Order under Section 73 Set Aside for Denial of Cross-Examination Opportunity

Court: High Court of Kerala at Ernakulam
Case Title: MS Associates v. State of Kerala & Ors.
Petition Number: WP(C) No. 22144 of 2024
Category of Dispute: Input Tax Credit – Opportunity of Hearing / Cross-Examination
Date of Judgment: 08 April 2025
Relevant Sections: Sections 73 and 75(4) of the CGST Act, 2017

Facts of the Case

[Para 1–6]

• The petitioner, a contractor executing PWD works, was issued a show cause notice under Section 73 alleging GST discrepancies for FY 2019–20 (Ext.P9).

• Petitioner responded by denying the discrepancies and requested an opportunity to cross-examine the Divisional Accountant (4th respondent) whose report formed the basis of the allegations (Ext.P10).

• The Court initially granted an interim stay on 21.06.2024. However, due to procedural delay, the stay expired on 30.08.2024, and the department passed a final order on 31.08.2024 (Ext.P11) imposing a tax liability of ₹30,76,070.

• The petitioner challenged this final order for being passed without hearing and without allowing cross-examination.

Question(s) in Consideration

[Para 2–4]

1. Whether the impugned order passed under Section 73 without hearing the petitioner, after expiry of interim stay, violates principles of natural justice?

2. Whether the petitioner was entitled to cross-examine the 4th respondent (Divisional Accountant) before finalizing tax liability?

Observations of the Court

[Para 6–8]

• The department contended that a hearing was scheduled for 06.06.2024, but there was no record proving that the notice of hearing was served.

• The Court held that Section 75(4) CGST Act makes it mandatory to give an opportunity of hearing before passing adverse orders. Even after expiry of the stay, a hearing was necessary.

• It was also observed that the request for cross-examination of the 4th respondent was justified because the petitioner’s liability was based on documents/reports prepared by that officer.

Judgment of the Court

[Para 9]

• The impugned order (Ext.P11) dated 31.08.2024 was set aside.

• The Court directed the respondent authority to issue a fresh order:

  • After granting an opportunity of hearing.

  • After allowing cross-examination of the 4th respondent.

  • Excluding the stay period from limitation calculation.

  • Providing required documents as per law.

Between Fine Lines

The High Court ruled that once a taxpayer contests departmental findings and seeks cross-examination of officials whose reports are relied on, the authority must mandatorily offer a personal hearing and permit cross-examination before issuing a tax order. Issuing orders during a stay gap without notice or hearing violates natural justice.

Summary of Referred Cases

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