GST Demand Order Invalidated for Procedural Defect: Authorities Must Issue Proper Show Cause Notice Before Recovery

Delhi HC quashed a GST demand order against a taxpayer due to procedural non-compliance. The court found the order invalid because no show cause notice was issued under Section 73 of the CGST Act before creating the demand and setting off blocked Input Tax Credit. The HC permitted tax authorities to re-issue the order after providing proper notice and hearing to the taxpayer, without examining the substantive merits of the case.

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Issues involved: Impugning an order creating demand set off against blocked ITC without issuance of show cause notice u/s 73 of the Central Goods and Services Tax Act, 2017.

The judgment delivered by the Delhi High Court pertained to the impugned order dated 07.02.2024, where a demand was created against the petitioner and set off against blocked Input Tax Credit (ITC). The Court noted that no show cause notice or DRC-01 was issued to the petitioner prior to the passing of the impugned order. The impugned order was considered to be under Section 73 of the Act, which mandates the issuance of a show cause notice before creating a demand. It was observed that in this case, no such notice was issued to the petitioner before the order was passed.

The Court highlighted that although a show cause notice proposing to cancel the GST registration of the petitioner was issued on 16.06.2023, those proceedings were dropped on 25.08.2023 after considering the petitioner's reply. Due to the absence of a show cause notice before the passing of the impugned order, the Court deemed the order to be liable for setting aside. Consequently, the order was quashed on the basis of this technical ground. The Court clarified that the respondents were permitted to pass a new order after providing a proper show cause notice and an opportunity for a personal hearing to the petitioner.

Moreover, the Court explicitly stated that it did not delve into the merits of the contentions of either party and set aside the impugned order solely on the grounds of the violation of principles of natural justice. The judgment reserved all rights and contentions of the parties. Finally, the petition was disposed of in accordance with the above terms as outlined in the judgment.

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