GST Order Quashed: No Personal Hearing = No Valid Tax Demand

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Case Name

Graziano Trasmissioni India Private Limited vs. State of Gujarat

Court Name: High Court of Gujarat at Ahmedabad

Case No.: R/Special Civil Application No. 11332 of 2022 (with R/Special Civil Application No. 11335 of 2022)

Date of Order: 23rd June 2022

Key Takeaways

1. Personal Hearing is NOT Optional — Under Section 75(4) of the CGST Act, 2017, when any adverse decision is being contemplated against a taxpayer, a personal hearing is mandatory — even if the taxpayer hasn’t specifically asked for one.

2. Online Portal Waiver of Hearing Rights — The tax department argued that since the petitioner chose the “Online Portal” mode, everything was done online and no hearing was needed. The court firmly rejected this argument.

3. A Clerical Error in GSTR-3B Can Have Serious Consequences — The entire dispute arose because the company accidentally reported export turnover in the wrong column (Nil-rated/Exempt instead of Zero-rated) in Form GSTR-3B for September 2017. This triggered a demand for ITC reversal under Rules 42 and 43 of the CGST Rules.

4. Courts Will Quash Orders That Violate Natural Justice — The High Court quashed the order purely on procedural grounds (denial of hearing), without even going into the merits of the tax demand.

5. Taxpayers Must Be Given a Fair Chance — This case reinforces that tax authorities cannot rush through adjudication proceedings without following due process.

Issue

The Central Legal Question:

Was the Order-in-Original dated 25.03.2022, passed by the tax authority demanding ₹7.63 Crores in GST, interest, and penalty, legally valid when it was passed WITHOUT granting the petitioner an opportunity of personal hearing, as mandated under Section 75(4) of the CGST Act, 2017?

Short answer from the Court: NO — the order was not valid.

Facts

Who is the Petitioner?

Graziano Trasmissioni India Private Limited is a company that manufactures automobile components and is registered under GST.

The Innocent Mistake (July 2017 – March 2018):

During this period, the company was exporting goods outside India under a Letter of Undertaking (LUT) — meaning they exported without paying GST, which is perfectly legal under Section 16 of the IGST Act. They filed their returns in Form GSTR-1, GSTR-3B, and GSTR-9 as required.

Here’s where the problem started — in Form GSTR-3B for September 2017, the company accidentally reported the value of exports in the column for “Nil rated/Exempt supply” instead of the correct column for “Zero-rated supply”. In GSTR-1 and GSTR-9, however, they had correctly reported it as Zero-rated supply. This was an inadvertent error, especially understandable since GST had just been introduced in 2017.

The Department Notices the Discrepancy:

The tax department (Respondent No. 3) scrutinized the returns and sent a written intimation asking the company to explain the discrepancy. The company responded on 27.07.2021.

The Company Explains:

On 26.08.2021, the company filed a detailed reply clarifying that the amount was towards export turnover and NOT exempt turnover, and that it had nothing to do with exempt, Nil-rated, or non-GST supply.

The Department Raises the Stakes:

On 10.12.2021 and 22.12.2021, the department issued intimations in Form GST DRC-01A, proposing:

• GST liability along with interest and penalty
• Reversal of Input Tax Credit (ITC) under Rules 42 and 43 of the CGST Rules

Show Cause Notice Issued (14.02.2022):

Without waiting for a response from the company to the DRC-01A intimations, the department issued a Show Cause Notice on 14.02.2022 under Section 73(1) of the CGST Act read with the GGST Act, proposing a demand of ITC along with interest and penalty totalling nearly ₹7.63 Crores. The company filed its reply on 26.02.2022 with reasons and attachments.

The Final Order (25.03.2022):

On 25.03.2022, the tax authority passed the Order-in-Original No. ZD240322019756J, confirming the demand — but crucially, without giving the company any opportunity of personal hearing. Two Summary Orders in Form DRC-07 were also passed.

The Company Goes to Court:

Feeling aggrieved, the company filed two writ petitions before the Gujarat High Court under Article 226 of the Constitution of India, challenging the order.

Arguments

Petitioner’s Arguments (Graziano Trasmissioni):

1. Violation of Natural Justice — The Order-in-Original was passed without affording any opportunity of personal hearing, which is a fundamental right under Section 75(4) of the CGST Act, 2017.

2. Procedural Violation — The order is in gross violation of the provisions of the CGST Act, 2017, CGST Rules, 2017, GGST Act, 2017, and GGST Rules, 2017.

3. The Error Was Inadvertent — The wrong column entry in Form GSTR-3B was a genuine mistake made during the early days of GST implementation. The correct disclosure was made in Form GSTR-1 and Form GSTR-9.

4. Relief Sought — The petitioners asked the court to:

• Quash the Order-in-Original No. ZD240322019756J dated 25.03.2022 and the two Summary Orders in Form DRC-07
• Remand the matter back to Respondent No. 3 for fresh consideration with a full and fair opportunity of hearing
• Stay the implementation of the impugned order pending disposal of the petition

Respondent’s Arguments (Tax Department):

1. Online Mode Was Chosen — The department argued that the petitioner had chosen the “Online Portal” mode for the proceedings, which meant the entire matter was conducted online. Therefore, a separate personal hearing was not required.

2. No Request for Hearing — The department contended that the opportunity of hearing was not granted because the petitioner had not specifically requested for a personal hearing.

Key Legal Precedents & Provisions

The court in this case did not cite any prior case law judgments. However, it heavily relied on the following statutory provisions:

1. Section 75(4) of the CGST Act, 2017 — 

This is the most critical provision. It reads:

“An opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.”

The court emphasized the second part of this provision — that even without a written request, if an adverse decision is being contemplated, a personal hearing is mandatory.

2. Section 73(1) of the CGST Act, 2017 (read with the GGST Act)

This is the provision under which the Show Cause Notice was issued — it deals with determination of tax not paid or short paid or erroneously refunded, without fraud or wilful misstatement.

3. Section 16 of the IGST Act

This provision allows exporters to export goods under a Letter of Undertaking (LUT) without payment of IGST — which is what the petitioner was doing.

4. Rules 42 and 43 of the CGST Rules, 2017

These rules deal with the reversal of Input Tax Credit (ITC) in cases involving exempt supplies. The department proposed ITC reversal under these rules based on the mistaken classification in GSTR-3B.

5. Article 226 of the Constitution of India

This is the constitutional provision under which the petitioner approached the Gujarat High Court — it gives High Courts the power to issue writs (like Certiorari and Mandamus).

6. Section 75 of the CGST Act, 2017 (General Provisions)

The court reproduced the entire Section 75 in its order, covering sub-sections (1) through (13), to provide context for the hearing requirement.

Judgment

The Petitioner (Graziano Trasmissioni India Private Limited) won

What Did the Court Decide?

The Division Bench of the Gujarat High Court, comprising Hon’ble Ms. Justice Sonia Gokani and Hon’ble Ms. Justice Gita Gopi, passed the following order on 23rd June 2022:

1. The Impugned Order Was Quashed:

The court quashed the Order-in-Original No. ZD240322019756J dated 25.03.2022 and the two (2) Summary Orders in Form DRC-07 passed by Respondent No. 3.

2. The Reasoning:

The court did NOT go into the merits of the tax demand at all. It quashed the order purely on the ground that the petitioner was denied the opportunity of personal hearing as mandated under Section 75(4) of the CGST Act, 2017. The court clearly stated that even without a request from the taxpayer, when an adverse decision is being contemplated, personal hearing is a must.

The court also rejected the department’s argument about the “Online Portal” mode, noting that this argument had “missed out” the clear mandate of Section 75(4).

3. Fresh Hearing Ordered:

The court directed Respondent No. 3 to conduct a personal hearing on 18.07.2022. Any documents needed to be furnished were to be submitted on or before 13.07.2022 physically.

4. No Adjournments:

The court specifically noted that no adjournment shall be sought by the petitioners.

5. Observations Not Binding:

The court clarified that none of its observations would come in the way of the parties in finally deciding the matter on merits.

6. Both Petitions Disposed Of:

Both SCA No. 11332/2022 and SCA No. 11335/2022 were disposed of accordingly.

FAQs

Q1: What was the root cause of this entire dispute?

A: A simple clerical error! The company accidentally reported export turnover in the wrong column in Form GSTR-3B for September 2017 — it put the figures under “Nil rated/Exempt supply” instead of “Zero-rated supply.” The correct disclosure was made in GSTR-1 and GSTR-9. This mismatch triggered scrutiny and eventually a ₹7.63 Crore demand.

Q2: Does this mean the company doesn’t have to pay the ₹7.63 Crores?

A: Not necessarily. The court only quashed the order on procedural grounds (no personal hearing). The matter was sent back for a fresh hearing. The tax department can still raise the demand again — but this time, after giving the company a proper opportunity to present its case.

Q3: Why is Section 75(4) so important?

A: Because it makes personal hearing mandatory in two situations: (a) when the taxpayer requests it in writing, OR (b) when an adverse decision is being contemplated. The second condition means the tax officer cannot pass an adverse order without first giving the taxpayer a chance to be heard — even if the taxpayer didn’t ask for it!

Q4: Can the tax department argue that the online mode replaces personal hearing?

A: The court clearly said NO. Choosing the online portal mode does not waive the taxpayer’s right to a personal hearing under Section 75(4) of the CGST Act, 2017.

Q5: What is a “Zero-rated supply” vs. “Nil-rated/Exempt supply” — why does it matter?

A: This is a crucial GST distinction:

• Zero-rated supply (like exports) — the tax rate is 0%, but the exporter can claim ITC refund. No ITC reversal is required.
• Nil-rated/Exempt supply — the tax rate is 0%, but the supplier cannot claim ITC and may need to reverse ITC under Rules 42 and 43 of the CGST Rules.

By accidentally classifying exports as “Nil-rated/Exempt,” the company triggered ITC reversal demands — which is why the amount ballooned to ₹7.63 Crores.

Q6: What is a Letter of Undertaking (LUT) in GST?

A: An LUT is a document that allows exporters to export goods or services without paying IGST, on the condition that they will fulfill their export obligations. It’s governed by Section 16 of the IGST Act. The petitioner was correctly using this facility.

Q7: What is Form DRC-07?

A: Form DRC-07 is a Summary of the Order issued under GST law. It’s essentially a formal document that summarizes the tax demand, interest, and penalty confirmed against a taxpayer after adjudication. In this case, two such summary orders were also quashed along with the main order.

Q8: What’s the broader lesson for GST taxpayers from this case?

A: A few important lessons:

1. Be careful with GSTR-3B — errors here can have serious consequences even if other returns are correct.
2. Know your rights — under Section 75(4) of the CGST Act, you have the right to a personal hearing before any adverse order is passed.
3. Courts will protect procedural rights — even if the tax demand might have some merit, courts will quash orders that violate natural justice principles.

1. By this common order, both the petitions are being dealt with. For the purpose of adjudication, the facts are drawn from the petition being Special Civil Application No.11332/2022.

2. The present petitions under Article 226 of the Constitution of India seek to challenge the legality and validity of the Order-in-original dated 25.03.2022 along with 2 Summary Orders thereof in Form DRC-07 passed by the

respondent No.3 on the ground that the same are in gross violation of the provisions of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017) and Central Goods and Services Tax Rules, 2017 (CGST Rules, 2017) as also the Gujarat Goods and Services Tax Act, 2017 (GGST Act, 2017) and Gujarat Goods and Services Tax Rules, 2017 (GGST Rules, 2017). as also against the principles of natural justice.

3. The petitioner No.1 is a unit manufacturing automobile components and has its GST Registration. From July 2017 to March 2018, the petitioner No.1 had exported the goods outside India under Letter of Undertaking and without payment of GST, as required under Section 16 of the IGST Act. The Returns in Form GSTR-1, GSTR-3B and GSTR-9 had been filed.

In Form GSTR-1 and Form GSTR-9, the petitioner No.1 had correctly disclosed the export turnover in the Column meant for Zero-rated supply; however, in Form GSTR-3B, which the petitioner No.1 had filed for the month of September 2017, inadvertently, it had reported the value of exports in the Column for Nil rated / Exempt supply and not in the Column for Zero-rated supply. This, according to the petitioners, had happened as the entire regime of GST had started in the year 2017.

4. A written intimation was received from respondent No.3

pursuant to the scrutiny of returns filed by petitioner No.1 for

the period of July 2017 to March 2018, which asked for

explaining the reasons for the discrepancies. The same was

responded to on 27.07.2021. The Summary of GST liability and

ITC claimed by petitioner No.1 was provided by respondent

No.3 through E-mail.

5. The reply came to be furnished on 26.08.2021 explaining

that the amount was towards export turnover and not exempt

turnover and clarifying that the amount did not pertain to

exempt, Nil-rated or non-GST supply.

6. The respondent No.3 intimated the liability of GST along

with interest and penalty in Form GST DRC-01A. The

intimations also proposed that there was requirement of

reversal of ITC under Rules 42 and 43 of the CGST Rules. This

happened on 10.12.2021 and 22.12.2021.

7. It is the grievance of the petitioners that on 14.02.2022,

without awaiting for any response from the petitioners, a

show-cause Notice came to be issued proposing a demand of

ITC along with interest and penalty totalling nearly 7.63 Crores

(rounded off) under Section 73(1) of the CGST Act read with

the GGST Act. Reply came to be filed on 26.02.2022 along

with the reasons and attachments.

8. On 25.03.2022 the order came to be passed by

respondent No.3, which has seriously aggrieved the petitioners

since the same, according to the petitioners, has been passed

without affording any opportunity of personal hearing, as

contemplated under Section 75(4) of the CGST Act, 2017. This

has resulted into the petitioners approaching this Court with

the following prayers:

“A. YOUR LORDSHIPS may be pleased to admit and

allow this Petition;

B. YOUR LORDSHIPS may be pleased to Issue a writ,

order or direction in the nature of Certiorari to quash the

Impugned Order-in-Original No. ZD240322019756J dated

25.03.2022 and 2 Summary Orders thereof in FORM DRC

— 07 passed by the Respondent No. 3;

C. YOUR LORDSHIPS may be pleased to Issue a writ,

order or direction in the nature of Mandamus remanding

the matter and directing the Respondent No. 3 to

consider the matter afresh, after giving full and fair

opportunity to the Petitioner to submit its reply and after

affording opportunity of personal hearing to the

Petitioner;

D. Pending hearing and final disposal of the Petition,

YOUR LORDSHIPS may be pleased to stay the

implementation, operation and execution of the impugned

Order-in-Original No. ZD244322019756J dated 25.03.2022

and 2 Summary Orders thereof in FORM DRC - 07

passed by the Respondent No. 3;

E. YOUR LORDSHIPS maybe pleased to grant ex-parte

ad interim relief in terms of Para 8(D);

F. YOUR LORDSHIPS may be pleased to Issue any

other writ order or direction, which this Hon’ble Court

may deem fit and proper under the facts and

circumstances of the present case;

G. Grant costs; and

H. Grant such further and other reliefs as the nature

and circumstances of the case may require.”

9. Notice to be made returnable forthwith. Let the learned

Assistant Government Pleader appear on advance copy.

10. We have heard both the sides finally at the time of

issuance of notice itself.

11. At the outset, we would like to reproduce Section 75 of

the CGST Act, 2017, which is as under:

“Section 75 : General provisions relating to determination

of tax.

(1) Where the service of notice or issuance of order is

stayed by an order of a court or Appellate Tribunal, the period

of such stay shall be excluded in computing the period

specified in sub-sections (2) and (10) of section 73 or sub-

sections (2) and (10) of section 74, as the case may be.

(2) Where any Appellate Authority or Appellate Tribunal or

court concludes that the notice issued under sub-section (1) of

section 74 is not sustainable for the reason that the charges

of fraud or any wilful-misstatement or suppression of facts to

evade tax has not been established against the person to

whom the notice was issued, the proper officer shall

determine the tax payable by such person, deeming as if the

notice were issued under sub-section (1) of section 73.

(3) Where any order is required to be issued in pursuance

of the direction of the Appellate Authority or Appellate

Tribunal or a court, such order shall be issued within two

years from the date of communication of the said direction.

(4) An opportunity of hearing shall be granted where

a request is received in writing from the person

chargeable with tax or penalty, or where any adverse

decision is contemplated against such person.

(5) The proper officer shall, if sufficient cause is shown by

the person chargeable with tax, grant time to the said person

and adjourn the hearing for reasons t

o be recorded in writing:

Provided that no such adjournment shall be granted for more

than three times to a person during the proceedings.

(6) The proper officer, in his order, shall set out the relevant

facts and the basis of his decision.

(7) The amount of tax, interest and penalty demanded in

the order shall not be in excess of the amount specified in the

notice and no demand shall be confirmed on the grounds

other than the grounds specified in the notice.

(8) Where the Appellate Authority or Appellate Tribunal or

court modifies the amount of tax determined by the proper

officer, the amount of interest and penalty shall stand

modified accordingly, taking into account the amount of tax

so modified.

(9) The interest on the tax short paid or not paid shall be

payable whether or not specified in the order determining the

tax liability.

(10) The adjudication proceedings shall be deemed to be

concluded, if the order is not issued within three years as

provided for in sub-section (10) of section 73 or within five

years as provided for in sub-section (10) of section 74.

(11) An issue on which the Appellate Authority or the

Appellate Tribunal or the High Court has given its decision

which is prejudicial to the interest of revenue in some other

proceedings and an appeal to the Appellate Tribunal or the

High Court or the Supreme Court against such decision of the

Appellate Authority or the Appellate Tribunal or the High Court

is pending, the period spent between the date of the decision

of the Appellate Authority and that of the Appellate Tribunal

or the date of decision of the Appellate Tribunal and that of

the High Court or the date of the decision of the High Court

and that of the Supreme Court shall be excluded in computing

the period referred to in sub-section (10) of section 73 or sub-

section (10) of section 74 where proceedings are initiated by

way of issue of a show cause notice under the said sections.

(12) Notwithstanding anything contained in section 73 or

section 74, where any amount of self-assessed tax in

accordance with a return furnished under section 39 remains

unpaid, either wholly or partly, or any amount of interest

payable on such tax remains unpaid, the same shall be

recovered under the provisions of section 79.

(13) Where any penalty is imposed under section

73 or section 74, no penalty for the same act or omission shall

be imposed on the same person under any other provision of

this Act.”

12. Section 75(4) of the CGST Act, 2017 provides that an

opportunity of hearing is to be provided where a request is

received in writing from the person chargeable with tax or

penalty or where any adverse decision is contemplated against

such person.

13. The stand on the part of the Department is that the

Online Portal mode was chosen by the petitioners, which had

resulted in the entire matter having been proceeded Online.

The opportunity of hearing was not granted since the same

was not requested for. However, while so arguing, the

provision of Section 75(4) has been missed out. Even without

any request having been made on the part of the party

concerned, when any adverse decision is contemplated,

personal hearing is a must. Hence, the same is missing in the

instant case and the request on the part of the petitioners is to

remand the matter by directing the respondents to consider the

matter afresh by giving the fullest opportunity to the parties to

present their case.

14. Without entering into the merits of the matter, only on

the ground of non-availment of opportunity of personal

hearing, we deem it appropriate to quash the impugned Order-

in-original No. ZD240322019756J dated 25.03.2022 and two (2)

Summary Orders in Form DRC-07 passed by respondent No.3.

The respondent No.3 shall avail the opportunity of personal

hearing on 18.07.2022. If any document/s are needed to be

furnished, let the same be done on or before 13.07.2022

physically. No adjournment shall be sought for by the

petitioners. None of the observations will come in the way of

the parties in finally deciding the matter. Both the petitions

stands disposed of accordingly. Direct service permitted.

(SONIA GOKANI, J)

(GITA GOPI, J)

PRAVIN KARUNAN