₹28.80 Crore GST Demand Set Aside After Taxpayer Denied Personal Hearing

Introduction

The Orissa High Court has set aside a substantial GST demand of ₹28,80,95,516 arising from proceedings under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act) and the Odisha Goods and Services Tax Act, 2017 (OGST Act). The Court found a clear violation of the principles of natural justice, particularly because the taxpayer had specifically sought a personal hearing but was not afforded one before the adjudication order was passed.

The judgment also raises an important jurisdictional issue concerning the authority competent to adjudicate proceedings and the interaction between proceedings undertaken by State GST and Central GST authorities.

Background of the Case

The petitioner challenged a Show Cause Notice in Form GST DRC-01 dated 28 May 2024, issued under Section 74(1) of the CGST/OGST Acts. The proceedings related to the financial year 2019-20, covering the tax periods from April 2019 to March 2020.

The proceedings ultimately culminated in an order dated 16 March 2026, passed under Section 74(9) read with Rule 142(5) of the CGST/OGST Rules. A corresponding Form GST DRC-07 was also issued.

The total demand raised against the petitioner was:

₹28,80,95,516

Aggrieved by the proceedings and the consequential demand, the petitioner invoked the writ jurisdiction of the High Court under Articles 226 and 227 of the Constitution of India.

Petitioner's Main Contentions

The petitioner raised several objections against the proceedings.

1. Proceedings initiated by one authority but adjudicated by another

The Show Cause Notice was initiated by the Deputy Commissioner of State Tax, whereas the final adjudication order was passed nearly two years later by an Assistant Commissioner of State Tax.

The petitioner argued that the authority that initiated the proceedings could not simply have the matter completed by an authority of a lower rank, particularly when questions concerning jurisdiction and statutory competence were involved.

2. Personal hearing was specifically requested but denied

A particularly significant contention was that the petitioner had filed a reply to the Show Cause Notice on 28 June 2024 and had expressly requested a personal hearing.

Despite this request, the adjudicating authority passed the order dated 16 March 2026 without granting the petitioner an opportunity of personal hearing.

The State GST authorities did not dispute this fact before the High Court.

3. Overlapping proceedings by Central GST authorities

The petitioner also relied upon the decision in Tansam Engineering and Construction Company v. Commissioner, CGST and Central Excise, Rourkela Commissionerate, 2025 (10) TMI 1116 (Ori).

It was argued that the same transactions had already been taken cognizance of by the Central GST authorities. According to the petitioner, initiation or continuation of parallel proceedings by the State GST authorities was therefore hit by Section 6(2) of the GST Act.

The Standing Counsel appearing for the State GST authorities disputed this particular contention.

High Court's Findings

The Court considered the submissions of the parties and focused primarily on the admitted denial of personal hearing.

The High Court observed that the matter involved both a jurisdictional issue and a flagrant violation of the principles of natural justice.

For this reason, the Court considered it appropriate to apply the principles laid down in its recent decision in Janardan Panda v. Commissioner, Commercial Tax & GST, Odisha and Others, 2026 (5) TMI 1084 (Ori).

Natural justice is not an empty formality

In Janardan Panda, the Court had emphasized that a taxpayer's reply to a Show Cause Notice cannot be treated as an empty formality.

Where a taxpayer raises specific factual or legal objections, the adjudicating authority is required to apply its independent mind to those objections. If the authority disagrees with the taxpayer's explanation, the reasons for such disagreement must be reflected in the adjudication order.

A mechanical order that fails to consider the taxpayer's reply undermines the very purpose of the adjudication process.

The Court therefore treated the failure to grant a requested personal hearing, coupled with non-consideration of the taxpayer's defence, as a serious breach of natural justice.

High Court's Final Decision

In view of the admitted violation of natural justice, the Orissa High Court set aside the order dated 16 March 2026 passed by the Assistant Commissioner of State Tax under Section 74.

Importantly, the Court did not finally decide the underlying tax liability on merits.

Instead, the matter was remitted to the authority for fresh adjudication on merits after providing the petitioner a reasonable opportunity of hearing.

The Court also clarified that the petitioner would remain free to raise all legal as well as factual issues, and the concerned authority would be required to deal with those issues while passing the fresh order.

GST Case Law Rajlaxmi Constructions Ltd. Versus Union of India

Citation-2026 TAXONATION 2178 (ODISHA)

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