GST Demand Quashed: Ex Parte Order Violated Natural Justice, Court Orders Fresh Hearing

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Case Name

M/s G. Power Solution v. The State of Bihar & Others

Court Name: High Court of Judicature at Patna

Case No.: Civil Writ Jurisdiction Case No. 11384 of 2022

Decided on: 17th August, 2022

Key Takeaways

1. Natural Justice is Non-Negotiable: An ex parte tax demand order (passed without hearing the taxpayer) is bad in law and liable to be quashed, even if statutory remedies exist .

2. High Court Can Intervene Despite Statutory Remedies: The court clarified that it is not precluded from stepping in under writ jurisdiction when an order is ex facie (on the face of it) bad in law .

3. Reasons Must Be Assigned: The assessing officer must clearly explain how the tax demand was calculated. A vague or unreasoned order is not acceptable .

4. Bank Account Freeze Lifted: The court ordered immediate de-freezing of the petitioner’s bank accounts that were attached in connection with the impugned proceedings .

5. 20% Pre-Deposit Required: As a condition for remand, the petitioner was directed to deposit 20% of the demand amount within four weeks .

6. Liberty to Challenge Section 16(4): The court specifically reserved the petitioner’s right to separately challenge the constitutional validity (vires) of Section 16(4) of the GST Act .

7. Fresh Order Must Be a Speaking Order: The Assessing Authority was directed to pass a speaking order (a reasoned, detailed order) after giving full opportunity of hearing .

Issue

Was the tax demand order passed under Section 73(9) of the Bihar GST Act, 2017 valid, when it was passed ex parte without affording the petitioner a fair opportunity of hearing?

In simpler terms: Can a tax authority slap a demand on a taxpayer without properly hearing them out? The court said — No, it cannot.

Facts

• The Taxpayer: M/s G. Power Solution is a proprietorship firm based in Patna, run by its authorized signatory Alok Kumar, son of Sri Ram Rekha Thakur .

• The Tax Demand: The Assistant Commissioner of State Tax, Patna North Circle, Patna passed an order dated 21st March, 2020 under Section 73(9) of the Bihar GST Act, 2017 for the Financial Year 2018-19. This was essentially a tax demand order .

• The Summary of Demand: Following the order, a Summary of the Order in Form GST DRC-07 was issued on 23rd March, 2020, bearing Reference No. ZA100320020654F .

• Recovery Action: Things escalated when the Joint Commissioner of State Tax, Patna North Circle issued a notice to a third person under Section 79(1)© in Form GST DRC-13 dated 22nd February, 2022 — this is essentially a recovery notice sent to a third party (like a bank) to recover the dues .

• The Problem: The petitioner’s case was that the original demand order dated 21.03.2020 was passed ex parte — meaning the taxpayer was never given a proper chance to present their side of the story. No sufficient time was given, and the order didn’t even explain how the demand amount was arrived at .

• Bank Accounts Frozen: It appears the petitioner’s bank accounts were also attached/frozen as part of the recovery proceedings, which added urgency to the matter .

Arguments

Petitioner’s Side (M/s G. Power Solution):

• The demand order dated 21.03.2020 was passed ex parte — without giving the petitioner a fair hearing .
• No sufficient time was given to the petitioner to represent their case before the order was passed .
• The order does not assign any reasons as to how the officer determined the amount due and payable — making it impossible to even understand the basis of the demand .
• The order violates the principles of natural justice, specifically the right to a fair opportunity of hearing .
• The recovery action (Form GST DRC-13 notice) and bank account freezing were therefore also illegal, being based on a bad order.
• The petitioner also wanted to challenge the constitutional validity of Section 16(4) of the GST Act .

Revenue’s Side (State of Bihar & Tax Authorities):

• The Revenue’s counsel (Government Pleader) did not strongly contest the petitioner’s position.
• In fact, the Revenue’s counsel stated he had no objection if the matter was remanded to the Assessing Authority for deciding the case afresh on merits .
• This essentially means the Revenue conceded that a fresh hearing was appropriate.

Key Legal Precedents & Provisions

This judgment is relatively concise and does not cite prior case law precedents by name. However, it does reference the following key legal provisions:

Section 73(9) of the Bihar GST Act, 2017

This is the provision under which the original tax demand order was passed. Section 73 deals with determination of tax not paid or short paid or erroneously refunded — essentially, it’s the provision for raising a GST demand .

Section 79(1)© of the Bihar GST Act / Form GST DRC-13

This provision deals with recovery of tax. Under this, the tax authority can issue a notice to a third person (like a bank) directing them to pay the amount owed by the taxpayer directly to the government.

Section 16(4) of the GST Act

This provision relates to the time limit for claiming Input Tax Credit (ITC). The court reserved the petitioner’s liberty to separately challenge the vires (constitutional validity) of this section.

Principles of Natural Justice

While not a statutory provision, the court strongly relied on this fundamental legal principle — specifically the rule of audi alteram partem (hear the other side). An order passed without hearing the affected party is void .

Key Legal Principle Applied: The court held that even where statutory remedies exist, the High Court under writ jurisdiction can and should intervene when an order is ex facie bad in law — particularly when it violates natural justice and entails civil consequences .

Judgment

The Petitioner (M/s G. Power Solution) won — at least at this stage. The court quashed the impugned orders and directed a fresh hearing.

What Did the Court Decide?

The Division Bench of the Patna High Court (comprising the Hon’ble Chief Justice and Hon’ble Mr. Justice S. Kumar) disposed of the writ petition with the following directions :

(a) Quashing of Orders:

All three impugned actions were quashed and set aside:

• Order dated 21.03.2020 under Section 73(9) of Bihar GST Act, 2017 for F.Y. 2018-19
• Summary of Order in Form GST DRC-07 dated 23.03.2020 (Ref. No. ZA100320020654F)
• Notice to third person under Section 79(1)© in Form GST DRC-13 dated 22.02.2022

(b) 20% Pre-Deposit:

The petitioner must deposit 20% of the demand amount before the Assessing Officer within four weeks .

(C) Without Prejudice:

This deposit is without prejudice to the rights of either party. If ultimately the petitioner is found to have overpaid, the excess shall be refunded within two months of the fresh order .

(d) Bank Accounts De-Frozen:

The court ordered immediate de-freezing/de-attachment of the petitioner’s bank accounts .

(e) Fresh Hearing Date:

The petitioner was directed to appear before the Assessing Authority on 12th September, 2022 at 10:30 A.M. (preferably through digital mode) .

(f) Fresh Order on Merits:

The Assessing Authority must decide the case on merits, following the principles of natural justice, giving full opportunity to both parties to place documents and materials on record .

(g) Speaking Order:

The Assessing Authority must pass a speaking order (with reasons), a copy of which shall be supplied to the parties .

(h) Time Limit:

The fresh order should be passed preferably within two months from the date of the petitioner’s appearance .

(i) No Coercive Steps:

During the pendency of the fresh proceedings, no coercive steps shall be taken against the petitioner .

(j) Liberty to Challenge Section 16(4):

The petitioner retains the liberty to challenge the vires of Section 16(4) of the GST Act by way of separate proceedings .

(k) No Opinion on Merits:

The court clarified that it has not expressed any opinion on the merits of the case — all issues remain open .

(l) Digital Mode:

Given the COVID-19 pandemic, proceedings may be conducted through digital mode if possible .

FAQs

Q1. What does “ex parte” mean, and why was it a problem here?

Ex parte means the order was passed by the tax officer without hearing the taxpayer’s side. This is a fundamental violation of natural justice — you can’t be penalized without being given a chance to defend yourself. The court found this to be a serious flaw .

Q2. Why did the court intervene even though there are statutory appeal remedies available?

Normally, a taxpayer should use the appeal process under the GST law. But the court said it can step in under writ jurisdiction when the order is ex facie (obviously) bad in law — especially when natural justice is violated and the order has civil consequences (like freezing bank accounts) .

Q3. What is Section 73(9) of the Bihar GST Act, 2017?

This is the provision under which a tax officer can pass an order determining the amount of tax, interest, and penalty payable by a taxpayer when tax has not been paid, short-paid, or wrongly refunded. It’s essentially the final demand order provision .

Q4. What is Form GST DRC-13 and why was it issued?

Form GST DRC-13 is a recovery notice sent to a third party (like a bank) under Section 79(1)© of the GST Act, directing them to pay the taxpayer’s dues directly to the government. It was issued because the original demand wasn’t paid — but since the original demand itself was quashed, this notice was also set aside .

Q5. Why does the petitioner have to deposit 20% of the demand even though the order was quashed?

The 20% deposit is a condition for remand — it’s a standard practice to ensure the taxpayer has some “skin in the game” while the matter is reconsidered. It’s not a final payment; if the fresh order goes in the petitioner’s favor, the excess will be refunded .

Q6. What happens next for M/s G. Power Solution?

The firm must:

1. Deposit 20% of the demand within 4 weeks
2. Appear before the Assessing Authority on 12th September, 2022
3. Cooperate fully in the fresh proceedings
4. The Assessing Authority will then hear both sides properly and pass a fresh, reasoned order .

Q7. What is the significance of the liberty granted to challenge Section 16(4) of the GST Act?

Section 16(4) restricts the time limit for claiming Input Tax Credit (ITC). Many taxpayers have challenged this provision as being harsh or unconstitutional. The court kept this question open, allowing the petitioner to file a separate writ petition to challenge the validity of this provision — which is a significant relief .

Q8. Were the bank accounts released immediately?

Yes! The court ordered immediate de-freezing of the petitioner’s bank accounts that were attached in connection with these proceedings .

Heard learned counsel for the parties.

Petitioner has prayed for the following relief(s):-

Petitioner has prayed for quashing of the impugned

order dated 21.03.2020 passed by the respondent Assistant

Commissioner of State Tax, Patna North Circle, Patna

under Section 73(9) of Bihar GST Act, 2017 for the F.Y.

2018-19 (Annexure-2); Summary of the order in Form

GST DRC-07 dated 23.03.2020 in Reference No.

ZA100320020654F (Annexure-3) and the notice to a third

person under Section 79(1)(c) in Form GST DRC-13,

issued by the Joint Commissioner of State Tax, Patna

North Circle, Patna dated 22.02.2022 (Annexure-4).

The order appear to be ex parte in nature.

Learned counsel for the Revenue, states that he has

no objection if the matter is remanded to the Assessing

Authority for deciding the case afresh. Also, the case shall

be decided on merits. Also, during pendency of the case,

no coercive steps shall be taken against the petitioner.

Statement accepted and taken on record.

However, having heard learned counsel for the parties

as also perused the record made available, we are of the

considered view that this Court, notwithstanding the statutory

remedy, is not precluded from interfering where, ex facie, we

form an opinion that the order is bad in law. This we say so,

for two reasons- (a) violation of principles of natural justice,

i.e. Fair opportunity of hearing. No sufficient time was

afforded to the petitioner to represent his case; (b) order passed

ex parte in nature, does not assign any sufficient reasons even

decipherable from the record, as to how the officer could

determine the amount due and payable by the assessee. The

order, ex parte in nature, passed in violation of the principles

of natural justice, entails civil consequences.

As such, we dispose of the present writ petition in the

following mutually agreeable terms:

(a) We quash and set aside the impugned order

dated 21.03.2020 passed by the respondent Assistant

Commissioner of State Tax, Patna North Circle, Patna

under Section 73(9) of Bihar GST Act, 2017 for the F.Y.

2018-19 (Annexure-2); Summary of the order in Form

GST DRC-07 dated 23.03.2020 in Reference No.

ZA100320020654F (Annexure-3) and the notice to a third

person under Section 79(1)(c) in Form GST DRC-13,

issued by the Joint Commissioner of State Tax, Patna

North Circle, Patna, dated 22.02.2022 (Annexure-4);

(b) The petitioner undertakes to deposit twenty per

cent of the amount of the demand raised before the

Assessing Officer. This shall be done within four weeks.

(c) This deposit shall be without prejudice to the

respective rights and contention of the parties and

subject to the order passed by the Assessing Officer.

However, if it is ultimately found that the petitioner’s

deposit is in excess, the same shall be refunded within

two months from the date of passing of the order;

(d) We also direct for de-freezing/de-attaching of

the bank account(s) of the writ-petitioner, if attached in

reference to the proceedings, subject matter of present

petition. This shall be done immediately.

(e) Petitioner undertakes to appear before the

Assessing Authority on 12th of September, 2022 at 10:30

A.M., if possible through digital mode;

(f) The Assessing Authority shall decide the case

on merits after complying with the principles of natural

justice;

(g) Opportunity of hearing shall be afforded to

the parties to place on record all essential documents

and materials, if so required and desired;

(h) During pendency of the case, no coercive

steps shall be taken against the petitioner.

(i) The Assessing Authority shall pass a fresh

order only after affording adequate opportunity to all

concerned, including the writ petitioner;

(j) Petitioner through learned counsel undertakes to

fully cooperate in such proceedings and not take

unnecessary adjournment;

(k) The Assessing Authority shall decide the case on

merits expeditiously, preferably within a period of two

months from the date of appearance of the petitioner;

(l) The Assessing Authority shall pass a speaking

order assigning reasons, copy whereof shall be supplied to

the parties;

(m) Liberty reserved to the petitioner to challenge

the vires of Section 16(4) of GST Act by way of separate

proceedings.

(n) Liberty reserved to the petitioner to challenge

the order, if required and desired;

(o) Equally, liberty reserved to the parties to take

recourse to such other remedies as are otherwise available

in accordance with law;

(p) We are hopeful that as and when petitioner

takes recourse to such remedies, before the appropriate

forum, the same shall be dealt with, in accordance with

law, with a reasonable dispatch;

(q) We have not expressed any opinion on merits

and all issues are left open;

(r) If possible, proceedings during the time of

current Pandemic [Covid-19] be conducted through

digital mode;

The instant petition stands disposed of in the

aforesaid terms.

Interlocutory Application(s), if any, shall stand

disposed of.

Amrendra/PKP

(Sanjay Karol, CJ)

(S. Kumar, J)