HC remands the case back to AAAR where it introduced ‘new grounds’ without notifying assessee about the same

Categories: Advance Ruling
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Facts:

M/s. JSW Energy Ltd. (“the Petitioner” or “JEL”), engaged in the business of generation & sale of electricity, proposed to enter into an arrangement with JSW Steel Limited (“JSL”) involving, inter alia, conversion of coal & other inputs into electricity on a job work basis.

The Petitioner applied to the Maharashtra AAR seeking Advance Ruling on the applicability of GST on the proposed arrangement and to ascertain whether the said arrangement qualified as ‘job work’ and, consequently, whether the Petitioner was entitled to benefits under the CGST and MGST Act.

The AAR ruled that the proposed arrangement did not qualify as ‘job work’ primarily because the same amounted to ‘manufacture’ as defined under Section 2(72) of the CGST Act, and the proposed arrangement attracted GST.

Being aggrieved, JEL further appealed to the AAAR for reconsideration of the said ruling, emphasizing that an arrangement can amount to ‘job work’ even though there may arise an element of ‘manufacture’ therein. The AAAR though disagreed with the reasoning of the AAR Authority, but, upheld the ultimate conclusion of the AAR relying on two new grounds, without giving the Petitioner an opportunity to present the case w.r.t the new grounds on which the case was adjudicated. Hence, the present petition is filed on the ground that since the Statute had not provided for further appeal against the order of the AAAR, thus the instant Court, should examine the impugned orders on the basis of substantive merits, as otherwise, the impugned orders would bind the Petitioner qua the proposed arrangement, for all times.

Issues involved:

Whether the AAAR exceeded jurisdiction in introducing or relying upon ‘new grounds’, which were never raised before AAR? And whether the same amounted to a violation of principals of natural justice since the Petitioner was at no stage put to notice as regards new grounds & was not offered an opportunity to place documentary evidence regarding the same?

Held:

The Hon’ble High Court in the matter of Writ Petition No. 5 of 2019 dated June 7, 2019, observed as under:

AAAR has the right to insert new grounds for its observation and in a given case, may be entitled to uphold the conclusion of AAR, for reasons other than the ones which prompted the AAR to base its decision. Ultimately, the Appellate Authority is required to give its ruling on the questions posed considering the relevant circumstances and eschewing irrelevant ones. Therefore, if the AAR may have missed a particular point,

  • It is not as if the Appellate Authority is precluded from adverting to such point and basing its ruling on the same.
  • Just because there is no appeal mechanism against an order, the scope of the High Court does not get enlarged enough to review such orders. Although it can review the proceedings for the order to see whether the principals of natural justice were adhered to or not.
  • However, the fact that the proceedings before the Appellate Authority partake a judicial or a quasi-judicial character was not seriously disputed at the bar hence, there can be no serious dispute that the Appellate Authority was required to adhere to the principles of natural justice in arriving at its decision. This requirement of adhering to the principles of natural justice is in fact required to be read into, in the absence of any specific stipulations in the Statute to the contrary.

Conclusively, the Hon’ble High Court rightfully set aside the impugned order made by the Appellate Authority while remanding the Petitioner’s appeal to the Appellate Authority for reconsideration on its own merits and in accordance with law. It also commented that the Appellate Authority should have at least indicated to the Petitioner that it proposed to take into consideration the ‘new grounds’ and further, afforded an opportunity to the Petitioner to place on record agreements or other documentary evidence, in order to meet these new grounds. The failure to do so has not only resulted in the violation of principles of natural justice but also occasioned serious prejudice to the Petitioner.

Citation:  [2019] 108 taxmann.com 27 (Bombay)