Rajasthan High Court Quashes GST Penalty Orders After Same Officer Approved Investigation and Adjudicated Case

The Rajasthan High Court has recently held that the a taxpayer's reasonable apprehension of bias could not be ignored where the Additional Commissioner who approved the investigation report leading to prosecution also adjudicated the proceedings arising from the same facts.

The division bench of Justice Pushpendra Singh Bhati and Justice Praveer Bhatnagar consequently quashed the orders imposing penalties and the appellate order upholding them and remanded the matter for fresh adjudication.

The bench clarified that it had not examined whether the impugned orders were vitiated by actual bias or prejudice. It said the matter was being remanded because the authority exercising quasi-judicial powers had also been involved in approving the investigation report that led to prosecution.

"This Court further clarifies that it has not examined whether the impugned order is otherwise vitiated by actual bias or prejudice and has remanded the matter solely on the ground that the authority exercising quasi-judicial powers was also involved in the approval of the investigation report leading to the initiation of prosecution proceedings," the bench observed.

The petitioner, Gajmukhi Bullion, is a proprietorship firm engaged in the business of bullion, gems and jewellery. It was issued a show cause notice proposing penalties under Section 122 of the Central Goods and Services Tax Act, 2017.

The firm challenged the proceedings on the ground that Additional Commissioner Mahipal Singh had examined the investigation report and approved the proposal for initiating prosecution under Section 132 of the Act.

The same officer later acted as the quasi-judicial authority and passed the order imposing penalties. The petitioner objected to one officer discharging both roles.

Its appeal was rejected. The appellate authority held that under the GST regime, the fact that the same officer had acted as an adjudicator or investigator did not cast any stigma on the validity of the proceedings or the orders passed therein.

Opposing the writ petition, the respondents argued that an officer performs distinct functions while approving an investigation report and while acting as a quasi-judicial authority. According to them, the two roles were not in conflict and did not give rise to any presumption of prejudice. They also contended that the petitioner had failed to demonstrate any actual prejudice arising from the same officer discharging both functions.

After hearing both sides, the court noted that the investigation report for initiating prosecution had been prepared by the Deputy Commissioner and countersigned and approved by the additional commissioner. The same officer later acted as the quasi-judicial authority and passed the order imposing penalties.

The bench said this arrangement undermined the very foundation on which a quasi-judicial authority is expected to function. It also found that the objection regarding the same officer approving the investigation report and later adjudicating the matter had not been adequately addressed.

"This Court does not deem it necessary to enter into the question as to whether the multiple roles assumed by the same officer, namely, investigator, approving authority, and quasijudicial authority, actually resulted in bias or partiality in the present case. However, the reasonable apprehension of bias in the mind of the petitioner cannot be ignored, particularly when the matter concerns the exercise of quasi-judicial power," the bench held.

The court set aside both the penalty order and the appellate order. It remanded the matter to the competent authority for fresh adjudication and directed that the roles of investigator, approving authority and quasi-judicial officer should not be discharged by the same individual.