Delhi HC sets aside adjudication order for violating natural justice principles in SCN proceedings

Delhi HC set aside adjudication order due to violation of natural justice principles. The SCN was uploaded on 'Additional Notices Tab' without petitioner's knowledge, and order was passed without personal hearing or reply. Following precedent in Neelgiri Machinery case involving similar circumstances, court remanded matter for fresh consideration. Department had rectified portal visibility issues post-January 2024, but SCN in this case predated changes. Court directed fresh adjudication after considering petitioner's reply and submissions in personal hearing.

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The core legal questions considered in this judgment revolve around the validity and procedural propriety of certain notifications issued under the Central Goods and Services Tax Act, 2017 (CGST Act), specifically Notification Nos. 09/2023-Central Tax and 56/2023-Central Tax, as well as the adjudication order passed under Section 73 of the CGST Act. Additionally, issues concerning the adequacy of service of show cause notices (SCNs) and the opportunity for personal hearings before passing adjudication orders were examined.

Firstly, the Court addressed whether the impugned notifications extending the time limits for adjudication under Section 168A of the CGST Act were validly issued, considering the requirement of prior recommendation by the GST Council. Secondly, the Court considered the procedural fairness in the adjudication process, particularly whether the petitioner was afforded a reasonable opportunity to file replies and participate in personal hearings before the passing of the impugned order. These issues were considered in the context of the petitioner's challenge to an adjudication order dated 23rd December 2023 and the associated notifications issued by the Central Board of Indirect Taxes and Customs.

Regarding the validity of the impugned notifications, the Court noted that the challenge is part of a batch of petitions pending before various High Courts and the Supreme Court, with conflicting judicial opinions on the matter. The key statutory provision under scrutiny is Section 168A of the CGST Act, which mandates that any extension of time limits for adjudication must be preceded by a recommendation from the GST Council. The Court observed that while Notification No. 09/2023 was issued following the GST Council's recommendation, Notification No. 56/2023 was challenged on the ground that it was issued prior to the Council's recommendation, thus allegedly violating Section 168A's procedural mandate.

In analyzing this issue, the Court referred to the ongoing Supreme Court proceedings in S.L.P No. 4240/2025, where the validity of these notifications is being examined. The Supreme Court has acknowledged the divergence of views among High Courts, with some upholding and others quashing Notification No. 56/2023. The Court prudently refrained from expressing any opinion on the validity of the notifications, deferring to the Supreme Court's forthcoming decision, and directed that the outcome of the Supreme Court's ruling would be binding on the present petition.

On the procedural fairness issue, the petitioner contended that the SCN dated 22nd November 2023 was uploaded under the 'Additional Notices Tab' on the GST portal, which did not come to their notice, resulting in the impugned order being passed ex-parte without a personal hearing or opportunity to file a reply. The Court extensively examined this contention, drawing parallels with prior decisions where similar procedural lapses were identified. It cited earlier judgments of this Court where orders were set aside due to the SCNs being inaccessible or unsigned, and where the departmental portal's design led to notices being overlooked by the taxpayers.

The Court emphasized the fundamental principle of natural justice that no order should be passed in default without affording the affected party a fair opportunity to be heard. It acknowledged the Department's subsequent remedial measures to improve the visibility of SCNs on the portal post-January 2024 but noted that the present SCN predates these changes. Consequently, the Court set aside the impugned adjudication order dated 23rd December 2023 and the related demand orders dated 23rd April 2024 and 5th December 2023.

Further, the Court directed that the petitioner be granted a fresh opportunity to file replies to the SCNs dated 4th December 2023 and 23rd September 2023 within thirty days. It mandated that future hearing notices should not only be uploaded on the portal but also sent via email to ensure actual receipt by the petitioner. A personal hearing was to be granted, with the petitioner's submissions duly considered before passing any fresh adjudication order. The Court explicitly left open the question of the notifications' validity, making clear that any fresh order would be subject to the Supreme Court's ultimate determination.

In its reasoning, the Court balanced the competing interests of administrative efficiency and taxpayers' rights. While recognizing the necessity of timely adjudication and the legislative intent behind Section 168A, it underscored the non-negotiable requirement of procedural fairness. The Court's approach reflects adherence to established principles that administrative actions must be fair, transparent, and provide meaningful opportunities for representation.

Significant holdings include the Court's affirmation that the validity of the impugned notifications is a substantial question of law currently under the Supreme Court's consideration, and thus no definitive opinion is expressed at this stage. The Court held that the failure to provide adequate notice and opportunity for personal hearing constitutes a breach of natural justice, warranting the setting aside of the impugned orders. The Court's directive that hearing notices be communicated via email in addition to portal uploads establishes a procedural safeguard to prevent future lapses.

Verbatim, the Court stated: "Intention is to ensure that the Petitioner is given an opportunity to file its reply and is heard on merits and that orders are not passed in default." This encapsulates the core principle guiding the Court's intervention.

In conclusion, the Court disposed of the petitions by setting aside the impugned orders and directing fresh adjudication in accordance with law, while explicitly preserving the question of the notifications' validity for the Supreme Court's determination. This judgment reinforces the primacy of procedural fairness in tax adjudication and the necessity of compliance with statutory mandates governing extension of limitation periods.

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