2024(01)LCX0342

Pioneer Bakers

Versus

Union of India

W.P.(C) No. 2220 of 2022 decided on 25-01-2024

ORISSA HIGH COURT : CUTTACK

W.P.(C) No.2220 of 2022

In the matter of an Application under Articles 226 and 227 of the Constitution of India, 1950

1. M/s. Pioneer Bakers
Regn. No.GSTIN: 21AAQFP6408F1ZB
At: Sahayog Nagar, P.O.: Budharaja
District: Sambalpur – 768 003, (Odisha)
represented through Shri Amit Singhania,
Aged about 44 years,
R/o.: 8kc, Mani Tribhuvan, Raghunathpur
Patia, Bhubaneswar, Odisha                                     … Petitioner

-VERSUS-

1. Union of India
Represented through its Secretary
Ministry of Finance
(Department of Revenue),
North Block, New Delhi.

2. Commissioner, Central, Goods and Services Tax
and Central Excise,
At Rajaswa Vihar, GST Bhawan,
Bhubaneswar - 751 007, Odisha.

3. State of Odisha
Represented through Secretary,
Department of Finance, At: Secretariat Building
Sachivalaya Marg, Unit-2, Keshari Nagar,
Bhubaneswar - 751 001, Odisha.

4. Odisha Appellate Authority for
Advance Ruling, Goods and Services Tax
Represented through its
Assistant Commissioner, CGST
Office of the Chief Commissioner
At: Rajaswa Vihar, GST Bhawan
Bhubaneswar - 751 007, Odisha. 

5. Assistant Commissioner of GST & Central Excise
Sambalpur-I Division,
At: Danipali, Budharaja
Sambalpur - 768 004, Odisha.

6. Superintendent, CGST & Central Excise
Sambalpur-I Division, At: Danipali
Budharaja, Sambalpur - 768 004
Odisha.                                                                  … Opposite parties

Counsel appeared for the parties:

For the petitioner :

Mr. Jagabandhu Sahoo,
Senior Advocate,
along with
M/s. Kajal Sahoo,
Saurav Tibrewal,
Abhay Khandelwal,
Pankaj Khandelwal, Advocates

For the opposite party  :
No.1

Mr. Prasanna Kumar Parhi
Deputy Solicitor General of India

For the opposite party :
Nos.2 to 6

Mr. Radheyshyam Chimanka,
Senior Standing Counsel,
GST, Central Excise & Customs

PRESENT:

THE HONOURABLE ACTING CHIEF JUSTICE DR. B.R. SARANGI

AND

THE HONOURABLE MR. JUSTICE MURAHARI SRI RAMAN

Date of Hearing : 25.01.2024
Date of Judgment : 25.01.2024

JUDGMENT

MURAHARI SRI RAMAN, J.-

THE CHALLENGE BY THE PETITIONER:

The petitioner, registered partnership firm engaged in the business of bakery products, craves to question the legality and propriety of Order No. 02/Odisha- AAAR/Appeal/2021-22, dated 27.07.2021 passed in Appeal bearing No. 01/Odisha-AAAR/Appeal/2021-22 by the Odisha Appellate Authority for Advance Ruling (“AAAR” for short) constituted under Section 99 of the Odisha Goods and Services Tax Act/the Central Goods and Services Tax Act, 2017 (collectively abbreviated as “GST Act”), whereby the ruling rendered by Odisha Authority for Advance Ruling (“AAR”, for brevity) constituted under Section 96 vide Order No. 06/Odisha- AAR/2020-21 dated 09.03.2021 in consideration of the Application filed under Section 97 of the GST Act has been set aside in the appeal preferred by the Jurisdictional Officer and held that “the items sold by the applicant-M/s. Pioneer Bakers will attract the GST tariff rate as individual items”.

1.1. It is alleged that the Appellate Order has been passed in gross violation of the established position of law and suffers from procedural irregularities warranting interference being in violation of principles of natural justice.

FACTS AS NARRATED BY THE PETITIONER:

2. The Petitioner-firm is operating its outlets under the name of “GO-COOL” since 1997. It has established itself as a brand in the field of bakery items, especially in cakes. It has several outlets operating in the State of Odisha and it offers a wide range of goods and services in the aforementioned outlets.

2.1. Principal business of the petitioner is making and selling of bakery products, viz., cakes, artisan cakes, pastries, pizza, patties, sandwich, burgers, handmade chocolates, cookies, beverages etc., in its outlets. It offers a large number of customisation options to its customers with respect to the above-mentioned products as the same are prepared in its outlets and served to the customers.

2.2. The bakery products are prepared in the outlet premises and served to the customers. The materials for some of the items are prepared in its workshop, being located nearby the premises of the outlet of the petitioner. Such materials include chocolates, pizza base, etc. which are prepared in the workshops as these goods require heavy machinery. It is asserted that no food items are sold directly from the workshop and the retail sale takes place through outlets only as the same is prepared in the outlets.

2.3. Outlets of the petitioner are equipped with the requisite facilities to provide for dining and the outlet is arranged with table and chairs, air conditioner, drinking water, stylish lights for providing a nice ambience to provide an overall good experience to the customers. The customers are provided with the option of either enjoying their food in the outlets by utilising the facilities made available in the outlets or they have the option to take away their food.

2.4. The customer can order his food and can customise his order by demanding to add or remove any particular ingredient from any item or to add any topping of his choice according to his taste. After the food is ordered, the same is prepared in the premises itself as per the instruction supplied by the person ordering the food. The customer also has the option of ordering artisan cakes and pastries as per own choice. Based on the demand and requirement of the customer, the cake is prepared and provided in the outlets.

2.5. After the food is prepared as per the instructions of the customer, the same is served to the customer on their tables or the customers can also collect the same from the counters and enjoy the same using the facilities available in the outlets.

2.6. With respect to chocolates, various chocolates are displayed in a display freezer with name tags giving details of the ingredients and the customer has the option to select the same. After the item is selected, it is heated or served in different forms such as, brownies to the customer. A customer has the option of taking away the same in different customised containers. Certain customers after selecting different varieties of chocolates ask for special packaging in different shaped containers, which is also a form of service provided by the petitioner. The chocolates prepared in the workshop are also used in the preparation of brownies, smoothies, shakes and other beverages, etc. prepared in the outlets itself and the customer is normally served with various dishes of hot chocolates in the premises.

2.7. The customer has also the option to choose a suitable beverage from a whole lot of options or to ask for a custom drink (non-alcoholic), which is prepared instantly in the outlets on demand. Different customers have different tastes and as per their demand various drinks are prepared in the outlets.

2.8. The facilities provided in the outlets coupled with the ambience make it a perfect place for customer to celebrate birthday, anniversary or any other event of the like and accordingly, sometimes the customer also demand for special arrangements in the premises to celebrate special moments. While the petitioner is indulged in preparation and supply of varieties of items from pizza base to creams for cakes in the outlets or from the workshop, some of the items, like balloons, plastic knife for cutting cake, birthday caps and posters and other related items used in decoration are purchased goods from the market. These goods, which form essential and inseparable part of celebration of special occasions, are supplied by the petitioner as a set of bundled goods as it is natural for a person to demand a knife who is taking a cake. It is stated by the petitioner that these goods constitute about a mere 0.5% of the total turnover and give insignificant profit, but the same are indispensable to be supplied as they form part of inseparable combo.

2.9. The nature of business in the present case is not merely selling of goods but is a combination of goods and services in which the customer avails the above mentioned services/facilities along with the goods in the outlets of the petitioner. Numerous facilities along with options of various customised special packaging etc. are provided to the customers distinguishes the petitioner’s bakery from any other normal bakery which are generally involved in resale of goods.

3. With the above backdrop of facts, the petitioner applied for an advance ruling of the AAR by filing an Application in Form GST ARA-01 prescribed under Rule 104(1) of the Odisha Goods and Services Tax Rules/the Central Goods and Services Tax Rules, 2017 (collectively be called “GST Rules”) on 04.05.2020 to ascertain correct classification so as to correctly apply rate of tax on supply of aforesaid goods and services and inter alia sought for adjudication whether the services rendered by the petitioner would fall within the ken of “restaurant services”.

3.1. After affording opportunity of personal hearing, the AAR answered the questions by elaborately discussing the factual merit of the matter and held as follows:

“In view of the above, we rule as follows:

Q.(a) Whether supply of cakes, bakery items, ice creams, chocolates, drinks and other eatable products prepared at the premises of the applicant and supplied to the customers from the counter with the facility to consume the same in the air-conditioned premises itself covered under the restaurant services?

Ans: Yes, answer is in the affirmative.

Q.(b) Whether supply of items such as birthday stickers, candles, birthday caps, snow sprays etc. related items which are essentially used in birthday celebration can be classified as Composite Supply defined under Section 2 (30) of the CGST Act, 2017 and Section 2 (30) of the OGST Act, 2017 wherein the Principal supply of goods consists of bakery items, chocolates while the supply of services include the supply of air conditioned place to sit and to celebrate birthday.

Ans: The answer is in the ‘Negative’.

Q.(c) Whether the sale of handmade chocolates which are manufactured in the workshop of the Applicant and are utilised for the purpose of providing other services such as shakes, brownies and are also retailed by packing in different containers as per the choice of the customer will be covered under the under the restaurant services?

Ans: Yes, answer is in the affirmative.

Q.(d) What is the nature and rate of tax applicable to the following items supplied from the premises of the bakery shop of the Applicant

(i) Items such as Birth caps, knife, decorative items which are bundled along with the cakes and are utilised by the Customers in the premises of the outlets.

Ans: Replied at para 4.5 & 4.6 as above.

(ii) Items such as Birthday caps, knife, decorative items which are bundled along with the cakes and are taken away by the Customers from the outlets.

Ans: Replied at para 4.5 & 4.6 as above.

(iii) Items such as chocolate, cookies which are prepared in the nearby workshop of the Applicant and then processed/customized in the outlets of the Applicant before selling to the customers.

(iv) Items such as chocolate, cookies which are prepared in the nearby workshop of the Applicant and then processed/customized in the outlet as per the choice and consumed in the premises itself.

Ans: The supply of the items as mentioned in clause

(iii) & (iv) from the premises of the bakery shop of the Applicant qualifies as ‘composite supply’ under Section 2(30) of the CGST Act. The said composite supply shall be deemed to be a supply of service as per the Entry 6(b) of Schedule II to the CGST Act and more specifically the ‘Restaurant Service’ and rate of tax is 5% without any input tax credit (2.5% for CGST and 2.5% for SGST).

Q.(e) Supposing, the Applicant’s firm is covered under the Composite Scheme then in such cases what will be the tax liability charged on goods which are tax free without opting for composite scheme such as bread etc.

Ans: Since the applicant is a manufacturer of ‘Ice Creams’, he is not eligible for ‘Composition Scheme’.

Q.(f) Suppose, the Applicant’s firm is covered under composite Scheme, then in such circumstances whether the products which are prepared in the workshop but are sold only after certain customizations in the outlets will also be covered under the composite scheme or not?

Ans: Since the applicant is a manufacturer of ‘Ice Creams’, he is not eligible for ‘Composition Scheme’.”

4. At the behest of the Jurisdictional Officer (Assistant Commissioner, CGST & Central Excise, Sambalpur-I Division, at: Danipalli, P.O.: Budharaja, District: Sambalpur (Odisha) appeal was preferred before the AAAR against the advance ruling rendered by the AAR. It is contended by the petitioner that upon hearing, relying on the version of the Jurisdictional Officer that the petitioner is running a bakery business where different items are sold on take away basis, the AAAR overturned the ruling of the AAR and observed as follows vide Order dated 27.07.2021 in Appeal bearing No. 01/Odisha- AAAR/Appeal/2021-22,:

“Most of the items are not prepared in their premises. The serving of the items to the customer for taking the food in the premises is done to very few customers. Therefore, the establishment running by the applicant M/s. Pioneer Bakers cannot be considered as Restaurant. The concerned Officer, Deputy Commissioner, CT & GST, Odisha also put forth their submissions on the similar grounds. The Concerned Officer submitted that, in the instant case it is a bakery outlets where ready to each (sic. eat) items are sold and mere facility is provided to take it from the shop. The applicant has only prepared birthday cakes, as per order for take out service and they do not prepare birthday cakes immediately from the customers order. Those who want to take within the premises, they merely supply the readily available cakes. They do not serve food to the Customer table & in most cases, sold the items from the counter. Therefore, the applicant should not be considered as Restaurant Services.”

4.1. It has further been observed by the AAAR as follows:

“We examined the submission made by the applicant. We have also gone through the above verification put forth by the Jurisdictional Officer and the Concerned Officer.”

4.2. And, thereafter, it has been concluded as follows:

“Ruling

(a) The appeal made by the Jurisdictional Officer is allowed;

(b) The ruling made by the Authority for Advance Ruling, Odisha vide their Order No. 06/Odisha- AAR/2020-21 dt. 09.03.2021 against the Question Nos. (a), (c), (d)(iii) & (d)(iv) are set aside; and

(c) The items sold by the applicant M/s. Pioneer Bakers will attract the GST tariff rate as individual items.”

5. Being aggrieved, the petitioner has approached this Court by way of writ petition.

REPLIES OF THE OPPOSITE PARTIES TO THE CONTENTS OF THE WRIT PETITION:

6. This Court issued notice on 02.02.2022, pursuant to which counter-affidavit dated 30.03.2022 supporting the stance contained in the Order dated 27.07.2021 passed by the AAAR was filed by the opposite party Nos. 2 to 6. It is affirmed that the nature of activities of business conducted by the petitioner on verification of the petitioner’s premises led to conclude that the supply of goods and services could not be comprehended within the meaning of “restaurant services”. It is clarified by the opposite parties that in order to be “restaurant”, the place must be a place where meals are prepared and served to the customers; nonetheless, the bakery cannot be construed to fall within the ordinary meaning of “restaurant”. By referring to the meaning ascribed to the word “restaurant” in the dictionary, it is made clear by the opposite parties that the bakery business in which the petitioner is indulged and the nature of supply of goods and services as referred to by the AAAR would not fall within ambit of “restaurant service”.

6.1. It is suggested by the answering opposite parties that in the instant case, the nature of business carried on by the petitioner is “bakery” which cannot be construed as “restaurant service” as “running a bakery business where different items like cakes, bakery items, ice creams, chocolates, drinks and other eatable products are sold on Counter. The serving of the items to the customer for taking the food in the premises is done to a very few customers only as it is done usually by any of normal bakery. However, serving a very few items in the manner done by a bakery does not make the establishment of the petitioner a restaurant”.

6.2. Drawing distinction between “restaurant” and “bakery” business, it is contended that whereas cooking and serving full/complete cooked meals give the essential character to a restaurant service, in case of bakery, selling only baked items on take away basis gives the essential character to a bakery. Further, in case of restaurant, full and complete meals are cooked and served and the kitchen is situated in the premises of the restaurant itself, because the essential character of a restaurant is serving hot cooked full meals. However, in case of bakery the existence of kitchen in the same premises is not essential. It is also not a requirement for the bakery to serve baked items in the same premises. The main purpose of bakery is only to sell its baked items rather than serving them to customers in its premises.

7. Refuting such contention of the opposite parties the petitioner filed rejoinder affidavit on 08.08.2022 by making statement that the petitioner does run “restaurant business” and the food is being served to each and every customer in the restaurant. Having accepted that the petitioner serves food to its customer, the opposite parties contradicted by stating that serving a few items does not make a place “restaurant”, but the opponents have not given any reason for such assertion.

7.1. Strongly opposing the contention of the opposite parties, the petitioner has sought to explain that the petitioner fulfils all the requisite criteria for the goods and services to be classified within fold of “composite supply” as defined under Section 2(30) and supply of ancillary goods and services are bundled within the meaning of the term “principal supply” as contemplated under Section 2(90) of the GST Act.

7.2. Parity is sought to be maintained by the petitioner by illustrating business of others, carrying on similar nature of transactions, which are claimed to be classified within the meaning of “composite supply” as defined under Section 2(30) of the GST Act and charged 5% GST. In order to appreciate the situation, the copies of bills of other similarly situated persons charging GST @5% are annexed to the petition for perusal of this Court.

HEARING OF WRIT PETITION BEFORE THIS COURT AT THE STAGE OF ADMISSION:

8. This matter is on board under the heading “Admission” today. It is conceded by counsel for the respective parties that the pleadings have been completed and as this writ petition relates to classification of business activity vis-à-vis applicability of rate of tax against the ruling rendered by the AAAR, the counsel for both sides insisted for disposal at the stage of admission itself. Having conceded by both the counsel for the respective parties, this Court heard Sri Jagabandhu Sahoo, learned Senior Advocate for the petitioner; and Sri Radheyshyam Chimanka, learned Senior Standing Counsel for the opposite party Nos. 2 to 6.

SUBMISSIONS AND ARGUMENTS OF THE COUNSEL FOR RESPECTIVE PARTIES:

9. Sri Jagabandhu Sahoo, learned Senior Advocate for the petitioner strenuously argued that the approach of the AAAR is not only erroneous but also finding of fact is perverse warranting interference by this Court. By substituting its view with that of the AAR, as the AAAR proceeded on no evidence, its ruling is required to be treated as nullity. It is submitted that during the course of hearing before the AAAR material particulars were submitted along with apposite explanation with respect to activity of the business of the petitioner. Even so, the AAAR without appreciating the nature of business and transactions of the petitioner, it reversed the finding of the AAR.

9.1. After receipt of copy of the Order dated 27.07.2021, it could come to light that the AAAR proceeded on the basis of untested material forming part of the report and “verification put forth by the Jurisdictional Officer and the Concerned Officer”.

9.2. Sri Jagabandhu Sahoo, learned Senior Advocate vehemently argued that as the contents of the report formed the basis for varying with the opinion of the AAR in the appeal, the petitioner on 03.08.2021 made an application for supply of copy of said report. Since copy of the report was not supplied to the petitioner, reminders were submitted on 12.08.2021 and 31.08.2021. By way of Letter C.No.IV(023)/AAR/ Pioneer/SBP-I/2021/1457, dated 03.09.2021, the Assistant Commissioner, GST and Central Excise, Sambalpur-I Division denied to supply copy of the report. The text of said letter reads as follows:

“Please refer to your Letter Ref. NIL dated 12.08.2021 on the above mentioned subject.

In this context, it is to intimate that the sought enquiry report cannot be provided to you, as the undersigned is also a party in the instant case and on the basis of the same sought enquiry report carried out by the JRO, GST and Central Excise, Sambalpur-I Range, Sambalpur, the undersigned has filed appeal before the Odisha Appellate Authority of Advance ruling for Goods and Service Tax (GST), Rajaswa Vihar, Bhubaneswar, Pin-751007 (Odisha) against order No. 06/Odisha-AAR/2020-21 dated 09.03.2021. You may sought the same from the Odisha Appellate Authority of advance ruling for goods and Service Tax, Rajaswa Vihar, Bhubaneswar PIN- 751007 (Odisha), who issued order No. 02/Odisha- AAAR/Appeal/2021-22 dated 27.07.2021 in the instant case.”

9.3. Accordingly, the Petitioner made an application to the AAAR on 05.10.2021. However, considering the application under the Right to Information Act, 2005, submitted on 08.09.2021 to the Chief Commissioner, Central Excise and Customs Service Tax, Bhubaneswar Zone, the Superintendent of CGST & Central Excise, Sambalpur-I Range furnished copy of the report enclosing with the Letter No. 1042, dated 11.10.2021.

9.4. It is urged by learned Senior Counsel that such report collected behind the back of the petitioner, which being not confronted to it during the course of hearing of appeal filed at the behest of the Jurisdictional Officer, ought not to have been made the basis for reversing the factual adjudication made by the AAR to render its ruling. It is submitted by the learned Senior Counsel that after getting the copy of said report it could be made known to the petitioner that adverse material was submitted by the officials who visited the premises of the petitioner on 27.04.2021.

9.5. The learned Senior Counsel brought to the notice of this Court the Order dated 19.04.2021 bearing No. 2057/RDM-RLF-MISC-0034-2020/ R&DM(DM) issued by the Government of Odisha in the Office of Special Relief Commissioner, which was issued on account of resurgence of SARS-CoV-2 virus in many parts of India and some areas of the State with an object to ensure COVID appropriate behaviour and protocols scrupulously in order to prevent the transmission of the infection. In the said Order it has been highlighted inter alia as follows:

“***

B. Weekend shutdown

In the interest of public health and containment of spread of Covid-19 in the State, weekend shutdown on Saturday and Sunday shall be imposed in all Urban areas of the State w.e.f. 9PM of 24.04.2021.

During the weekend shutdown all activities shall be closed except the following:

***

Dhabas along National and State Highways/ Major roads for takeaway only.

***

F. Commercial

1. Haats and Markets including fish markets shall be decentralized and allowed to operate with minimum 30 feet distance from shop to shop. The shopkeepers and the buyers shall mandatorily abide by the Covid safety protocols like social distancing, use of mask. The local authorities shall demarcate areas for this purpose. Any violation of COVID-19 protocols will attract closure/sealing/cancellation of license of the concerned shops.

2. Malls shall operate with reduced number of customers. The mall Owner shall ensure that persons entering malls are thoroughly screened for temperature, correct use of masks and physical distancing. No food court shall be open for seat- in dining. Only take away shall be allowed. No one shall be allowed to take/consume food in the mall premises. It shall be the responsibility of the owner/ management of the mall to ensure that there is no overcrowding at any point of time within the shops and common areas.

3. It shall be the responsibility of all shop owners/shopkeepers and market associations to ensure that all their staff put on mask during the entire period of their stay in the shop premises. Under no circumstances, violation of this instruction will be tolerated.

4. All buyers/visitors/consumers coming to the shop shall mandatorily use mask correctly. The market association/ shop owners/ shop keepers shall ensure this in letter and spirit.

5. Number of visitors/buyers to the shop shall be regulated by the market association/shop owners/ shop keepers in such a way that a physical distance of 6(six) feet is maintained between buyer to buyer and buyer to shop keeper during the entire period of their stay in the shop.

6. The shop keepers shall make arrangement for thermal scanning and sanitizer/hand washing for the buyers before allowing them to enter into the shop.

7. Over-crowding inside the shop shall not be allowed under any circumstances. Not adhering to the COVID safety protocols, or violating any previous orders regarding COVID safety regulations shall constitute offence under Disaster Management Act, 2005 and Epidemic Disease Act, 1897. The trade licensing authorities may seal the shop and/ or suspend/ cancel the trade license for appropriate duration as per relevant rules/guidelines/orders of the local authorities in case of violation of the COVID safety protocols.

8. The daily Hatts/Markets/Fish markets in addition to the above instructions shall ensure raising of barricades between them and the buyers so that a minimum six feet distance is maintained between them. A gap of twenty feet is to be maintained between two shops. It will be the responsibility of the shop keepers to put space marking for the buyers to ensure observance of COVID safety protocol during business hours. Anybody violating the space marking must not be provided with good and services by the shop keepers.

9. Hotels/Restaurants shall not allow outside persons (other than their in-house resident guests) to dine inside the hotel and its restaurants in due compliance of Covid-19 protocols. However, hotels/restaurants can serve take away food to customers/buyers/ clients. Further the hotels/restaurants can take on-line orders and deliver take away food to the customers.

10. No Street Food Vendors shall serve food to consumers at the venue. They can, however, serve take away food to customers/buyers/clients. While clients/consumers/buyers come to such units for ordering take away food, the food stall/joint owner shall ensure compliance of all Covid-19 protocols. Any deviation/non-compliance shall entail criminal action and penalty as per law and may make such unit liable for sealing/closure and suspension/ cancellation of trade license and levy of penalty.

***

K. Penal provisions

Any person violating these measures will be liable to be proceeded against in accordance with the provisions of Section 51 to 60 of the Disaster Management Act, 2005, the Epidemic Diseases Act, 1897 and Regulations issued thereunder besides legal action under Section 188 of the IPC and other legal provisions as applicable.”

9.6. Taking cue from aforesaid guidelines the learned Senior Counsel appearing for the petitioner submitted that when such was the restriction in the State of Odisha at the relevant period, the petitioner has been doing the business only “on take away basis” in obedience of such prohibitory orders of the Government. This itself cannot be the basis to de-classify its business from the category of “restaurant services”. The general nature of transactions carried on by the petitioner could not be judged on the foundation of situational disadvantage prevailing during April, 2021. As the inspection report was not confronted to the petitioner, it had been deprived of explaining the position to the AAAR.

9.7. The report, submitted during the currency of said Order dated 19.04.2021, could not be utilised for conceiving general appreciation of factual aspect whether the activity of the petitioner would fall within the connotation of “restaurant service”. Hence, the perception of the AAAR does not stand to reason.

Amplifying his arguments Sri Jagabandhu Sahoo, learned Senior Advocate along with Smt. Kajal Sahoo, learned Advocate placed on record the Circular bearing No. 164/20/2021-GST [CBIC-190354/207/2021-TO (TRU-11)-CBEC], dated 06.10.2021 issued by Government of India, Ministry of Finance, Department of Revenue (Tax Research Unit), wherein it has been clarified that,

“3.2. The word ‘RESTAURANT SERVICE’ is defined in Notification No. 11/20174 CTR as below:

‘Restaurant service’ means supply, by way of or as part of any service, of goods, being food or any other article for human consumption or any drink, provided by a restaurant, eating Joint including mess, canteen, whether for consumption on or away from the from the premises where such food or any other article for human consumption or drink is supplied.

3.3. The explanatory notes to the classification of service state that ‘RESTAURANT SERVICE’ includes services provided by Restaurants, Cafes and similar eating facilities including take away services, room services and door delivery of food. Therefore, it is clear that takeaway services and door delivery services for consumption of food are also considered as restaurant services provided by cloud kitchens/central kitchens.

3.4. Accordingly, as recommended by the Council, it is clarified that service provided by way of cooking and supply of food, by cloud kitchens/central kitchens are covered under ‘RESTAURANT SERVICE’, as defined in Notification No. 11/2017-Central Tax (Rate) and attract 5% GST [without ITC].”

Therefore, the learned Senior Counsel submitted that the perception of the Appellate Authority based on dictionary meaning is unwarranted and uncalled for.

9.8. Sri Jagabandhu Sahoo, learned Senior Counsel expanding the submission further urged that in order to examine whether the supply of goods and services by the petitioner would fall within the expression employed in appropriate notification relating to rate of GST, the AAAR laid much stress on dictionary meaning, which is impermissible in law. It is trite that where no definition is provided in the statute itself, as in this case, for ascertaining the correct meaning of a fiscal entry reference to a dictionary is not always safe. The correct guide, it appears in such a case, is the context and the trade meaning. In this connection reference may be made to the observations in CST Vrs. S.N. Brothers, Kanpur, (1973) 3 SCC 496 = AIR 1973 SC 78.

9.9. Sri Jagabandhu Sahoo, learned Senior Advocate, therefore, contended that had there been proper opportunity afforded to the petitioner by confronting the adverse report, which was relied on by the AAAR to vary with the finding and the ruling of the AAR, it could have put forth its explanation in better perspective. Faced with such situation, the Senior Counsel has suggested for according opportunity to proffer explanation before the AAAR so as to enable the petitioner to have its say with regard to the report collected behind its back.

10. Per contra, though Sri Radheyshyam Chimanka, learned Senior Standing Counsel for the opposite party Nos. 2 to 6 made valiant attempt to justify the conclusion arrived at by the AAAR, which reversed the finding of the AAR after obtaining verification report submitted by the Superintendent of CGST & Central Excise, on the question of confrontation he remained gagged. However, he stood by what has been mentioned in the impugned Order vis-à-vis the counter affidavit eliciting the merit of the matter.

10.1. He would submit that the inspection of the business premises during April, 2021 by the officials of the department could bring to fore the actual nature of the transactions carried on by the petitioner and the report submitted thereto was the basis to arrive at appropriate conclusion that the activity of the petitioner would not come within the fold of “restaurant services”, thereby the lower rate of tax as claimed by the petitioner is questionable.

10.2. Fair concession was given by Sri Radheyshyam Chimanka, learned Senior Standing Counsel that the record does not reveal that copy of the report was ever supplied to the petitioner nor was it afforded any opportunity to have its say with respect to the contents contained in the said report.

10.3. Under the aforesaid context, Sri Radheyshyam Chimanka has not objected to suggestion made by Sri Jagabandhu Sahoo, learned Senior Advocate with respect to grant of opportunity by the AAAR to have relook into the matter.

DISCUSSIONS AND ANALYSIS:

11. From scrutiny of material placed on record and the arguments as advanced by the respective parties, pin- pointed issue remains for adjudication in the present case is this, that whether the ruling of the AAAR rendered in the appeal by utilising the report containing adverse material against the petitioner in absence of confrontation is vitiated?

12. Before dealing with the issue as posed above, it is felt expedient to take notice of the requirement of adhering to the principles of natural justice.

12.1. The principles of natural justice are those rules which have been laid down by the Courts as being the minimum protection of the rights of the individual against the arbitrary procedure that may be adopted by a judicial or quasi-judicial authority while making an order affecting those rights. These rules are intended to prevent such authority from doing injustice. Law is well-settled that in the applicability of the doctrine of natural justice there can be no distinction between the quasi-judicial function and an administrative function inasmuch as the aim of both is to arrive at a just decision and to prevent miscarriage of justice.

12.2. The case of Smt. Maneka Gandhi Vrs. Union of India, reported in (1978) 1 SCC 248, is noteworthy for reference as embodiment of principles of natural justice. The following has been laid down therein:

“9. We may commence the discussion of this question with a few general observations to emphasise the increasing importance of natural justice in the field of administrative law. Natural justice is a great humanising principle intended to invest law with fairness and to secure justice and over the years it has grown into a widely pervasive rule affecting large areas of administrative action. Lord Morris of Borth-y-Gest spoke of this rule in eloquent terms in his address before the Bentham Club:

‘We can, I think, take pride in what has been done in recent periods and particularly in the field of administrative law by invoking and by applying these principles which we broadly classify under the designation of natural justice. Many testing problems as to their application yet re-remain to be solved. But I affirm that the area of administrative action is but one area in which the principles are to be deployed. Nor are they to be invoked only when procedural failures are shown. Does natural justice qualify to be described as a ‘majestic’ conception? I believe it does. Is it just a rhetorical but vague phrase which can be employed, when needed, to give a gloss of assurance? I believe that it is very much more. If it can be summarised as being fair-play in action-who could wish that it would ever be out of action? It denotes that the law is not only to be guided by reason and by logic but that its purpose will not be fulfilled; it lacks more exalted inspiration. [Current Legal Problems, 1973, Vol. 26, p. 16]’

And then again, in his speech in the House of Lords in Wiseman Vrs. Borneman, 1971 AC 297 = (1969) 3 All ER 275 the learned Law Lord said in words of inspired felicity:

‘*** that the conception of natural justice should at all stages guide those who discharge judicial functions is not merely an acceptable but is an essential part of the philosophy of the law. We often speak of the rules of natural justice. But there is nothing rigid or mechanical about them. What they comprehend has been analysed and described in many authorities. But any analysis must bring into relief rather their spirit and their inspiration than any precision of definition or precision as to application. We do not search for prescriptions which will lay down exactly what must, in various divergent situations, be done. The principles and procedures are to be applied which, in any particular situation or set of circumstances, are right and just and fair. Natural justice, it has been said, is only ‘fair play in action’. Nor do we wait for directions from Parliament. The common law has abundant riches: there may we find what Byles, J., called ‘the justice of the common law’ ***’.

Thus, the soul of natural justice is ‘fair-play in action’ and that is why it has received the widest recognition throughout the democratic world. In the United States, the right to an administrative hearing is regarded as essential requirement of fundamental fairness. And in England too it has been held that ‘fair-play in action’ demands that before any prejudicial or adverse action is taken against a person, he must be given an opportunity to be heard. The rule was stated by Lord Denning, MR in these terms in Schmidt Vrs. Secretary of State or Home Affairs, (1969) 2 Ch D 149 = (1969) 1 All ER 904-‘where a public officer has power to deprive a person of his liberty or his property, the general principle is that it has not to be done without his being given an opportunity of being heard and of making representations on his own behalf’. The same rule also prevails in other Commonwealth countries like Canada, Australia and New Zealand. It has even gained access to the United Nations (vide American Journal of International Law, Vol. 67, p. 479). Magarry, J., describes natural justice ‘as a distillate of due process of law’ (vide Fontaine Vrs. Chastarton, (1968) 112 Solicitor General 690). It is the quintessence of the process of justice inspired and guided by ‘fair-play in action’. If we look at the speeches of the various Law Lords in Wiseman case, 1971 AC 297 “ (1969) 3 All ER 275 it will be seen that each one of them asked the question ‘whether in the particular circumstances of the case, the Tribunal acted unfairly so that it could be said that their procedure did not match with what justice demanded’, or, was the procedure adopted by the Tribunal ‘in all the circumstances unfair?’ The test adopted by every Law Lord was whether the procedure followed was fair in all the circumstances and ‘fair-play in action’ required that an opportunity should be given to the taxpayer ‘to see and reply to the counter-statement of the Commissioners’ before reaching the conclusion that ‘there is a prima facie case against him’. The inquiry must, therefore, always be: does fairness in action demand that an opportunity to be heard should be given to the person affected?”

12.3. In A.K. Kraipak, AIR 1970 SC 150, it has been said as follows:

“The aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. In other words they do not supplant the law of the land but supplement it *** Till very recently it was the opinion of the courts that unless the authority concerned was required by the law under which it functioned to act judicially there was no room for the application of the rules of natural justice. The validity of that limitation is now questioned. If the purpose of the rules of natural justice is to prevent miscarriage of justice one fails to see why those rules should be made inapplicable to administrative enquiries. Oftentimes it is not easy to draw the line that demarcates administrative enquiries from quasi-judicial enquiries. Enquiries, which were considered administrative at one time, are now being considered as quasi-judicial in character. Arriving at a just decision is the aim of both quasi-judicial enquiries as well as administrative enquiries. An unjust decision in an administrative enquiry may have more far-reaching effect than a decision in a quasi-judicial enquiry.

As observed by this Court in Suresh Koshy George Vrs. The University of Kerala, (1969) 1 SCR 317 = AIR 1969 SC 198 the rules of natural justice are not embodied rules. What particular rule of natural justice should apply to a given case must depend to a great extent on the facts and circumstances of that case, the framework of the law under which the enquiry is held and the constitution of the Tribunal or body of persons appointed for that purpose. Whenever a complaint is made before a court that some principle of natural justice had been contravened the court has to decide whether the observance of that rule was necessary for a just decision on the facts of the case.”

This view was reiterated and re-affirmed in a subsequent decision of this Court in D.F.O., South Kheri Vrs. Ram Sanehi Singh, (1971) 3 SCC 864 = AIR 1973 SC 205. The law must, therefore, now be taken to be well settled that even in an administrative proceeding, which involves civil consequences, the doctrine of natural justice must be held to be applicable.”

12.4. In the case of Biecco Lawrie Limited Vrs. State of West Bengal, reported in (2009) 10 SCC 32, it has been held as follows:

“Principle of natural justice is attracted whenever a person suffers a civil consequence or a prejudice is caused to him by an administrative action. In other words principle of natural justice is attracted where there is some right which is likely to be affected by any act of the administration including a legitimate expectation. [See: Ashoka Smokeless Coal India (P) Ltd. Vrs. Union of India, (2007) 2 SCC 640]. The procedure to be followed is not a matter of secondary importance and in the broadest sense natural justice simply indicates the sense of what is right and wrong [Voinet Vrs. Barrett (1885) 55 LJQB 39] and even in its technical sense it is now often equated with fairness. As a well-defined concept, it comprises of two fundamental rules of fair procedure that a man may not be a judge in his own cause (nemo judex in re sua) and that a man’s defence must always be fairly heard.”

12.5. In Mangilal Vrs. State of M.P., (2004) 2 SCC 447, the Hon’ble Supreme Court declared that even if a statute is silent and there are no positive words in the Act or the Rules made thereunder, principles of natural justice must be observed. This is what the Court has held:

“Where the statute is silent about the observance of the principles of natural justice, such statutory silence is taken to imply compliance with the principles of natural justice where substantial rights of parties are considerably affected. The application of natural justice becomes presumptive, unless found excluded by express words of statute or necessary intendment. [See Swadeshi Cotton Mills Vrs. Union of India, (1981) 1 SCC 664]. Its aim is to secure justice or to prevent miscarriage of justice. Principles of natural justice do not supplant the law, but supplement it. These rules operate only in areas not covered by any law validly made. They are a means to an end and not an end in themselves. ***”

12.6. In Aureliano Fernandes Vrs. State of Goa, (2023) 7 SCR 772 earlier decision of the said Court has been reiterated. Excerpts of said report are given hereunder:

“43. In Union of India Vrs. Tulsiram Patel, (1985) 3 SCC 398 = (1985) 2 Suppl. SCR 131, observing that violation of the rules of natural justice would result in arbitrariness which would amount to discrimination, the Constitution Bench made the following observations :

“95. The principles of natural justice have thus come to be recognized as being a part of the guarantee contained in Article 14 because of the new and dynamic interpretation given by this Court to the concept of equality which is the subject-matter of that article. Shortly put, the syllogism runs thus: violation of a rule of natural justice results in arbitrariness which is the same as discrimination; where discrimination is the result of State action, it is a violation of Article 14: therefore, a violation of a principle of natural justice by a State action is a violation of Article 14. Article 14, however, is not the sole repository of the principles of natural justice. What it does is to guarantee that any law or State action violating them will be struck down. The principles of natural justice, however, apply not only to legislation and State action but also where any tribunal, authority or body of men, not coming within the definition of State in Article 12, is charged with the duty of deciding a matter. In such a case, the principles of natural justice require that it must decide such matter fairly and impartially.

96. The rule of natural justice with which we are concerned in these appeals and writ petitions, namely, the audi alteram partem rule, in its fullest amplitude means that a person against whom an order to his prejudice may be passed should be informed of the allegations and charges against him, be given an opportunity of submitting his explanation thereto, have the right to know the evidence, both oral or documentary, by which the matter is proposed to be decided against him, and to inspect the documents which are relied upon for the purpose of being used against him, to have the witnesses who are to give evidence against him examined in his presence and have the right to cross examine them, and to lead his own evidence, both oral and documentary, in his defence. The process of a fair hearing need not, however, conform to the judicial process in a Court of law, because judicial adjudication of causes involves a number of technical rules of procedure and evidence which are unnecessary and not required for the purpose of a fair hearing within the meaning of audi alteram partem rule in a quasi-judicial or administrative inquiry. If we look at clause (2) of Article 311 in the light of what is stated above, it will be apparent that that clause is merely an express statement of the audi alteram partem rule which is implicitly made part of the guarantee contained in Article 14 as a result of the interpretation placed upon that article by recent decisions of this Court. Clause (2) of Article 311 requires that before a Government servant is dismissed, removed or reduced in rank, an inquiry must be held in which he is informed of the charges against him and given a reasonable opportunity of being heard in respect of those charges. ***”

At the same time, a note of caution was added in the captioned case and the Court observed that the rules of natural justice are neither statutory rules nor are they cast in stone. They are flexible and can be adapted and modified by statutes, depending on the exigencies of different situations, the facts and circumstances of the case and the framework of the law.

44. In Swadeshi Cotton Mills Vrs. Union of India, (1981) 1 SCC 664 in his dissenting judgment, Justice O. Chinnappa Reddy, had made the following pertinent observations:

“106. The principles of natural justice have taken deep root in the judicial conscience of our people, nurtured by Binapani Dei, AIR 1967 SC 1269, A.K. Kraipak, (1969) 2 SCC 262, Mohinder Singh Gill, (1978) 1 SCC 405, Maneka Gandhi, (1978) 1 SCC 248. They are now considered so fundamental as to be implicit in the concept of ordered liberty and, therefore, implicit in every decision-making function, call it judicial, quasi-judicial or administrative. Where authority functions under a statute and the statute provides for the observance of the principles of natural justice in a particular manner, natural justice will have to be observed in that manner and in no other. No wider right than that provided by statute can be claimed nor can the right be narrowed. Where the statute is silent about the observance of the principles of natural justice, such statutory silence is taken to imply compliance with the principles of natural justice. The implication of natural justice being presumptive it may be excluded by express words of statute or by necessary intendment. Where the conflict is between the public interest and the private interest, the presumption must necessarily be weak and may, therefore, be readily displaced. ***”

45. Thus, ordinarily, Courts interpret statutory provisions in sync with the aforesaid principles of natural justice on a premise that no statutory authority would violate the fundamental rights enshrined in the Constitution. When it comes to authorities that are expected to discharge judicial and quasi-judicial functions, the rule of audi alteram partem applies with equal force. Reasonableness infuses lifeblood in procedural matters, be it elements of the notice, the contents of the notice, the scope of inquiry, the material available or an adequate opportunity to rebut such material. All of this is to avoid miscarriage of justice at any stage. This is of course fluid and subject to adapting to the demands of a situation in the given facts of a case.”

12.7. On perusal of the ratio laid down in the cases referred to above, the adherence to the principles of natural justice is mandatory requirement. As can be seen, natural justice ideas are not new, but they are also not a man- made product. Its foundation was laid by various philosophers, jurists, rulers, and teachers. People should utilise practical wisdom or active reason to be consistent with a virtuous living, according to Aristotle, the greatest proponent of Natural Justice.

12.8. In State of Odisha Vrs. Dr. (Miss) Binapani Dei, AIR 1967 SC 1269, the Supreme Court observed that even an administrative order or decision in matters involving civil consequences have to be made consistently with the rules of natural justice. The purpose of the rules of natural justice is to prevent miscarriage of justice, the rules should be made applicable to administrative enquiries also.

12.9. In K.I. Shephard Vrs. Union of India, AIR 1988 SC 686, it has been expressed that natural justice now requires that persons liable to be directly affected by proposed administrative acts, decisions or proceedings be given adequate notice of what is proposed so that they may be in a position:

(a) to make representations on their own behalf; or

(b) to appear at a hearing or enquiry, if one is held; and

(c) effectively to prepare their own case and to answer the case, if any, they have to meet.

13. This Court in Deo Ispat Alloys Ltd. Vrs. Commissioner of Commercial Taxes, 2014 (II) ILR-CUT 1166 = 2014 SCC OnLine Ori 370 = 119 (2015) CLT 702 laid down as follows:

“10. The Hon’ble Supreme Court in C. Vasantlal and Co. Vrs. Commissioner of Income-tax, Bombay City, (1962) 45 ITR 206 observed as follows:

‘The Income-tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it.’

11. The Hon’ble Supreme Court in State of Kerala Vrs. K.T. Shaduli Yusuff, (1977) 39 STC 478 held as under:

“*** The tax proceedings are no doubt quasi-judicial proceedings and the sales tax authorities are not bound strictly by the rules of evidence, nevertheless the authorities must base their order on materials which are known to the assessee and after he is given a chance to rebut the same.

***”

12. In Kishinchand Chellaram Vrs. Commissioner of Income-tax, Bombay City-II, (1980) 125 ITR 713, the Hon’ble Supreme Court held that it was true that proceedings under the income-tax law were not governed by the strict rules of evidence, and, therefore, it might be said that even without calling the manager of the bank in evidence to prove the letter dated February 18, 1955, it could be taken into account as evidence. But before the Income- tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statements made by him.

13. In Delhi Transport Corporation Vrs. D.T.C. Mazdoor Congress, 1991 Supp (1) SCC 600, the Hon’ble Supreme Court held as follows:

“*** It is now well-settled that the ‘audi alteram partem’ rule which in essence, enforces the equality clause in article 14 of the Constitution is applicable not only to quasi-judicial orders but to administrative orders affecting prejudicially the party-in-question unless the application of the rule has been expressly excluded by the Act or regulation or rule which is not the case here. Rules of natural justice do not supplant but supplement the Rules and Regulations. Moreover, the rule of law which permeates our Constitution demands that it has to be observed both substantially and procedurally. ***”

14. In Basudeo Tiwary Vrs. Sido Kanhu University, (1998) 8 SCC 194, the Hon’ble Supreme Court held that in order to impose procedural safeguards, this court has read the requirement of natural justice in many situations when the statute is silent on this point. The approach of this Court in this regard is that omission to impose the hearing requirement in the statute under which the impugned action is being taken does not exclude hearing- it may be implied from the nature of the power- particularly when the right of a party is affected adversely. The justification for reading such a requirement is that the Court merely supplies omission of the Legislature.

15. This court in J.S. Refineries Ltd., (1998) 109 STC 16 held that any material sought to be utilized against the dealer has to be brought to his notice.

16. This Court in the case of Lakhiram Jain and Sons Vrs. Sales Tax Officer, Rayagada Circle, Rayagada, (2009) 21 VST 280 (Orissa) has held as under:

‘Law is well-settled that if any person is likely to be affected by the use of any material against him those are to be brought to his notice for rebuttal. This is the requirement of the natural justice. The principles of natural justice are based on two basic pillars, i.e.,

(i) nobody shall be condemned unheard (audi alteram partem), and

(ii) nobody shall be judge of his own cause (nemo debet esse judex in propria sua causa).’

17. Needless to say that an assessing authority is entitled to collect the materials behind the back of the assessee. It is not necessary that all the materials so collected by the assessing authority need be confronted to the assessee. Only those materials which the assessing authority intends to utilize against the assessee during assessment are bound to be disclosed to the assessee.

18. Considering the facts and circumstances of the case as well as the decisions of the Hon’ble Supreme Court and this Court, we are of the considered opinion that a dealer is entitled to be supplied with the materials intended to be used against him in the assessment proceeding for rebuttal and the dealer’s explanation with regard to those materials is bound to be considered by the assessing officer in the assessment order either accepting or rejecting the same.”

13.1. It may be of significance to refer to the following observations made by this Court in Ram Chandra Maikap Vrs. State of Odisha, 1972 (2) CWR 1913:

“It is well settled that rules of natural justice are not embodied rules. The requirements of natural justice would vary according to the facts and circumstances of each case. In a Full Bench decision of this Court in ILR 1972 Cuttack 469 = 38 (1972) CLT 349 = AIR 1972 Ori 224 (Pramila Dei Vrs. Secretary, Board of Secondary Education, Orissa, Cuttack), the requirements of natural justice have been indicated. To a case of this type the following in our opinion would be applicable:

(1) The assesse has to be informed about the materials against him together with a statement of the allegations on which they were based;

(2) He should be given a reasonable opportunity of stating his own case;

(3) If the assessee demands that the witness reporting against him should be cross-examined by him, ordinarily such opportunity has to be granted.

(4) The taxing authority would consider the entire material placed on the record and complete the assessment in good faith.”

13.2. In Kanak Cement Pvt. Ltd. Vrs. Sales Tax Officer, (1997) 105 STC 112 (Ori) this Court has observed as follows:

“6. *** It is a fundamental requirement of the principles of natural justice that if any person is likely to be affected by use of any material collected by the Revenue, those are to be brought to his notice, and disclosed to him. The requirement of natural justice is to disclose by way of confrontation of the materials collected and proposed to be used against a dealer. The strict principles or rules of evidence as per Indian Evidence Act, 1872 (in short, ‘Evidence Act’) do not apply to proceedings under the Act. Authorities under the Act can collect materials behind the back of an assessee. But they are not required to disclose the source. However, any materials sought to be utilised against the assessee are to be brought to his notice. By way of illustration it may be stated that if any person’s statement has been recorded or account books, documents of any person have been seized or extracts thereof have been obtained which are intended to be used against the assessee, he is entitled to know what those materials are and is also entitled to copies thereof. If he wants to cross-examine such persons, the Revenue has to produce them.

7. Report of an Inspector essentially consists of materials on the basis of which inference is drawn about the business activities of a dealer. Mostly they relate to suppressed or under-assessed transactions. It is founded on the basis of materials collected by the Inspector. What is utilised in an assessment proceeding against the dealer is not the report per se but the materials forming the foundation for the report. What the dealer is entitled to know are those materials which are sought to be utilised against him in the assessment proceeding, and nothing beyond it. The inferences of the Inspector are not determinative. Action is taken by the assessing officer on the basis of those inferences to proceed against the dealer, if he is prima facie satisfied about correctness of the inferences.”

13.3. In yet another case this Court in Ferro Alloys Corporation Ltd. Vrs. State of Odisha, 77 (1994) CLT 248, observed that:

“5. So far as examination of the Sales-tax Officer, Intelligence is concerned, we find no reason to accept the prayer. It is seen from the records that the assessing officer has himself indicated by letter dated 09.09.1993, that due and proper opportunity is being granted to the assessee, and the materials on which the Revenue places reliance shall be brought to the notice of the assessee, before its utilisation. It is trite law that where a material is sought to be utilised against an assessee, adequate opportunity has to be granted to it to rebut the same before the material can be utilised against the assessee. For that purpose it is open to the assessee to make prayer for summoning a person who has nexus with the material sought to be utilised, so that the witness can throw light on the materials. For example, if a third party’s accounts is sought to be utilised the assessee can pray the Sales-tax Officer to issue summon to the party whose accounts are sought to be relied upon. Denial to accept the prayer would amount to violation of the principles of natural justice. The person whose accounts are sought to be utilised against the assessee stands in the footing of a witness for the revenue. Utilisation of any entry in his account against the assessee without accepting prayer for summoning him, would vitiate assessment.

6. As observed by the Supreme Court in Khem Chand Vrs. Union of India, (1958) SCR 1080 = AIR 1958 SC 300, the assessee must not only be given an opportunity, but such opportunity must be a reasonable one; he should be informed about the charge or charges levelled against him and the evidence by which it is sought to be established. The assessing authority is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the materials so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it. See, C. Vasantlal & Co. Vrs. Commissioner of Income tax, (1962) 45 ITR 206 (SC). It is consonant with the principles of natural justice to conclude that the reasonable opportunity of being heard can be said to be “reasonable” unless the authority discloses to the person aggrieved the materials upon which he proposes to decide. See R. Vrs. Westminister Asst. CIT, (1940) 5 All E.R. 132; R. Vrs. Bondmin, (1947) 1 All E.R. 109.

Principles of natural justice are based on two maxims: namely

(i) nemo judex in causa sua; and

(ii) audi alteram partem.

The same may be put in two simple words, impartiality and fairness.

In Halsbury’s Laws of England, Volume I, paragraph 76 (4th Edition), it is stated that rejection of a request to cross-examine witnesses who appear at a hearing for the other side will normally be construed as a breach of natural justice. As observed by the Apex Court in Kalra Glue Factory Vrs. Sales-tax Tribunal, (1987) 66 STC 292, utilisation of statement/material collected behind back of assessee without opportunity to explain the same is illicit. In that case the appeal was allowed solely on the ground that the statement of a person which was not tested by cross-examination was used in order to reach a conclusion adverse to the assessee. In case an assessing officer proposes to use against the assessee the result of any private enquiry made he should communicate to the assessee all relevant details of any information obtained during enquiry to put the assessee in possession of full particulars of the case it is expected to meet and should further give it sufficient opportunity to meet the case. Such opportunity would also include the acceptance of a prayer to summon a person whose statements/ documents/ accounts are sought to be relied upon. If the prayer is not accepted the use of concerned material would be contrary to law.

7. Rules of natural justice do require that normally speaking if the previous statement of a person is intended to be used as evidence against a party, it must be made available to the party against whom it is intended to be used, and such party must be given a fair opportunity to explain the same or comment on it. If a party makes a request to be allowed to cross- examine the person who made the statement for the purpose of meeting the statement or with a view to commenting thereon, such a request, except on exceptional or special cases, be denied without violating the principles of natural justice. The assessing authority has to objectively satisfy that the case comes within the “exceptional or special cases” category. As observed by the Apex Court in State of Kerala Vrs. K.T. Shaduli Yusuff, (1977) 39 STC 478, cross-examination in one of the most efficacious methods of establishing truth and exposing falsehood. It was held that where an assessee’s returns were sought to be treated as incorrect and incomplete because of entries in the books of account of a third party, the assessee could prove the correctness and completeness of its return by showing that the entries in the books of account of the third party were false, bogus or manipulated and this could obviously be done if he is given opportunity to examine the third party on being summoned. The action of the assessing authority in refusing to summon the third party constituted an infraction, and vitiated the orders of assessment. However, the Intelligence Officer’s presence is not necessary for that purpose. The allegations, the basis and materials relevant therefor as indicated above have to be brought to the notice of the assessee. At that stage, prayer can be made for summoning any person on whose statements/ accounts reliance is placed. The learned counsel for the petitioner expressed an apprehension that the assessing officer may not grant adequate time to the assessee to place its case. Since complicated questions of fact and law are concerned, it is desirable that reasonable opportunity should be given, so that assessee can place all its materials. Any hurried disposal is likely to be counterproductive.”

13.4. Any material sought to be utilised against the dealer has to be brought to his notice. See, J.S. Refineries Ltd. Vrs. CST, (1998) 109 STC 16 (Ori).

13.5. The intelligence reports wherein some adverse material/ observations were contained were routine reports filed by the inspecting authority and copies of the same ought to have been made available to the dealer when they asked for them irrespective of whether or not they caused prejudice to the assessee. The assessee was entitled to a fair procedure whether or not they had a case on the merits. The rules of natural justice require that all material on which the department places reliance is made available to the affected party. Vide, Krishna & Co. Vrs. State of Karnataka, (2001) 124 STC 423 (Kar).

13.6. Vide Kalra Glue Factory Vrs. Sales Tax Tribunal, (1987) 66 STC 292 (SC) it is made clear that statement not tested by cross-examination relied upon for finding that transaction amounted to inter-State sale basing on which Tribunal reached its conclusion was set aside and matter was remanded for fresh disposal.

13.7. In Raghubar Mandal Harihar Mandal Vrs. State of Bihar, (1957) 8 STC 770 (SC) = (1958) 1 SCR 37 = (1957) INSC 52, it has been succinctly discussed as follows:

“The decision of the Lahore High Court in Seth Gurmukh Singh Vrs. Commissioner of Income-tax, Punjab, (1944) 12 ITR 393 was specifically approved by this Court in Dhakeswari Cotton Mills’ case, (1955) 1 SCR 941. The rules laid down in that decision were these:

(1) While proceeding under sub-section (3) of Section 23 of the Income-tax Act, the Income-tax Officer is not bound to rely on such evidence produced by the assessee as he considers to be false;

(2) if he proposes to make an estimate in disregard of the evidence, oral or documentary, led by the assessee, he should in fairness disclose to the assessee the material on which he is going to found that estimate;

(3) he is not however debarred from relying on private- sources of information, which sources he may not disclose to the assessee at all; and

(4) in case he proposes to use against the assessee the result of any private inquiries made by him, he must communicate to the assessee the substance of the information so proposed to be utilised to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and should further give him ample opportunity to meet it, if possible.

The decision does not lay down that it is open to the Income-tax Officer to make an estimate on pure guess and without reference to any material or evidence before him.”

13.8. This Court in answering one of the questions of law posed in the case of State of Odisha Vrs. Muralimanohar Prabhudayal, 1982 SCC OnLine Ori 195 = (1983) 52 STC 35 while sitting in reference jurisdiction under Section 24(1) of the Odisha Sales Tax Act, 1947 that “whether, on the facts and in the circumstances of the case, the Member, Additional Sales Tax Tribunal, is correct in law to have held that confronted facts became untested material for want of warning to the assessee that they are to be used in his assessment?”, laid down as follows:

“None of the cases on which the assessee’s counsel relies casts the obligation on the assessing officer to put the assessee to notice that he is going to utilise the material against the assessee. The content of natural justice in a case of this type is to disclose the material to the assessee by way of confrontation. In Banwarilal’s case (1976) 37 STC 595 the statement ‘which he is going to utilise against the assessee in the assessment’ was intended to highlight the fact that the adverse material which the assessing officer was going to utilise against the assessee was to be disclosed and not that the assessee was to be put to notice that the material was going to be utilised. The content of natural justice is in apprising the assessee of the material available. The fact that such material is being confronted to the assessee is sufficient to put him to notice in an appropriate way and then would arise his obligation to place materials before the assessing officer with a view to disabusing his mind, if possible, as indicated in the Lahore case [Seth Gurmukh Singh Vrs. Commissioner of Income-tax, Punjab, (1944) 12 ITR 393]. We are not prepared to accept that there is any obligation on the assessing officer to put the assessee to notice that he is going to utilise the adverse material against him.”

13.9. On examination of contention of learned Senior Advocate appearing for the petitioner and taking note of concession made by the learned Senior Standing Counsel defending the order of the AAAR, it is found that the Order dated 27.07.2021, which is sought to be set aside invoking extraordinary jurisdiction under Article 226/227 of the Constitution of India for want of confrontation, as one of the facets of the principles of natural justice, does not transpire that the AAAR has disclosed the material contained in the report submitted by the Superintendent of CGST & Central Excise, Sambalpur-I Range to the Assistant Commissioner, CGST & Central Excise, Sambalpur-I Division vide Letter dated 27.04.2021, to the petitioner. Therefore, it is safe to say that the petitioner had been deprived of reasonable and fair opportunity to submit its explanation.

CONCLUSION & DECISION:

14. Perusal of Letter dated 11.10.2021 communicated to the petitioner by the Superintendent of CGST & Central Excise, Sambalpur-I Range in connection with application under the Right to Information Act, wherein the “Factual Report” prepared on 27.04.2021 after verification of activity of the petitioner-business and furnished to the Assistant Commissioner of CGST & Central Excise, Sambalpur-I Division has been enclosed, reveals as follows:

“FE-20(08)/CGST/Investigation/SBPR-I/2019/784,

dated 27.04.2021

To

Sir,

The Assistant Commissioner

CGST & Central Excise, Sambalpur-I Division, Sambalpur.

Subject: Factual report regarding M/s. Pioneer Bakers- Reg.

Please refer to your Letter C.No. V(16)(1)01/Tech/Misc/ SBP-I/2019, dated 27.04.2021 wherein it was requested to verify and submit report regarding business, activity of M/s Pioneer Bakers, Sambalpur.

In this context, this is to inform that the undersigned along with Inspector visited the business premises of the said firm at Bhalubahal (Sason), Budharaja & Gole Bazar (Sambalpur). In Bhalubahal we found that there is no selling of goods and in Budharaja renovation work was going on. In Gole Bazar, Sambalpur, we found that the shop was primarily selling bakery items, birthday cakes etc. and in the shop some chairs with table are available wherein the customer can eat by self-service. Selling of Bakery item are more and eating of people by self-service is less in the premises of M/s. Pioneer Bakers. As restaurants are generally the place where people meet for eating meals and where meal are served to the people.

As there is no service provided to customers nor meals are sold in premises of M/s. Pioneer Bakers and as M/s. Pioneer Bakers predominantly sell bakery items so, it will come under the business of supplying Bakery items.

Yours faithfully,

Sd/- 27.04.2021

(S.K. Naik)

Superintendent

CGST & Central Excise

Sambalpur-I Range”

14.1. Perusal of aforesaid communication it is manifest that a report on inspection of the business premise of the petitioner came to be furnished to the Assistant Commissioner-Jurisdictional Officer, at whose behest the appeal was preferred, after ruling had been rendered by the AAR.

14.2. It appears from the Order dated 27.07.2021 at Annexure-8 that the appeal bearing No. 01/Odisha- AAAR/2021-22 was filed on 28.04.2021 against the Advance Ruling No. 06/ODISHA-AAR/2020-21, dated 09.03.2021. Said Order does not speak about confrontation of contents of the report to the petitioner, which fact has been fairly conceded by Sri Radheyshyam Chimanka, learned Senior Standing Counsel, CGST & Central Excise during the course of hearing on query of this Court.

14.3. Regard can be had to Circular bearing No. 164/20/2021-GST [CBIC-190354/207/2021-TO (TRU-11)-CBEC], dated 06.10.2021 issued by Government of India, Ministry of Finance, Department of Revenue (Tax Research Unit) wherein clarification has been issued with respect to “restaurant service”. The AAAR had no occasion to deal with such clarification as the same was not existing on 27.07.2021, i.e., the date of passing appellate order.

14.4. It may also be pertinent to take cognizance of Notifications No. 18491-FIN-CT1-TAX-0002/2020 [SRO 138/2020], dated 22.06.2020 along with No. 13898-FIN- CT1-TAX-0002/2020 [SRO 129/2021], dated 07.05.2021 issued by the Government of Odisha in Finance Department in exercise of powers conferred under Section 168A of the Odisha Goods and Services Tax Act, 2017, as inserted by virtue of the Odisha Goods and Services Tax (Amendment) Act, 2020, taking into view spread of pandemic COVID-19. It is apparent from such notifications that actions could not be completed or complied with due to force majeure the statutory period of limitation for taking action has been extended. With such notifications in force, Order dated 19.04.2021 of the Special Relief Commissioner came to be passed specifying that “Home Delivery of food, groceries, vegetables and essential items by restaurants and aggregators such as Zomato, Swiggy, etc.” and “Dhabas along National and State Highways/Major roads for takeaway only”. Deviation of any of the measures contained in the said Order attracted penalty in accordance with the provisions of Section 51 to 60 of the Disaster Management Act, 2005, the Epidemic Diseases Act, 1897 and Regulations issued thereunder besides legal action under Section 188 of the Indian Penal Code and other legal provisions as applicable.

14.5. Therefore, this Court entertains serious doubt whether the report as stated to have been submitted on 27.04.2021 eliciting the business activities carried on by the petitioner on the date of inspection of its premises on 27.04.2021 can be taken aid of in order to ascertain the true nature of transactions so that they can be construed to fall within ambit of the term “restaurant services”.

15. Having considered rival contentions and conceded position as admitted by the learned Senior Standing Counsel appearing for the opposite parties that the report submitted by the Superintendent of CGST & Central Excise, Sambalpur-I Range to the Assistant Commissioner, CGST & Central Excise, Sambalpur-I Division vide Letter dated 27.04.2021, as communicated to the petitioner on 11.10.2021 pursuant to application under the Right to Information Act, was not confronted to the petitioner during the course of hearing of appeal before the AAAR, which report was utilized to negative the findings and overturn ruling of the AAR, there is no other option left for this Court than to take a view that the impugned Order dated 27.07.2021 cannot be countenanced. Needless to observe that it is not proper that inconsistent finding should be recorded by different statutory authorities, i.e., finding of AAR vis-à-vis finding of officials who conducted inspection of the business premise of the petitioner, which was heavily relied on by the AAAR for substituting view of the AAR. Under such eventuality, the petitioner should have been afforded proper and reasonable opportunity to meet the material sought to be utilized while rendering ruling in the appeal and such opportunity to the petitioner to state his case should be real, but not pretence.

15.1. In this regard Section 101 of the GST Act, which deals with “Orders of Appellate Authority”, in sub-section (1) mandates that “the Appellate Authority may, after giving the parties to the appeal or reference an opportunity of being heard, pass such order as it thinks fit, confirming or modifying the ruling appealed against or referred to”. Therefore, any conclusion arrived without reference to reliable, cogent and admissible evidence cannot be termed to be a decision arrived on facts. Even the language of the Section 101 of the GST Act employing the expression “as it thinks fit”, must necessarily be understood that the exercise of such power must be rational.

15.2. Interpreting the expression “as it thinks fit” in the case of Babulal Nagar Vrs. Shree Synthetics Ltd., AIR 1984 SC 1164 = 1984 Supp SCC 128, it has been observed as follows:

“The main part of Section 61 (sic 66) [of the M.P. Industrial Relations Act, 1960] clearly spells out the jurisdiction of the Industrial Court to pass any order in reference to the case brought before it as it thinks fit. The expression “as it thinks fit” confers a very wide jurisdiction enabling it to take an entirely different view on the same set of facts. The expression “as it thinks fit” has the same connotation, unless context otherwise indicates, “as he deems fit” and the latter expression was interpreted by this Court in Raja Ram Mahadev Paranjype Vrs. Aba Maruti Mali, AIR 1962 SC 753 = 1962 Supp (1) SCR 739 to mean to make an order in terms of the statute, an order which would give effect to a right which the Act has elsewhere conferred. Is this jurisdiction so circumscribed as to bring it on par with Section 115 of the Code of Civil Procedure? Proviso does cut down the ambit of the main provision but it cannot be interpreted to denude the main provision of any efficacy and reduce it to a paper provision. Both must be so interpreted as to permit interference which if not undertaken there would be miscarriage of justice. Sub-clause (c) of the first proviso to Section 66(1) will permit the Industrial Court to interfere with the order made by the Labour Court, if the Labour Court has acted with material irregularity in disposal of the dispute before it. If the finding recorded by the Labour Court is such to which no reasonable man can arrive, obviously, the Industrial Court in exercise of its revisional jurisdiction would be entitled to interfere with the same even if patent jurisdictional error is not pointed out.”

15.3. While it is not deniable that the authority is entitled to conduct enquiry and collect material behind the back of the petitioner and even the authority need not disclose to the petitioner the source of any adverse material in his possession, which he seeks to utilize against the petitioner, yet the petitioner is expected to meet such adverse materials and thereby save himself. Therefore, confrontation of such adverse material intending to be used to the detriment of the petitioner was required to be confronted to the petitioner by the AAAR. In absence of such a course being adhered to, the Order dated 27.07.2021 passed by the AAAR in appeal bearing No., No. 01/Odisha-AAAR/2021-22 against Advance Ruling No. 06/ODISHA-AAR/2020-21, dated 09.03.2021 is rendered vulnerable.

15.4. Another important ruling rendered by the Hon’ble Supreme Court of India in Andaman Timber Industries Vrs. Commissioner of Central Excise, (2016) 15 SCC 785 = 2015 (324) ELT 641 (SC) does require referred to in the present context:

“6. According to us, not allowing the assessee to cross-examine the witnesses by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. As far as the Tribunal is concerned, we find that rejection of this plea is totally untenable. The Tribunal has simply stated that cross- examination of the said dealers could not have brought out any material which would not be in possession of the appellant themselves to explain as to why their ex-factory prices remain static. It was not for the Tribunal to have guess work as to for what purposes the appellant wanted to cross-examine those dealers and what extraction the appellant wanted from them.

7. As mentioned above, the appellant had contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/ witnesses at the price which is mentioned in the price list itself could be the subject matter of cross- examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross- examination and make the remarks as mentioned above. We may also point out that on an earlier occasion when the matter came before this Court in Civil Appeal No. 2216 of 2000, Order dated 17.03.2005 [CCE Vrs. Andaman Timber Industries Ltd., (2005) 12 SCC 151] was passed remitting the case back to the Tribunal with the directions to decide the appeal on merits giving its reasons for accepting or rejecting the submissions.

8. In view the above, we are of the opinion that if the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show Cause.

9. We, thus, set aside the impugned order as passed by the Tribunal and allow this appeal.”

16. Given the legal position as set forth by way of enunciation of different Courts referred to supra and the fact that the AAAR while reversing the ruling rendered by the AAR having not disclosed the material collected behind the back of the petitioner, the Order No. 02/Odisha-AAAR/Appeal/2021-22, dated 27.07.2021 passed in the appeal filed at the instance of the Jurisdictional Officer cannot be held to be sustainable in the eye of law, for want of adhering to the principles of natural justice.

16.1. Under aforesaid premises, this Court is inclined to show indulgence in the present writ petition filed at the instance of the petitioner-M/s. Pioneer Bakers challenging the Order dated 27.07.2021 of the Odisha Appellate Authority for Advance Ruling constituted under Section 99 of the GST Act and opine that said Order, being untenable, is liable to be set aside.

17. In view of the aforesaid analysis, this Court, therefore, sets aside Order dated 27.07.2021 passed by the Odisha Appellate Authority for Advance Ruling (Annexure-8) being absolutely indefensible and, therefore, it does warrant interference. Hence, said Order is set aside and the matter is remitted to the Odisha Appellate Authority for Advance Ruling for taking fresh decision after due compliance of the principles of natural justice in terms of discussions and observations made above.

18. Resultantly, the writ petition stands disposed of, but in the circumstances without any order as to costs.

(MURAHARI SRI RAMAN)
JUDGE

DR. B.R. SARANGI, ACJ.

I agree.

(DR. B.R. SARANGI)
ACTING CHIEF JUSTICE