Delhi HC sets aside adjudication order for violating natural justice principles in tax matter

Delhi HC set aside adjudication order for violating natural justice principles. SCN uploaded on 'Additional Notices Tab' did not reach petitioner's knowledge. Impugned order passed without personal hearing or petitioner's reply. Following precedent in Neelgiri Machinery case with similar circumstances, court remanded matter for fresh consideration. Despite SCN being issued post January 17, 2024, petitioner granted opportunity to file reply. Matter to be reconsidered on merits after considering petitioner's reply and submissions in personal hearing.

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1. ISSUES PRESENTED and CONSIDERED

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

(a) Whether the impugned Notification No. 09/2023-Central Tax dated 31st March, 2023 and Notification No. 56/2023-Central Tax dated 8th December, 2023, issued under Section 168A of the Central Goods and Services Tax Act, 2017 (CGST Act), are valid and lawful, particularly in light of procedural requirements such as prior recommendation by the GST Council.

(b) Whether the adjudication order dated 19th August, 2024, passed under Section 73 of the DGST/CGST Act, 2017, is sustainable, given the circumstances surrounding the issuance and communication of the Show Cause Notice (SCN) to the Petitioner.

(c) Whether the Petitioner was afforded a fair opportunity of hearing, including proper service and notice of the SCN, and whether the adjudication order was passed ex-parte without due process.

(d) The broader question of the extension of limitation periods for adjudication under the GST Act via notifications issued under Section 168A, and the conflicting judicial opinions on this issue pending before the Supreme Court.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of Notifications Nos. 09/2023 and 56/2023 issued under Section 168A of the CGST Act

Relevant Legal Framework and Precedents: Section 168A of the CGST Act empowers the Central Government to extend the time limit for adjudication of show cause notices and passing of orders under Sections 73 and 74 of the Act, subject to prior recommendation of the GST Council. The notifications in question purportedly extend the limitation period for adjudication of SCNs for the financial year 2019-2020.

Various High Courts have taken divergent views on the validity of these notifications. The Allahabad High Court upheld Notification No. 9, the Patna High Court upheld Notification No. 56, while the Guwahati High Court quashed Notification No. 56. The Telangana High Court expressed reservations about Notification No. 56, and the matter is currently under consideration by the Supreme Court in S.L.P No. 4240/2025.

Court's Interpretation and Reasoning: The Court acknowledged the existence of conflicting judicial opinions and noted that the Supreme Court is seized of the issue. The Court refrained from expressing any opinion on the validity of the notifications, recognizing the principle of judicial discipline and the binding nature of the Supreme Court's eventual ruling.

Application of Law to Facts: The Court held that the challenge to the impugned notifications in the present petition would be subject to the outcome of the Supreme Court's decision in the pending SLP.

Treatment of Competing Arguments: While the Petitioner challenged the notifications on procedural grounds, including the timing of the GST Council's recommendation and the expiry of limitation periods, the Court deferred to the Supreme Court's authoritative determination.

Conclusion: The validity of the impugned notifications remains an open question, pending the Supreme Court's adjudication.

Issue (b) and (c): Validity of the Adjudication Order and Fair Opportunity of Hearing

Relevant Legal Framework and Precedents: Section 73 of the DGST/CGST Act mandates adjudication of show cause notices within prescribed timelines. Principles of natural justice require that a noticee be given proper notice of proceedings and an opportunity to be heard before any adverse order is passed. The Court referred to earlier decisions where similar issues arose regarding the manner of service of SCNs, particularly when notices were uploaded under an 'Additional Notices' tab on the GST portal, which was not readily visible to the noticee.

Court's Interpretation and Reasoning: The Court found that the SCN dated 9th May, 2024, was uploaded under the 'Additional Notices' tab, which was not effectively brought to the Petitioner's attention. This resulted in the Petitioner being deprived of the opportunity to file a reply or appear for personal hearing. The Court noted that the adjudication order was consequently passed ex-parte, violating the principles of natural justice.

The Court relied on precedents such as W.P.(C) 13727/2024 (Neelgiri Machinery) and W.P.(C) 12589/2024 (Satish Chand Mittal) where similar situations were remedied by remanding the matter to the adjudicating authority for fresh adjudication after affording the petitioner an opportunity of hearing.

Key Evidence and Findings: The Court observed that the GST portal was subsequently rectified to make the 'Additional Notices' tab more visible, but this did not remedy the Petitioner's lack of knowledge at the time of issuance of the SCN. The Respondent-CGST Department conceded that the issue had been addressed only after 16th January, 2024.

Application of Law to Facts: Given the failure to effectively communicate the SCN, the Court set aside the impugned adjudication order and directed that the Petitioner be allowed to file a reply within 30 days and be given a personal hearing. The Court further directed that hearing notices not only be uploaded on the portal but also sent via email to ensure effective communication.

Treatment of Competing Arguments: The Respondent argued that the SCN was issued after the portal was rectified and that the Petitioner should have accessed the notice. The Court rejected this, emphasizing the Petitioner's lack of actual knowledge and opportunity to respond.

Conclusion: The adjudication order dated 19th August, 2024, was set aside. The Petitioner was granted an opportunity to file replies and be heard, and the adjudicating authority was directed to pass a fresh order in accordance with law.

Issue (d): Extension of Limitation Periods under Section 168A and Conflicting Judicial Opinions

Relevant Legal Framework and Precedents: Section 168A allows the Central Government to extend limitation periods for adjudication of SCNs, subject to GST Council's prior recommendation. The notifications extending limitation periods have been challenged on grounds of procedural irregularity and validity.

Different High Courts have taken conflicting views on the validity of these extensions, leading to a split of opinion. The Supreme Court has admitted the matter for consideration in S.L.P No. 4240/2025.

Court's Interpretation and Reasoning: The Court acknowledged the cleavage of opinion and judicial discipline, refraining from expressing any opinion on the validity of the notifications. It directed that the interim orders in the present petitions would continue to operate, subject to the Supreme Court's final decision.

Application of Law to Facts: The Court disposed of the present petitions with the direction that the outcome of the Supreme Court's decision would be binding on all connected matters.

Treatment of Competing Arguments: The Court noted that the parties had been heard extensively and that the Supreme Court's order was awaited for final resolution.

Conclusion: The issue remains pending before the Supreme Court, and the Court declined to interfere further at this stage.

3. SIGNIFICANT HOLDINGS

"Since the challenge to the above mentioned notification is presently under consideration before the Supreme Court in S.L.P No 4240/2025, the challenge made by the Petitioner to the notification in the present proceedings shall also be subject to the outcome of the decision of the Supreme Court."

"It is the petitioner's case that he had not received the impugned SCN and, therefore, he had no opportunity to respond to the same. For the same reason, the petitioner claims that he had not appear for a personal hearing before the Adjudicating Authority... In view of the above, the present petition is allowed and the impugned order is set aside."

"The show cause notices shall be adjudicated in accordance with law after affording the petitioner an opportunity to be heard. Hearing notices shall not merely be uploaded on the portal but shall also be e-mailed to the Petitioner."

Core principles established include:

- The necessity of prior recommendation by the GST Council under Section 168A for extension of limitation periods and the procedural correctness of notifications issued under this provision.

- The fundamental requirement of natural justice that a noticee must be given proper and effective notice of SCNs and an opportunity for personal hearing before passing any adjudication order.

- The Court's adherence to judicial discipline by refraining from adjudicating on issues pending before the Supreme Court and directing that interim orders continue until final adjudication.

Final determinations on each issue are:

(i) The validity of the impugned notifications is left open and subject to the Supreme Court's decision.

(ii) The impugned adjudication order dated 19th August, 2024, is set aside for lack of proper notice and hearing.

(iii) The Petitioner is granted an opportunity to file replies and be heard, with directions for proper communication of hearing notices.

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