Calcutta HC: Quashing Adjudication Orders that Bypass Natural Justice

The Calcutta High Court has reinforced a critical procedural safeguard: the right to a personal hearing. While the Court refused to quash the Show Cause Notice (SCN) itself, it struck down the final Adjudication Order because the department rushed to pass it without letting the taxpayer speak.

Key Takeaways

• Personal hearing is a mandatory procedural safeguard before adverse orders.
• Writ courts usually do not interfere at the SCN stage unless clear pre-determination is shown.
• Adjudication orders passed during pending writs risk being quashed for natural justice violations.

Who This Applies To

GST taxpayers facing SCNs or adjudication orders where hearing rights were denied.

When the department doubts a transaction, just having an invoice or E-way bill might not be enough. The burden of proof shifts to the taxpayer to prove the transaction's genuineness beyond "basic" documents. If an SCN uses the word "prima facie" extensively, it indicates the officer is still "inquiring" and hasn't made a final decision.

The Facts

The petitioner, a trader in crude tar, was hit with a notice under Section 74 of the WBGST Act. The department's primary allegation was that the petitioner's suppliers had their registrations cancelled retrospectively due to fraud (Section 29(2)(e)). The department argued that the entire ITC chain was "circular" and "fraudulent," doubting the genuineness of the transactions despite the petitioner providing invoices and E-way bills.

The petitioner challenged the SCN in a Writ Petition, arguing that the SCN was pre-determined, that they had provided all documents required under Section 16(2), and that ITC shouldn't be denied merely because a registered supplier later turns out to be "bogus."

The Law

• Section 74 of the CGST/WBGST Act: Determination of tax not paid or short paid by reason of fraud.
• Section 16(2): Mandatory conditions for availment of ITC.
• Section 29(2)(e): Cancellation of registration due to fraud or willful misstatement.
• Section 155: Burden of proof on the person claiming ITC.

Arguments

The Court held that a Writ Court rarely interferes at the SCN stage, especially if it uses terms like "prima facie," which indicates the officer hasn't made a final decision. However, while the writ petition was pending, the department passed a final Adjudication Order without providing the taxpayer with an opportunity for a Personal Hearing. The High Court found this to be a violation of natural justice and quashed the Adjudication Order entirely.

The department has been directed to pass a new order only after a proper hearing. Taxpayers should note that if you receive an ASMT-10 or DRC-01 for head mismatches, you should cite this case (WPA 20118 of 2025) to argue for procedural fairness. Ensure you use the newly introduced GSTR-1A features to proactively correct errors before the department catches them.

Practical Impact

Taxpayers can seek quashing of adjudication orders passed without a personal hearing, even if the SCN stands.