Delhi HC quashes tax adjudication order for violating natural justice principles in notice procedure

Delhi HC set aside adjudication order dated 25th August, 2024 and notice dated 28th December, 2023 issued by Central Board of Indirect Taxes and Customs due to violation of natural justice principles. The show cause notice was uploaded on 'Additional Notices Tab' without bringing it to petitioner's knowledge, and no hearing opportunity was provided. Following precedent in Neelgiri Machinery case involving similar circumstances, the matter was remanded for fresh consideration with personal hearing notice to petitioner. Petition disposed through remand.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

(a) The validity and legality of Notification No. 56/2023 (Central Tax) issued by the Central Board of Indirect Taxes and Customs under Section 168A of the Central Goods and Services Tax Act, 2017 (hereinafter, "the GST Act"), particularly whether the notification was issued in compliance with the mandatory procedural requirements including prior recommendation of the GST Council.

(b) The extension of time limits for adjudication of show cause notices and passing of orders under Section 73 of the GST Act and whether such extensions could be validly granted through the impugned notifications.

(c) The procedural fairness in the issuance of show cause notices (SCNs), specifically whether the SCN dated 20th December 2023 was effectively communicated to the Petitioner, given that it was uploaded under the 'Additional Notices Tab' on the GST portal and whether the Petitioner was afforded an opportunity for personal hearing before passing the adjudication order dated 9th April 2024.

(d) The impact of pending Supreme Court proceedings (SLP No. 4240/2025) on the adjudication and validity of the impugned notifications and related orders, and the appropriate course of action pending final adjudication by the Supreme Court.

(e) The scope of relief available to the Petitioners, including the possibility of remanding matters for fresh adjudication affording adequate opportunity to be heard, without pre-empting the validity of the impugned notifications.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Validity of Notification No. 56/2023 (Central Tax) under Section 168A of the GST Act

The legal framework governing the issuance of notifications extending time limits for adjudication under the GST Act is Section 168A, which mandates that such extensions require prior recommendation of the GST Council.

The Court noted a divergence in judicial opinion from various High Courts on the validity of Notification No. 56/2023. The Allahabad and Patna High Courts upheld the notification, while the Guwahati High Court quashed it. The Telangana High Court observed invalidity but did not decide on vires, and this issue is currently under consideration by the Supreme Court in SLP No. 4240/2025.

The Supreme Court's order in the said SLP highlighted the cleavage of opinion and issued notice, indicating that the ultimate determination on the validity of the impugned notifications, including No. 56/2023, rests with the apex court.

The Court therefore refrained from expressing any opinion on the validity of the notification, deferring to the pending Supreme Court adjudication. It recognized that the notification purportedly extended the limitation period for adjudication under Section 73 of the GST Act, but the procedural correctness of such extension was in dispute.

(b) Extension of time limits for adjudication under Section 73 of the GST Act

The issue of whether the time limits for adjudication of show cause notices and passing of orders could be extended by notifications issued under Section 168A was central to the controversy. The Court observed that the impugned notification purported to extend these deadlines but was challenged on procedural grounds, including the timing of GST Council's recommendation.

The Court noted the legislative requirement for prior recommendation and the procedural irregularity alleged, which formed the basis of the challenge. However, as the Supreme Court was seized of the matter, the Court declined to decide this issue independently. The Court acknowledged that the question of validity of extension notifications directly impacts the enforceability of demands and penalties raised under extended limitation periods.

(c) Procedural fairness in issuance and communication of show cause notices

The Petitioner contended that the SCN dated 20th December 2023 was uploaded only under the 'Additional Notices Tab' on the GST portal, which was not readily visible or brought to the Petitioner's attention, resulting in non-receipt and inability to respond or appear for personal hearing.

The Court relied on precedents from this Court, including W.P.(C) 13727/2024 (Neelgiri Machinery) and other similar cases, where it was held that uploading SCNs under the 'Additional Notices & Orders' tab without adequate notice or communication to the party violates principles of natural justice. In such cases, orders passed ex-parte without personal hearing and opportunity to reply were set aside.

The Court emphasized the necessity of affording a fair opportunity of hearing and directed that hearing notices should not only be uploaded on the portal but also be communicated via email to the Petitioner to ensure effective notice.

Following this, the Court set aside the impugned adjudication order dated 9th April 2024 and demand orders dated 23rd April 2024 and 5th December 2023, and remanded the matter for fresh adjudication after affording the Petitioner a personal hearing and opportunity to file reply within 30 days.

(d) Impact of pending Supreme Court proceedings on the adjudication process

The Court acknowledged the pendency of the Supreme Court's decision on the validity of the impugned notifications and the extension of limitation periods. It observed that several High Courts had either stayed or deferred adjudication pending the Supreme Court's ruling.

In view of judicial discipline and to avoid conflicting decisions, the Court directed that adjudication orders passed by the authority shall be subject to the outcome of the Supreme Court's decision. It also noted interim orders passed by other High Courts and the Supreme Court's notice in the SLP, which indicated that the final determination on the vires of the notifications is awaited.

The Court accordingly left the issue of validity of the notifications open and confined itself to procedural safeguards ensuring fair hearing.

(e) Relief available to Petitioners and procedural directions

Recognizing the hardship caused by ex-parte orders and huge demands raised without opportunity to be heard, the Court categorized the petitions and proposed that, irrespective of the outcome on validity of notifications, Petitioners should be afforded an opportunity to place their case before the adjudicating authority.

The Court directed that the Petitioner shall be served hearing notices not merely by uploading on the portal but also by email, and that the Petitioner shall file replies within 30 days. The adjudicating authority was directed to consider the replies and pass orders afresh in accordance with law, ensuring compliance with principles of natural justice.

The Court's directions aimed to balance the procedural rights of the Petitioners while preserving the question of validity of the notifications for the Supreme Court's decision.

3. SIGNIFICANT HOLDINGS

The Court held:

"Since the challenge to the above mentioned notification is presently under consideration before the Supreme Court in S.L.P No 4240/2025 titled M/s HCC-SEW-MEIL-AAG JV v. Assistant Commissioner of State Tax & Ors., 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."

"The impugned order dated 9th April, 2024 was passed without providing the Petitioner a personal hearing and in absence of a reply on behalf of the Petitioner. The show cause notice dated 20th December, 2023 was uploaded on 'Additional Notices Tab' therefore, the same was not brought to the knowledge of the Petitioner."

"The impugned demand orders dated 23rd April, 2024 and 5th December, 2023 are accordingly set aside. In response to show cause notices dated 04th December, 2023 and 23rd September, 2023, the Petitioner shall file its replies within thirty days. 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. The show cause notices shall be adjudicated in accordance with law."

Core principles established include:

(i) Procedural fairness and natural justice require that show cause notices and hearing notices must be effectively communicated to the party, including by email, and not merely uploaded on a portal under less visible tabs.

(ii) Adjudication orders passed ex-parte without opportunity to reply or personal hearing must be set aside and remanded for fresh consideration.

(iii) The validity of extension notifications issued under Section 168A of the GST Act, particularly Notification No. 56/2023, is a substantial question of law pending before the Supreme Court and must be left open by the High Courts.

(iv) Pending the Supreme Court's decision, adjudication must proceed subject to procedural safeguards and without pre-judging the validity of the notifications.

Final determinations on each issue were:

- The challenge to the validity of Notification No. 56/2023 is deferred to the Supreme Court.

- The impugned adjudication and demand orders are set aside for procedural infirmities.

- The Petitioner is granted opportunity to file replies and be heard personally before fresh adjudication.

- The adjudicating authority shall pass orders in accordance with law and subject to the Supreme Court's eventual ruling on the validity of the notifications.

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