Delhi HC quashes Sales Tax Officer order for denying natural justice, remands matter for fresh consideration

Delhi HC set aside the impugned order passed by Sales Tax Officer for violating principles of natural justice. The court found that petitioner's reply and supporting documents were not considered, and no proper opportunity of hearing was provided. It was unclear whether personal hearing notice was uploaded on GST Portal or communicated to petitioner. Matter was remanded to Adjudicating Authority with directions to consider petitioner's reply and submissions before passing fresh order on the SCN.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are as follows:

(a) Whether the show cause notice (SCN) issued under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017) for the tax period April 2018 to March 2019 was validly issued and whether the consequent adjudication order passed thereunder is sustainable.

(b) The validity and vires of Notification No. 9/2023-Central Tax dated 31st March 2023 and Notification No. 56/2023-Central Tax dated 28th December 2023, issued by the Central Board of Indirect Taxes and Customs (CBIC), particularly the procedural compliance under Section 168A of the CGST Act, 2017 regarding extension of time limits for adjudication.

(c) Whether the Petitioner was denied the opportunity of personal hearing and filing of reply, thereby violating principles of natural justice.

(d) The impact of pending Supreme Court proceedings on the validity of the impugned notifications and the consequent orders passed by adjudicating authorities under them.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of Show Cause Notice and Adjudication Order under Section 73 of the CGST Act, 2017

Legal Framework and Precedents: Section 73 of the CGST Act, 2017 empowers the tax authorities to issue show cause notices for recovery of tax not paid or short paid, and pass adjudication orders after providing an opportunity to the affected party. The procedural safeguards include issuance of SCN, opportunity to file reply, and personal hearing before passing final order.

Court's Interpretation and Reasoning: The Court noted that the SCN was issued for the tax period April 2018 to March 2019, followed by an adjudication order dated 13th April 2024. The Petitioner contended that due to ill-health of the proprietor, they could not file a reply to the SCN nor attend the personal hearing. The Court emphasized the fundamental principle of natural justice that no order should be passed without affording an opportunity of hearing.

Key Evidence and Findings: The Petitioner's inability to file reply and attend hearing was substantiated by medical reasons. The adjudicating authority passed the order ex-parte without personal hearing.

Application of Law to Facts: The Court held that the failure to provide personal hearing and to consider the reply filed by the Petitioner violated principles of natural justice. Therefore, the impugned order could not stand.

Treatment of Competing Arguments: While the Respondents may have argued on the merits of the tax demand, the Court prioritized procedural fairness over substantive adjudication at this stage.

Conclusion: The Court set aside the impugned order and directed the adjudicating authority to afford the Petitioner an opportunity to file reply and attend personal hearing before passing a fresh order.

Issue (b): Validity of Notifications No. 9/2023 and No. 56/2023 (Central Tax) under Section 168A of CGST Act

Legal Framework and Precedents: Section 168A of the CGST Act mandates that any extension of the time limit for adjudication of show cause notices must be preceded by a recommendation from the GST Council. The notifications in question purportedly extended such time limits.

Court's Interpretation and Reasoning: The Court observed a divergence of judicial opinions across various High Courts regarding the validity of these notifications. While the Allahabad and Patna High Courts upheld the notifications, the Guwahati High Court quashed Notification No. 56/2023 (Central Tax). The Telangana High Court made observations on invalidity without deciding the issue, which is now under Supreme Court consideration in SLP No. 4240/2025.

Key Evidence and Findings: The Court noted that Notification No. 9/2023 had prior GST Council recommendation, whereas Notification No. 56/2023 was issued before the GST Council's ratification, thus allegedly contravening Section 168A.

Application of Law to Facts: The Court refrained from expressing any opinion on the validity of the impugned notifications, recognizing the ongoing Supreme Court proceedings and conflicting High Court judgments.

Treatment of Competing Arguments: The Petitioner challenged the notifications on procedural grounds, while Respondents relied on the notifications' validity as per some High Court rulings. The Court deferred to the Supreme Court's ultimate authority.

Conclusion: The Court left the question of validity open and subject to the Supreme Court's final adjudication.

Issue (c): Denial of Opportunity of Personal Hearing and Filing of Reply

Legal Framework and Precedents: The principles of natural justice require that a party be given a fair opportunity to be heard before adverse orders are passed. This includes filing replies to show cause notices and attending personal hearings.

Court's Interpretation and Reasoning: The Court found that the Petitioner was unable to file replies or attend hearings due to ill-health, and the adjudicating authority proceeded ex-parte. This procedural lapse warranted intervention.

Key Evidence and Findings: Medical reasons substantiating the Petitioner's inability to participate in proceedings were accepted.

Application of Law to Facts: The Court held that the Petitioner must be afforded another opportunity to file reply and attend personal hearing to contest the matter on merits.

Treatment of Competing Arguments: While the Respondents may have argued for finality of orders, the Court prioritized procedural fairness to ensure just adjudication.

Conclusion: The Court set aside the impugned order and directed fresh proceedings with due opportunity to the Petitioner.

Issue (d): Impact of Pending Supreme Court Proceedings

Legal Framework and Precedents: Judicial discipline mandates that lower courts respect ongoing proceedings before higher courts on identical or similar issues.

Court's Interpretation and Reasoning: The Court acknowledged that the Supreme Court is seized of the matter concerning the validity of the impugned notifications and extensions under Section 168A of the CGST Act.

Key Evidence and Findings: The Court referred to the Supreme Court's order dated 21st February 2025 in SLP No. 4240/2025 and interim orders passed by other High Courts.

Application of Law to Facts: The Court refrained from deciding the validity of the notifications and held that any fresh order passed by the adjudicating authority shall be subject to the Supreme Court's final decision.

Treatment of Competing Arguments: The Court balanced the need for procedural fairness to the Petitioner with judicial restraint pending the Supreme Court's ruling.

Conclusion: The Court disposed of the petition on the condition that the validity of the notifications remains open and subject to the Supreme Court's determination.

3. SIGNIFICANT HOLDINGS

The Court made the following crucial legal determinations:

"Since the Petitioner has not been able to avail the opportunity of personal hearing, the same ought to be afforded to the Petitioner to contest the matter on merits."

"The impugned order is set aside. The Petitioner is granted 30 days' time to file the reply to SCN. Upon filing of the reply, the Adjudicating Authority shall issue to the Petitioner, a notice for personal hearing."

"However, it is made clear that the issue in respect of the validity of the impugned notifications is left open. Any order passed by the Adjudicating Authority shall be subject to the outcome of the decision of the Supreme Court."

Core principles established include the inviolability of the right to be heard before passing adverse orders under the CGST Act and adherence to judicial discipline by deferring to the Supreme Court on contentious questions of law concerning extension notifications.

Final determinations on each issue are:

(i) The adjudication order passed without personal hearing is liable to be set aside.

(ii) The Petitioner must be given an opportunity to file reply and attend personal hearing.

(iii) The validity of the impugned extension notifications remains undecided and is subject to the Supreme Court's ruling.

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