Delhi HC sets aside GST adjudication order for violating natural justice principles in notice service

Delhi HC set aside an adjudication order and notification N/N. 56/2023-Central Tax dated 28th December 2023 due to violation of natural justice principles. The show cause notice was uploaded on 'Additional Notices Tab' without petitioner's knowledge, and impugned order was passed without personal hearing or reply. Following precedent in Neelgiri Machinery case, court remanded matter for fresh consideration on merits after proper hearing, noting department corrected portal visibility issues post-January 2024.

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The core legal questions considered by the Court in this matter include:

1. Whether the impugned Notification No. 56/2023-Central Tax, issued under Section 168A of the Central Goods and Services Tax Act, 2017 (CGST Act), is valid, particularly regarding the procedural requirement of prior recommendation by the GST Council before extending deadlines for adjudication under the CGST Act.

2. Whether the impugned show cause notice (SCN) dated 1st December, 2023, and the consequent adjudication order dated 27th April, 2024, were lawfully issued and passed, especially considering the mode of communication and the opportunity of personal hearing afforded to the Petitioner.

3. The effect of ongoing judicial scrutiny and conflicting High Court decisions on the validity of notifications issued under Section 168A of the CGST Act, and the impact of pending Supreme Court proceedings on the present case.

4. The procedural fairness in adjudication proceedings under the CGST Act, specifically whether orders can be passed ex-parte without providing the Petitioner adequate notice and opportunity to be heard.

Issue-wise Detailed Analysis

1. Validity of Notification No. 56/2023-Central Tax under Section 168A of CGST Act

The legal framework governing this issue is Section 168A of the CGST Act, which mandates that any extension of time limits for adjudication of show cause notices and passing orders must be preceded by a recommendation from the GST Council. The Petitioner challenged the impugned notification on the ground that the extension was granted without following the mandated procedure, with ratification occurring only after issuance, rendering the notification ultra vires.

The Court noted that this issue is the subject of multiple petitions consolidated before various High Courts, with conflicting decisions: the Allahabad and Patna High Courts upheld the validity of the notification, while the Guwahati High Court quashed it. The Telangana High Court observed invalidity but did not conclusively decide the matter, which is presently under consideration by the Supreme Court in S.L.P No. 4240/2025.

The Supreme Court's order recognized the cleavage of opinion among High Courts and issued notice in the matter, indicating the importance and complexity of the question whether the time limits for adjudication under Section 73 of the CGST Act can be extended by notifications issued under Section 168A without prior GST Council recommendation.

The Court in the present matter refrained from expressing any opinion on the validity of the impugned notification, deferring to the pending Supreme Court adjudication. It held that any orders passed by the adjudicating authority pursuant to the notification would be subject to the Supreme Court's final decision.

2. Lawfulness of Show Cause Notice and Adjudication Order

The Petitioner contended that the SCN dated 1st December, 2023 was uploaded only under the 'Additional Notices Tab' on the GST portal, which did not bring it to the Petitioner's actual notice. Consequently, the Petitioner was unable to file a reply or avail of a personal hearing, and the impugned order dated 27th April, 2024 was passed ex-parte.

The Court examined precedents, including recent judgments of this Court in analogous cases where SCNs uploaded under the 'Additional Notices Tab' were held insufficient for effective communication. The Court referred to decisions such as in W.P.(C) 13727/2024 and others, where similar procedural lapses led to remand of matters to ensure fair opportunity to the noticees.

It was observed that post January 2024, the Department had taken remedial steps to make SCNs more visible on the portal, but since the present SCN was dated December 2023, the procedural deficiency persisted. The Court set aside the impugned demand orders and directed that the Petitioner be granted an opportunity to file replies within 30 days. Further, personal hearing notices were to be sent not only via the portal but also by email and phone, ensuring effective communication.

The Court emphasized that the adjudication must proceed afresh on merits after considering the Petitioner's reply and submissions at the personal hearing, thereby upholding principles of natural justice and fair procedure.

3. Impact of Conflicting High Court Decisions and Pending Supreme Court Proceedings

The Court acknowledged the ongoing judicial discord regarding the validity of the impugned notifications and the extension of limitation periods under Section 168A. It noted that various High Courts have taken divergent views, and the Supreme Court's intervention is awaited to resolve these conflicts.

In light of this, the Court adopted a cautious approach, refraining from deciding on the validity of the notifications. It directed that the outcome of the Supreme Court's decision in S.L.P No. 4240/2025 would be binding on the present proceedings. The Court also referred to the Punjab and Haryana High Court's order, which stayed proceedings and deferred to the Supreme Court's judgment, underscoring the principle of judicial discipline and the need to avoid contradictory rulings.

4. Procedural Fairness and Opportunity to be Heard in GST Adjudication

The Court underscored the fundamental requirement that no adjudication order should be passed in default without affording the Petitioner a reasonable opportunity to respond and be heard. It relied on prior judgments that invalidated ex-parte orders where SCNs were not effectively communicated or personal hearings were denied.

The Court mandated that hearing notices must be sent by multiple modes, including email and telephone, to ensure receipt. It directed that the adjudicating authority consider the Petitioner's submissions before passing any order, thereby reinforcing the principle of audi alteram partem.

The Court's approach reflects a commitment to procedural fairness, especially in tax matters where significant demands and penalties are involved.

Significant Holdings

"The challenge to the impugned notification in the present proceedings shall also be subject to the outcome of the decision of the Supreme Court."

"The impugned demand orders dated 23rd April, 2024 and 5th December, 2023 are accordingly set aside."

"The hearing notices shall now not be merely uploaded on the portal but shall also be e-mailed to the Petitioner and upon the hearing notice being received, the Petitioner would appear before the Department and make its submissions."

"Let the entire matter be considered afresh and an order be passed on merits after duly considering the reply and the submissions made by the Petitioner in the personal hearing."

These holdings establish the following core principles:

- The validity of notifications issued under Section 168A of the CGST Act, particularly with respect to procedural compliance and GST Council recommendations, remains an open question pending Supreme Court adjudication.

- Procedural fairness in GST adjudication is paramount; SCNs must be effectively communicated, and personal hearings must be granted before passing orders.

- Courts must exercise restraint in deciding issues presently sub judice before the Supreme Court, adhering to judicial discipline and avoiding conflicting rulings.

- Where procedural deficiencies in communication of notices exist, orders passed ex-parte must be set aside, and fresh opportunities must be afforded to the parties.

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