2025 (5) TMI 247 - HC - GST

Revenue demand of Rs. 2.98 crore set aside for violating natural justice principles in tax proceedings

The Delhi HC set aside an order confirming demand of Rs. 2,98,74,272/- after finding violation of natural justice principles. The petitioner had filed a ... Violation of principles of natural justice - impugned order has been passed without considering the reply or providing a personal hearing - Challenge to SCN, subsequent orders and N/N. 9/2023-Central Tax dated 31st March, 2023 and 56/2023-Central Tax dated 28th December, 2023 issued by the Ministry of Finance (Department of Revenue), Central Board of Indirect Taxes and Customs - HELD THAT:- The Court has perused the records. In this petition, as mentioned above, the Petitioner has filed a reply to the SCN dated 25th September, 2023 on 11th October, 2023. However, the impugned order has been passed on 24th December, 2023 confirming the demand to the tune of Rs. 2,98,74,272/- without considering the reply. In fact, a perusal of the order would show that the same is cryptic and is in a template form. Under these circumstances, the Court is inclined to set aside the impugned order and provide an opportunity to the Petitioner to be heard on merits. The impugned order is set aside. Let the notice of personal hearing be given to the Petitioner - Petition disposed off by way of remand. The core legal questions considered by the Court include:1. Whether the impugned Notifications Nos. 9/2023-Central Tax and 56/2023-Central Tax issued under Section 168A of the Central Goods and Services Tax Act, 2017 (CGST Act) were validly issued, particularly in light of procedural requirements such as prior recommendation by the GST Council.2. Whether the extension of time limits for adjudication of show cause notices and passing of orders under Section 73 of the CGST Act for the relevant financial years was legally permissible through these notifications.3. Whether the impugned orders passed under Section 73 of the CGST Act, confirming demands without considering the replies or providing personal hearings, were legally sustainable.4. The impact of conflicting judicial opinions from various High Courts on the validity of the impugned notifications and the extent to which this Court should express views pending Supreme Court adjudication.Issue-wise Detailed Analysis:Validity of Notifications Nos. 9/2023 and 56/2023 issued under Section 168A of the CGST ActThe legal framework governing the issuance of these notifications is Section 168A of the CGST Act, which mandates that any extension of time limits for adjudication of show cause notices requires prior recommendation from the GST Council. The Petitioner challenged the notifications on grounds that the proper procedural mandate was not followed, specifically highlighting that Notification No. 56/2023 was issued without prior GST Council recommendation and that ratification was granted only post issuance, thereby violating statutory requirements.The Court noted that this challenge is not isolated but part of a batch of petitions, with the lead matter extensively deliberated upon. Various High Courts have taken 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. The Telangana High Court expressed reservations about Notification No. 56 but did not conclusively decide on its vires. This cleavage of opinion has led to the matter being admitted by the Supreme Court for final adjudication.The Supreme Court's interim order recognized the controversy surrounding the extension of time limits under Section 168A and issued notices in the special leave petition, indicating that a final determination on the validity of these notifications is pending. This Court accordingly refrained from expressing a definitive opinion on the validity of the notifications, emphasizing judicial discipline and the binding nature of the Supreme Court's forthcoming decision.Extension of Time Limits for Adjudication under Section 73 of the CGST ActThe notifications in question purportedly extended the limitation period for adjudication of show cause notices under Section 73. The Petitioner contended that such extension was invalid due to procedural lapses in notification issuance. The Court acknowledged that this issue is intrinsically linked to the validity of the notifications themselves and is currently under Supreme Court consideration. Hence, the Court deferred any conclusive determination on this aspect.Legality of Impugned Orders Passed Under Section 73On the factual matrix, the Petitioner submitted that the impugned orders confirming substantial tax demands were passed without considering the replies filed or affording personal hearings, resulting in ex-parte adjudications. The Court examined the record and found that the order dated 24th December 2023 was cryptic and template-based, merely stating that no payment was made within 30 days of the notice and that demand was created on the basis of available documents, without addressing the Petitioner's submissions.The Court held that such a procedure violates principles of natural justice, particularly the right to be heard. Consequently, the impugned order was set aside, and the matter was remanded to the Adjudicating Authority with directions to provide the Petitioner a personal hearing and to pass a reasoned order on merits in accordance with law. The Court also directed that notice of personal hearing be communicated through specified email and phone contact details.Treatment of Conflicting Judicial Opinions and Interim ReliefGiven the divergent views of various High Courts and the pending Supreme Court adjudication, this Court emphasized restraint in expressing opinions on the notifications' validity. It noted that other High Courts had stayed or disposed of petitions subject to the Supreme Court's decision, and it adopted a similar approach, allowing interim relief by ensuring procedural fairness in adjudication without prejudging the validity of the notifications.Application of Law to FactsThe Court applied the principles of natural justice and statutory procedural safeguards to the facts, finding that the impugned orders were passed without due consideration of the Petitioner's replies or personal hearings, which is impermissible. While the question of the notifications' validity remains open, the Court ensured that the Petitioner's right to be heard is protected pending final resolution.ConclusionsThe Court concluded that:- The challenge to the impugned notifications is subject to the Supreme Court's decision and is not decided at this stage.- The impugned orders passed under Section 73 without considering replies or affording personal hearings are unsustainable and are set aside.- The Petitioner must be given an opportunity of personal hearing and the Adjudicating Authority must pass fresh orders in accordance with law.- Interim relief is granted without prejudice to the final outcome of the notifications' validity.Significant Holdings:The Court held: 'A show cause notice/statement referred to above was issued to you u/s 73 of the Act for reasons stated therein. Since, no payment has been made within 30 days of the issue of the notice by you; therefore, on the basis of documents available with the department and information furnished by you, if any, demand is created for the reasons and other details attached in annexure.' This excerpt was criticized as cryptic and insufficient, leading to the order's setting aside.Core principles established include the necessity of adherence to natural justice in tax adjudication proceedings, particularly the right to be heard and consideration of replies before passing orders imposing demands and penalties.The final determination on the validity of the impugned notifications remains reserved for the Supreme Court, with this Court's order explicitly stating that any subsequent adjudication shall be subject to the Supreme Court's outcome.