Delhi HC quashes tax order for denying hearing opportunity, grants 30 days to respond to show cause notice

Delhi HC set aside adjudication order and notifications issued by Central Board of Indirect Taxes and Customs for violating principles of natural justice. The petitioner was not given opportunity to be heard before passing the impugned order. Court granted petitioner 30 days to file reply to show cause notice and directed adjudicating authority to issue personal hearing notice thereafter. Petition disposed of with directions to afford proper hearing opportunity to contest matter on merits.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment are:

• Whether the impugned notifications issued under Section 168A of the Central Goods and Services Tax Act, 2017 (CGST Act) and corresponding State Tax notifications, extending the time limits for adjudication of show cause notices and passing of orders, are valid and legally sustainable.
• Whether the notifications were issued following the mandatory procedural requirements, including prior recommendation of the GST Council as mandated under Section 168A of the CGST Act.
• The legality of the impugned order-in-original passed by the Sales Tax Officer without affording the petitioner an opportunity of personal hearing or allowing the petitioner to file a reply to the show cause notice (SCN).
• The appropriate relief in cases where adjudication orders have been passed ex-parte due to non-filing of replies or non-participation in hearings, especially in light of procedural lapses.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Notifications Issued Under Section 168A of the CGST Act

Relevant Legal Framework and Precedents: Section 168A of the CGST Act empowers the government to extend the time limit for issuance of show cause notices and passing of orders beyond the prescribed period, but only upon prior recommendation of the GST Council. The notifications challenged include Notification No. 9/2023-Central Tax dated 31st March, 2023, and Notification No. 56/2023-Central Tax dated 28th December, 2023, as well as corresponding State Tax notifications.

Various High Courts have delivered conflicting judgments on the validity of these notifications. The Allahabad High Court upheld Notification No. 9/2023, the Patna High Court upheld Notification No. 56/2023, while the Guwahati High Court quashed Notification No. 56/2023 (Central Tax). The Telangana High Court made observations regarding invalidity of Notification No. 56/2023 (Central Tax), and this issue is currently pending before the Supreme Court in S.L.P No. 4240/2025.

Court's Interpretation and Reasoning: The Court acknowledged the divergence of judicial opinions and noted that the Supreme Court is seized of the matter for final adjudication. The Court refrained from expressing any opinion on the validity of the notifications, deferring to the Supreme Court's forthcoming decision.

Application of Law to Facts and Treatment of Competing Arguments: The Court recognized that the petitioner challenged the notifications on procedural grounds, specifically the absence of prior GST Council recommendation before issuance of Notification No. 56/2023 (Central Tax), and the timing of issuance of State Tax Notification No. 56/2023 after expiry of limitation. However, given the pending Supreme Court proceedings, the Court held that the challenge to the notifications in the present petition would be subject to the Supreme Court's outcome.

Conclusions: The Court did not decide on the validity of the impugned notifications but stayed the issue pending the Supreme Court's ruling. It noted that interim orders passed in related cases would continue to operate.

Legality of the Impugned Order-in-Original Passed Without Opportunity of Hearing

Relevant Legal Framework: Section 73 of the CGST Act governs adjudication of tax demands arising from show cause notices. Principles of natural justice mandate that a taxpayer must be given an opportunity to file a reply and participate in personal hearings before adverse orders are passed. Section 75(4) of the CGST Act mandates issuance of personal hearing notices and reminders.

Key Evidence and Findings: The petitioner was issued a show cause notice dated 15th May, 2024, with a deadline to reply by 15th June, 2024. The petitioner did not file any reply. The Sales Tax Officer afforded a personal hearing opportunity on 22nd July, 2024, but neither the petitioner nor its authorized representative attended. The adjudicating authority proceeded ex-parte and confirmed the demand. An application for rectification filed by the petitioner was rejected.

Court's Interpretation and Reasoning: The Court observed that the petitioner's failure to file a reply was due to the reply being handed to an accountant who failed to act. Moreover, the petitioner contended it was not afforded a proper opportunity for personal hearing. The Court held that passing an order without hearing the petitioner violated principles of natural justice. It emphasized that an opportunity to contest the matter on merits must be granted.

Application of Law to Facts: The Court set aside the impugned order and granted the petitioner 30 days to file a reply to the SCN. It directed the adjudicating authority to issue a fresh notice for personal hearing, ensuring communication through specified mobile number and email address. The adjudicating authority was mandated to consider the petitioner's reply and submissions before passing a fresh order.

Treatment of Competing Arguments: While the respondents relied on the absence of reply and non-attendance at the hearing to justify ex-parte adjudication, the Court prioritized the petitioner's right to be heard and procedural fairness over the procedural default by the petitioner's accountant.

Conclusions: The impugned order was quashed for lack of opportunity to be heard. The petitioner was afforded a fresh chance to present its case, and the adjudicating authority was directed to pass a fresh order after due consideration.

Relief Pending Supreme Court Decision

The Court recognized that the validity of the impugned notifications is a threshold issue pending before the Supreme Court. It held that any fresh order passed by the adjudicating authority after hearing the petitioner would be subject to the Supreme Court's decision. The Court also noted that interim orders in related cases would continue to operate and that the petitioner could pursue appellate remedies.

3. SIGNIFICANT HOLDINGS

"The Court is of the opinion that since the Petitioner has not been afforded an opportunity to be heard and the impugned order has been passed without hearing the Petitioner, an opportunity 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 necessity of adhering to principles of natural justice by affording taxpayers an opportunity to file replies and participate in hearings before passing orders under the CGST Act.
• The requirement that extensions of time limits under Section 168A of the CGST Act must comply with statutory procedural mandates, including prior GST Council recommendation.
• The recognition of judicial discipline in refraining from deciding issues pending before the Supreme Court and the binding nature of the Supreme Court's forthcoming decision on related matters.

Final determinations on each issue are:

• The validity of the impugned notifications remains undecided and is reserved for the Supreme Court.
• The impugned order-in-original passed without hearing the petitioner is quashed.
• The petitioner is entitled to file a reply and be heard through personal hearing before a fresh order is passed.

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