2025 (4) TMI 1240 - HC - GST

Judicial Review Quashes GST Demand Order Due to Procedural Lapses, Mandates Fair Hearing for Deceased Directors' Company

The HC set aside the GST demand order of Rs. 9,10,792/- against the Petitioner, finding procedural irregularities in notice service. Given the death of ... Violation of principles of natural justice - Petitioner was not provided a proper opportunity to file a reply - cancellation of GST registration of the Petitioner firm - HELD THAT:- Without going into this issue, the Court is of the opinion that since the main persons who were conducting the business have both passed away and the SCN was issued in the year 2023 which was just around the same period when the Directors were suffering ill-health and had passed away. The Petitioner ought to be given an opportunity to defend itself on merits. The proceedings initiated vide SCN dated 3rd December, 2023 are relegated to the adjudicating authority for the Petitioner to be provided a proper opportunity to be heard on merits. The Petitioner may file a reply to the SCN within 30 days - A personal hearing shall be afforded to the Petitioner as well. The impugned order dated 8th April, 2024 shall stand set aside - Petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court include:Whether the impugned order demanding Rs. 9,10,792/- from the Petitioner, issued pursuant to the Show Cause Notice (SCN) dated 3rd December, 2023, was validly passed given the procedural requirement of providing a proper opportunity to the Petitioner to file a reply;Whether the failure to file annual returns in GSTR-9 for the year 2018 justified the demand raised;Whether the Petitioner was afforded adequate communication and notice of the SCN, including whether the SCN uploaded on the 'Additional Notices Tab' without direct communication to the Petitioner sufficed as proper service;Whether the unique circumstances of the Petitioner firm, including the death of both Directors and their prior ill health, warranted a more empathetic and procedural approach by the GST authorities;Whether the GST registration cancellation and subsequent restoration directions issued in a related writ petition impacted the present proceedings;Whether the adjudicating authority should be directed to provide a fresh opportunity of hearing and pass an order in accordance with law after affording the Petitioner a chance to file a reply and be heard personally.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the impugned order demanding Rs. 9,10,792/- and procedural fairnessRelevant legal framework and precedents: The principles of natural justice and statutory procedural safeguards under GST laws require that before any demand or penalty is imposed, the affected party must be given a proper opportunity to be heard. The issuance of a Show Cause Notice (SCN) is a prerequisite, followed by an opportunity to file a reply and personal hearing before an order is passed.Court's interpretation and reasoning: The Court noted that the impugned order was passed pursuant to an SCN dated 3rd December, 2023, alleging non-filing of annual returns in GSTR-9 for 2018. The Petitioner challenged the order primarily on the ground that no proper opportunity to file a reply was provided. While the Respondents contended that the SCN was uploaded on the GST portal and communicated through SMS, the Petitioner denied receiving adequate communication.The Court observed that the main persons conducting the business, the Directors, had passed away around the time the SCN was issued, and the Petitioner firm was in a difficult position. Given these facts, the Court held that the Petitioner must be afforded a proper opportunity to defend itself on merits, emphasizing procedural fairness over mere formality of communication.Key evidence and findings: The Court relied on the timeline of events, the death certificates of the Directors, and the prior writ petition where the GST registration was restored considering the ill health and demise of the Directors. The Petitioner's claim of non-receipt of proper communication was taken seriously in light of these circumstances.Application of law to facts: Applying the principles of natural justice, the Court found that the impugned order could not stand without affording the Petitioner a chance to file a reply and be heard personally. The mere uploading of SCN on the portal without effective communication was insufficient in the exceptional circumstances of the case.Treatment of competing arguments: The Respondents' reliance on the standard practice of uploading SCNs and sending SMS was acknowledged but not accepted as conclusive. The Court prioritized substantive justice given the Petitioner's unique situation.Conclusions: The Court set aside the impugned order dated 8th April, 2024 and directed the adjudicating authority to provide the Petitioner with a proper opportunity to reply and a personal hearing before passing any fresh order.Issue 2: Impact of prior writ petition restoring GST registration on present proceedingsRelevant legal framework and precedents: The writ petition (W.P.(C) 4816/2025) had earlier addressed the cancellation of the Petitioner's GST registration, considering the death of both Directors and their ill health. The Court had directed restoration of GST registration and an empathetic approach by the GST Department.Court's interpretation and reasoning: The Court referred to the earlier order which recognized the exceptional circumstances faced by the Petitioner firm, including the demise of Directors and the consequent inability to respond to SCNs. The Court reiterated that the GST Department must adopt an empathetic and fair approach while dealing with the Petitioner.Key evidence and findings: The death certificates and the factual matrix showing ill health and death of Directors were critical. The earlier order explicitly mandated reopening of the GST portal and affording a hearing before passing any order.Application of law to facts: The Court applied the principle of consistency and fairness, holding that the directions in the earlier writ petition must guide the present proceedings. The GST Department was required to comply with those directions and provide procedural fairness.Treatment of competing arguments: The Respondents' position that standard procedures were followed was weighed against the prior judicial directions emphasizing empathy and procedural safeguards.Conclusions: The Court confirmed that the prior writ petition's directions remained binding and relevant, reinforcing the need to provide the Petitioner with access to the GST portal, opportunity to file documents, and personal hearing.Issue 3: Adequacy of communication and service of Show Cause NoticeRelevant legal framework and precedents: Proper service of SCNs is essential to ensure the affected party's right to be heard. The GST laws and procedural rules require that notices be communicated effectively, which may include uploading on the portal and sending SMS or emails.Court's interpretation and reasoning: The Court noted the dispute between parties regarding whether the SCN was properly communicated. The Petitioner contended that the SCN was only uploaded on the 'Additional Notices Tab' without direct communication, while the Respondents claimed that SMS and text messages were sent.Without conclusively deciding on this issue, the Court emphasized that given the exceptional circumstances of the Petitioner, the question of adequacy of communication should be addressed by the adjudicating authority after providing a proper opportunity to the Petitioner.Key evidence and findings: The Court considered the factual claims by both parties but refrained from making a final finding on this issue, deferring it to the adjudicating authority.Application of law to facts: The Court applied the principle that procedural fairness requires effective communication, especially when the Petitioner's representatives are no longer available due to death and ill health.Treatment of competing arguments: The Court balanced the Respondents' reliance on standard notification practices against the Petitioner's claim of non-receipt, choosing to err on the side of caution and fairness.Conclusions: The issue of communication adequacy was left open for determination by the adjudicating authority after affording the Petitioner a proper opportunity to be heard