearing) is skipped by the tax authorities prior to issuing an adverse order, the entire chain breaks, rendering the final demand order legally vulnerable to writ proceedings under Article 226 of the Constitution of India.

Actionable Pre-Litigation Checklist for Tax Professionals

Before deciding whether to file a statutory appeal under Section 107 or approach the High Court via a Writ Petition, CAs, Advocates, and Corporate Tax Heads should evaluate the order against this checklist:

• ✓ Check Request in Reply: Did your written reply to the SCN explicitly request a personal hearing?
• ✓ Check Portal Notices: Did the portal issue a formal notice (Form GST DRC-01/DRC-06) indicating a date and time for the personal hearing?
• ✓ Check Adverse Outcome: Does the final order (Form GST DRC-07) confirm a demand or penalty higher than reported or accepted?
• ✓ Check Reasoned Evaluation: Did the adjudicating authority address all points raised in written and oral submissions?
• ✓ Check Section 75(4) Compliance: Was the order passed without providing at least one valid opportunity for oral hearing?

Strategic Impact & Legal Remedies: Writ Petition vs. Statutory Appeal

When an order is passed in violation of Section 75(4), taxpayers have two primary legal avenues:

In cases of clear denial of personal hearing, filing a Writ Petition before the jurisdictional High Court (such as the Bombay High Court) often yields swift relief by quashing the flawed order and remanding the matter back to the proper officer to re-adjudicate after providing a fair hearing.

Conclusion

Taxpayers and tax practitioners must recognize that an adverse GST demand order cannot stand on procedural shortcuts. Section 75(4) of the CGST Act is an absolute statutory shield. If you receive a GST demand or penalty order where no personal hearing was granted, the order is legally fragile and subject to challenge on principles of natural justice alone, independent of the underlying tax merits.