GST ITC Demand Quashed for Denial of Personal Hearing and Non-Speaking Order

The Gujarat High Court has reaffirmed that GST adjudication must comply with the principles of natural justice. In Aarya Metals v. State of Gujarat, the Court set aside an ITC demand after finding that the taxpayer was not properly informed about the personal hearing and that the adjudication order failed to consider the taxpayer’s reply and supporting documents.

Background of the Case

In M/s Aarya Metals & Ors. v. State of Gujarat & Anr., R/Special Civil Application No. 7535 of 2026, decided on 28 July 2026, the petitioners challenged a GST demand arising from proceedings under Section 74(1) of the CGST Act, 2017. 

The authorities alleged that the petitioners had wrongly availed Input Tax Credit (ITC) of Rs. 7,63,026 in respect of inward supplies from a supplier alleged to be non-genuine and non-existent. The petitioners, however, submitted a reply along with the relevant tax invoices.

Despite this, the adjudicating authority subsequently issued a FORM GST DRC-07 order confirming the tax demand, interest and penalty.

Failure to Provide Effective Personal Hearing

A key issue before the High Court was that neither the original show-cause notice nor the three subsequent reminders specified the date, time and venue of the personal hearing. The Court considered this a serious procedural defect.

Section 75(4) of the CGST Act requires an opportunity of hearing where a written request is made or where an adverse decision is contemplated. Section 75(5) also deals with adjournments, while Section 75(6) requires the proper officer to set out the relevant facts and the basis of the decision in the order. 

The Gujarat High Court had previously taken a similar view in Aarti Enterprise v. State of Gujarat, holding that merely issuing reminders does not constitute an effective hearing opportunity when the taxpayer is not informed of the date, time and venue of the hearing.

Cryptic and Non-Speaking GST Order

The Court also found the impugned DRC-07 order to be legally unsustainable because it did not properly consider the petitioners’ reply and supporting documents.

A taxpayer’s detailed response cannot simply be ignored before confirming a substantial tax demand. Section 75(6) requires the adjudicating authority to record the relevant facts and the basis for its decision. A reasoned order is particularly important where the taxpayer has produced documentary evidence in support of its defence. 

Gujarat High Court’s Decision

The High Court identified three significant defects:

• Failure to communicate the date, time and venue of personal hearing.

• Failure to provide the required effective hearing opportunity.

• Passing of a non-speaking order without properly considering the taxpayer’s reply and documents.

Accordingly, the impugned order was quashed and set aside. The matter was remanded to the jurisdictional State Tax Officer for fresh adjudication after providing the petitioners an appropriate opportunity of hearing. The fresh order was directed to be passed within twelve weeks from receipt of the certified copy of the judgment. 

Practical Takeaway for GST Taxpayers

The ruling highlights the importance of procedural fairness in GST proceedings. Businesses receiving a GST show-cause notice should:

1. File a detailed reply within the prescribed time.

2. Preserve invoices and other documents supporting ITC eligibility.

3. Monitor the GST portal for hearing notices and subsequent proceedings.

4. Verify that the date, time and venue of personal hearing are properly communicated.

5. Examine whether the final adjudication order addresses the submissions and evidence placed on record.

The judgment does not mean that an ITC claim automatically succeeds merely because a procedural defect is established. Instead, it ensures that the taxpayer receives a fair opportunity and that the tax authority makes a reasoned decision after considering the available material.

For expert guidance on this topic, contact your tax professional today.

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