Gujarat High Court Quashes GST ITC Demand for Denial of Personal Hearing and Non-Speaking Order

The Gujarat High Court has reaffirmed that GST adjudication must follow the statutory requirements of Section 75 of the CGST Act, including a meaningful opportunity of personal hearing and a reasoned order. In Aarya Metals v. State of Gujarat, the Court set aside an ITC demand because these safeguards were not followed.

Case Background

In M/s Aarya Metals v. State of Gujarat, R/Special Civil Application No. 7535 of 2026, decided on 28 July 2026, the Gujarat High Court considered a challenge to a GST demand relating to Input Tax Credit (ITC) of Rs. 7,63,026. 

The proceedings were initiated under Section 74(1) of the CGST Act, 2017. The department alleged that the inward supplies were not genuine because the supplier, M/s RK Battery and Scrap, was allegedly non-genuine and non-existent. Consequently, the ITC was proposed to be denied under Section 16(2) of the CGST Act. 

The petitioners subsequently submitted a reply along with the relevant tax invoices. However, the authorities proceeded to pass an order in FORM GST DRC-07, confirming the demand.

What Went Wrong?

The High Court identified serious procedural deficiencies in the adjudication.

1. No Proper Personal Hearing Was Communicated

The original show-cause notice and three subsequent reminders did not specify:

• Date of personal hearing
• Time of personal hearing
• Venue of personal hearing

The reminders reportedly reflected these particulars as “N.A.”.

This was significant because 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 against the taxpayer.

The Gujarat High Court emphasised that the statutory right to hearing cannot be reduced to a mere formality. The taxpayer must be given a genuine and effective opportunity to present its case. 

2. The Adjudication Order Was Non-Speaking

The Court also found that the impugned order was essentially a two-line order confirming the tax, interest and penalty without properly considering the petitioners’ reply and supporting documents.

This is contrary to Section 75(6) of the CGST Act, which requires the proper officer to set out the relevant facts and the basis of the decision in the order. 

A GST adjudication order therefore cannot merely state the amount demanded. It should demonstrate that the officer has considered the taxpayer’s defence and explain why that defence is accepted or rejected.

High Court’s Decision

The Gujarat High Court identified three principal defects:

1. Failure to intimate the date, time and venue of personal hearing.
2. Failure to provide the required opportunities of personal hearing.
3. Passing of a non-speaking order without properly considering the taxpayer’s submissions and documents.

Accordingly, the Court:

• Quashed and set aside the impugned DRC-07 order.
• Remanded the matter to the jurisdictional State Tax Officer.
• Directed fresh adjudication after providing the petitioners an opportunity of hearing.
• Directed that the fresh order be passed within 12 weeks from receipt of the certified copy of the judgment. 

Importantly, the Court did not finally decide the underlying ITC eligibility. The matter was sent back for fresh adjudication in accordance with law.

Practical Lessons for GST Taxpayers

The judgment provides important safeguards for businesses facing GST investigations and ITC disputes.

Taxpayers should:

• Carefully examine every GST show-cause notice and DRC-01.
• File a detailed and evidence-based reply within the prescribed time.
• Preserve tax invoices, purchase records, payment evidence and other supporting documents.
• Check whether personal hearing details have actually been communicated.
• Make a written request for personal hearing where appropriate.
• Attend the hearing or ensure authorised representation.
• Verify whether the final order discusses the taxpayer’s material submissions.
• Challenge an order that is merely mechanical or does not disclose the basis of the determination.

The decision is also consistent with the Gujarat High Court’s earlier approach in Gateway Exim v. State of Gujarat, where the Court held that personal hearing particulars must be communicated before an adverse order is passed. 

Conclusion

The Aarya Metals judgment reinforces a fundamental principle of GST administration: tax authorities must follow due process before confirming a demand. A taxpayer’s reply and supporting documents cannot be ignored, and a final adjudication order must contain reasons showing how the decision was reached.

For businesses facing GST ITC disputes, this case highlights the importance of maintaining a complete documentary trail and ensuring that statutory hearing rights are properly exercised.

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