Personal Hearing Mandatory Before Adverse GST Order: Andhra Pradesh High Court Ruling in Phoenix Medical Systems Case

Background and Overview

The Andhra Pradesh High Court, in Writ Petition No. 22371 of 2024, delivered a significant ruling on 08.07.2026 in the matter of Phoenix Medical Systems Private Limited Vs State of Andhra Pradesh, reaffirming that GST authorities are legally obligated to grant a personal hearing before passing any adverse order against an assessee. The judgment underscores the non-negotiable nature of principles of natural justice within GST adjudication proceedings and clarifies the scope of Section 75(4) of the Andhra Pradesh Goods and Services Tax Act.

The petitioner, Phoenix Medical Systems Private Limited, a company incorporated under the Companies Act and engaged in the manufacture of neonatal medical equipment, approached the High Court challenging assessment proceedings that resulted in a tax demand — without the assessee's reply being considered and without any hearing being offered prior to the adverse determination.

Facts of the Case

Initial Scrutiny Notice and Show Cause Proceedings

The sequence of events that gave rise to this writ petition began when the 2nd respondent issued a notice dated 09.03.2023 to the petitioner in Form GST ASMT-10, under Rule 99(1) of the GST Rules. This notice flagged discrepancies identified upon comparing the petitioner's filed returns against the e-way bill turnover for the financial year 2021–2022.

The petitioner did not respond to this initial notice. Consequently, the 3rd respondent issued a show cause notice dated 06.05.2023 under Section 74(1) of the AP GST Act. Against this show cause notice, the assessee asserted that a detailed reply dated 05.06.2023 was duly submitted, raising preliminary objections and seeking certain particulars from the authority.

Impugned Assessment Order

Despite the submission of this reply, the 3rd respondent proceeded to issue proceedings dated 16.06.2023 by way of DRC-07 under Section 74 of the AP GST Act, along with a summary of the order. Through this order, the assessee was directed to pay a tax amount of Rs. 14,30,814.96 Ps.

The assessee thereafter filed an appeal against this order. However, the appellate authority rejected the appeal through an endorsement dated 15.05.2024, holding it to be barred by limitation.

Arguments Advanced

Petitioner's Contentions

Counsel for Phoenix Medical Systems Private Limited advanced the following grounds before the High Court:

  1. Violation of natural justice: The proceedings dated 16.06.2023 were passed without taking the petitioner's reply dated 05.06.2023 into consideration, rendering the order a nullity.

  2. Pre-determination of tax liability: A reading of the notice dated 06.05.2023 issued in Form GST DRC-01 under Section 61(1) of the Act reflected that the 3rd respondent had already formed a view on the alleged tax dues even before the assessee had an opportunity to submit its explanation or objections.

  3. Non-compliance with Section 75(4): Before passing an adverse order, the authority was required to grant an opportunity of personal hearing as mandated under Section 75(4) of the Act. No such hearing was offered, making the proceedings legally infirm.