Delhi HC quashes tax demand after petitioner denied personal hearing violating natural justice principles

Delhi HC set aside an ex-parte order imposing tax demand, interest and penalty after finding petitioner was denied opportunity for personal hearing in violation of natural justice principles. Court noted challenge to relevant notifications pending before SC in related matter. HC directed adjudicating authority to afford petitioner proper hearing opportunity and pass fresh order considering petitioner's reply and submissions. Writ petition disposed of with directions for de novo proceedings.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

• Whether the impugned Notifications Nos. 56/2023-Central Tax and 56/2023-State Tax, issued under Section 168A of the Central Goods and Services Tax Act, 2017 ("GST Act"), are valid and lawful, particularly regarding the procedural requirements for extension of time limits for adjudication under the GST Act.
• Whether the issuance of these notifications without prior recommendation of the GST Council, or with ratification post issuance, violates the statutory mandate under Section 168A of the GST Act.
• Whether the limitation period for issuance of the State Tax Notification No. 56/2023 was exceeded, rendering it invalid.
• Whether the Petitioner was afforded a fair opportunity to be heard before passing the impugned adjudication order, specifically concerning the communication and receipt of the Show Cause Notice (SCN) and notices for personal hearings.
• Whether the adjudication order passed ex-parte against the Petitioner without hearing violates principles of natural justice and requires setting aside.
• The broader question concerning the jurisdiction and authority of the Adjudicating Authority to pass orders in light of the ongoing Supreme Court proceedings challenging the validity of the impugned notifications.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of the Impugned Notifications under Section 168A of the GST Act

The legal framework involves Section 168A of the GST Act, which mandates that any extension of time limits for adjudication of show cause notices and passing of orders must be preceded by a recommendation of the GST Council. The Notifications Nos. 9 and 56 of 2023 (Central Tax) and Notification No. 56/2023 (State Tax) were issued purportedly under this provision.

Precedents from various High Courts have exhibited divergent views: the Allahabad High Court upheld Notification No. 9; the Patna High Court upheld Notification No. 56; whereas the Guwahati High Court quashed Notification No. 56 of 2023 (Central Tax). The Telangana High Court also expressed reservations about the validity of Notification No. 56 (Central Tax), and this issue is currently sub judice before the Supreme Court in S.L.P No. 4240/2025.

The Supreme Court has recognized the cleavage of opinion among High Courts and has issued notice and interim relief in the matter, indicating the importance and complexity of the issue. The Punjab and Haryana High Court, respecting judicial discipline, refrained from expressing opinions on the validity of Section 168A and the notifications, deferring to the Supreme Court's forthcoming decision.

The Court in the present case acknowledged that the challenge to the impugned notifications is pending before the Supreme Court and accordingly refrained from deciding the validity issue. It held that the outcome of the Supreme Court's decision will be binding on the present proceedings.

Communication and Service of Show Cause Notice and Personal Hearing Notices

The Petitioner contended that the SCN dated 31st May 2024 was never communicated to them, and hence no reply was filed. The Respondent asserted that the SCN and notices for personal hearings were dispatched via speed post to the principal place of business address registered on the GST portal. However, these communications were returned "unclaimed."

The impugned order records that three personal hearing opportunities were granted on specified dates, with notices sent accordingly. Since neither the Petitioner nor their authorized representatives appeared for the hearings, and no replies were received, the Adjudicating Authority proceeded ex-parte relying on the available evidence.

The Court examined the principle of natural justice, emphasizing that an opportunity to be heard is fundamental before passing any adverse order. It found that the Petitioner was not afforded a genuine opportunity to respond or appear, given the failure in communication and non-receipt of notices. The Court concluded that the ex-parte order was unsustainable on this ground.

Setting Aside of the Ex-Parte Order and Grant of Opportunity to the Petitioner

Given the failure to afford a proper hearing, the Court set aside the impugned order. It granted the Petitioner 30 days to file a reply to the SCN. Upon receipt of the reply, the Adjudicating Authority is directed to issue a fresh notice for personal hearing, ensuring communication through specified mobile number and email address to guarantee receipt.

The Court mandated that the Adjudicating Authority shall consider the Petitioner's submissions and reply before passing a fresh order. This approach safeguards the Petitioner's right to be heard and ensures compliance with principles of natural justice.

Effect of Pending Supreme Court Decision on the Validity of Notifications

The Court explicitly left open the question of the validity of the impugned notifications, deferring to the Supreme Court's pending adjudication in S.L.P No. 4240/2025. It clarified that any fresh order passed by the Adjudicating Authority shall be subject to the outcome of the Supreme Court's decision, preserving the rights of the parties and avoiding premature conclusions on the contentious legal issue.

3. SIGNIFICANT HOLDINGS

The Court held:

"Sufficient opportunities of personal hearing have been given to the noticee, which are enough to meet the cause of natural justice in this case. As neither any reply is received from the Noticee nor did anyone appear to attend the personal hearing and therefore, I have no other option but to decide the case on the basis of evidence available on record." (Impugned order excerpt)

The Court, however, disagreed with the above conclusion, stating:

"Since the Petitioner has not been afforded an opportunity to be heard and the impugned order has been passed without hearing the Petitioner, an opportunity ought to be afforded to the Petitioner to contest the matter on merits."

Core principles established include:

• The paramount importance of the right to be heard and adherence to natural justice in tax adjudication proceedings.
• The necessity of proper communication and service of notices to ensure the opportunity for personal hearing.
• Deference to the Supreme Court's pending decision on the validity of notifications under Section 168A of the GST Act, thereby avoiding conflicting interim rulings.
• The power of the Court to set aside ex-parte orders passed without affording a fair hearing and to direct fresh proceedings in accordance with law.

Final determinations:

• The challenge to the validity of the impugned notifications is left open pending the Supreme Court's decision.
• The impugned ex-parte adjudication order is set aside for failure to afford the Petitioner an opportunity of hearing.
• The Petitioner is granted 30 days to file a reply to the SCN, and the Adjudicating Authority is directed to issue fresh notices for personal hearings communicated through reliable channels.
• The Adjudicating Authority shall consider the Petitioner's submissions and pass a fresh order, subject to the Supreme Court's final ruling on the validity of the notifications.

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