A recent ruling by the Uttarakhand High Court in the case of Modine Thermal Systems (P.) Ltd. v. State of Uttarakhand has underscored a crucial aspect of procedural fairness under the Goods and Services Tax (GST) framework. The court held that scheduling a personal hearing before the deadline for submitting a reply to a show cause notice is a violation of both natural justice and the established scheme of the GST Act.
The Case in Brief
Modine Thermal Systems (P.) Ltd. received a show cause notice, followed by a second notice (Form DRC-01) proposing a significant demand of ₹ 71,57,938/-. The second notice set a personal hearing date of December 20, 2024, but gave the company until December 28, 2024, to submit its reply.
Modine Thermal Systems requested an adjournment of the hearing to a date after the reply deadline, explaining that they needed time to gather relevant documents. However, this request was rejected, and the assessment was finalized.
The High Court’s Ruling
The Hon’ble Uttarakhand High Court sided with Modine Thermal Systems, highlighting several critical points:
- Violation of Natural Justice: The court found that holding the hearing before the reply deadline was “akin to putting the cart before the horse.” A hearing, by its very nature, should be based on the reply submitted by the assessee.
- Contrary to Statutory Scheme: A combined reading of Sections 73, 74, and 75 of the CGST/UGST Act clearly indicates that a personal hearing should occur after the submission of the reply.
- Right to Adjournment: Section 75(5) of the CGST Act allows assessees to seek adjournments (up to three times), and this right is inherently linked to the right to be heard under Section 75(4).
- No Valid Reason for Rejection: The court noted that the rejection of Modine’s adjournment request lacked any justifiable reasoning.
- Mandatory Statutory Compliance: The judgment reaffirmed the principle that statutory procedures must be strictly adhered to; any deviation renders the action void.
Consequently, the assessment order was quashed, and the matter was sent back to the competent authority for fresh consideration from the stage of the second show cause notice.
Implications of the Judgment
This ruling is a significant precedent, reinforcing the importance of procedural fairness within the GST adjudication process. It clarifies that the right to a personal hearing and the right to reply are not isolated steps but are interconnected and sequential. By disallowing a hearing before the reply deadline, the court has effectively protected assessees’ statutory rights from being undermined.
The judgment also serves as a reminder that the discretion to grant or deny adjournments under Section 75(5) must be exercised judiciously and not arbitrarily. It underscores that natural justice cannot be bypassed, even in the name of efficiency. As the court aptly put it, submissions during a hearing are only meaningful once the reply is filed, making an insistence on an early hearing wholly misplaced. This decision aligns with the well-settled legal principle that when a statute outlines a procedure, that procedure must be followed precisely.