Delhi HC sets aside tax order for violating natural justice after undated SCN denied petitioner opportunity to respond

Delhi HC set aside an order passed under N/N. 56/2023 State Tax due to violation of natural justice principles. The SCN was undated and not received by the petitioner, who was denied opportunity to file reply or attend personal hearing. Following precedents in similar cases where SCNs were uploaded via Additional Notices Tab, the court remanded the matter back to the department for fresh consideration on merits after affording the petitioner proper opportunity to be heard and file response.

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1. ISSUES PRESENTED and CONSIDERED

- Whether the show cause notice (SCN) dated 21st May, 2024, which led to the impugned order dated 11th August, 2024, is validly issued, specifically addressing allegations that it was undated, unsigned, and not received by the Petitioner.

- Whether the impugned Notification No. 56/2023 (State Tax) and related notifications issued under Section 168A of the Central Goods and Services Tax Act, 2017 (GST Act) are valid, given challenges regarding procedural compliance, timing, and the necessity of GST Council recommendation prior to issuance.

- Whether the adjudication orders passed ex-parte, without providing the Petitioner an opportunity for personal hearing or to file replies, stand on firm legal footing.

- The procedural fairness in service of SCNs, especially the practice of uploading notices under the 'Additional Notices Tab' on the GST portal without direct communication or email notification to the Petitioner.

- The impact of pending Supreme Court proceedings on the validity of the impugned notifications and consequent orders.

- Appropriate relief and procedural directions to be granted in light of the above issues, pending final adjudication on the validity of notifications.

2. ISSUE-WISE DETAILED ANALYSIS

Validity and Service of Show Cause Notice (SCN)

The Petitioner contended that the SCN dated 21st May, 2024 was undated, unsigned, and crucially, was not received by them as it was merely uploaded under the 'Additional Notices Tab' on the GST portal, a location allegedly not accessible or noticed by the Petitioner. The Court examined precedents including W.P.(C) 13727/2024 (Neelgiri Machinery), where similar circumstances led to remand of the matter to ensure the Petitioner received a fair opportunity to respond and be heard. The Court noted that prior to 16th January, 2024, the Department's portal did not adequately ensure visibility of SCNs, but post that date, changes were effected to improve notice visibility.

The Court relied on earlier decisions such as M/s ACE Cardiopathy Solutions Private Ltd. v. Union of India and Kamla Vohra v. Sales Tax Officer, which emphasized the necessity of proper communication of notices and opportunity for personal hearing. The Court held that passing orders ex-parte without affording the Petitioner a chance to reply or be heard violates principles of natural justice.

Accordingly, the impugned demand orders were set aside, and the Petitioner was directed to file replies within 30 days. The Department was ordered to send hearing notices not only by uploading on the portal but also by email to ensure effective communication. A personal hearing was mandated before any fresh order is passed.

Validity of Notification No. 56/2023 and Related Notifications under Section 168A of the GST Act

The challenge to Notification No. 56/2023 (State Tax) and related notifications primarily centered on procedural irregularities, specifically the absence of prior recommendation by the GST Council as mandated under Section 168A of the GST Act, and the timing of issuance beyond prescribed limitations. The Court noted that this issue is the subject matter of multiple writ petitions across various High Courts, with conflicting judicial opinions.

The Court summarized the ongoing judicial landscape: 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's observations on the invalidity of Notification No. 56 are currently under Supreme Court consideration in S.L.P No. 4240/2025.

The Supreme Court's interim order in the SLP acknowledges the cleavage of opinion among High Courts and has issued notice, with the matter pending final adjudication. Other High Courts such as Punjab and Haryana have refrained from expressing opinions on the vires of Section 168A and related notifications, deferring to the Supreme Court's forthcoming decision.

The Court in the present matter expressly left open the question of the validity of the impugned notifications, deferring to the Supreme Court's ultimate ruling. Any orders passed by the adjudicating authority pursuant to the SCNs and notifications would be subject to the outcome of the Supreme Court's decision.

Procedural Fairness and Opportunity to be Heard

Given the Petitioner's inability to file replies or avail personal hearings, the Court emphasized the fundamental principle that adjudication orders should not be passed in default without affording the affected party an opportunity to be heard. The Court referred to its earlier orders in similar cases where matters were remanded for fresh adjudication after allowing parties to file replies and participate in hearings.

The Court mandated that the Department ensure that hearing notices are not only uploaded on the portal but also communicated via email to the Petitioner. The Petitioner was granted 30 days to file replies to the SCNs, followed by a personal hearing before the adjudicating authority. The Court underscored that the entire matter must be considered afresh on merits, ensuring compliance with principles of natural justice.

Impact of Pending Supreme Court Proceedings

The Court acknowledged that the challenge to the impugned notifications is sub judice before the Supreme Court and that the final outcome will have binding effect on all pending cases. The Court noted the judicial discipline followed by other High Courts in refraining from expressing views on the validity of the notifications pending Supreme Court adjudication.

Accordingly, the Court disposed of the present petition without deciding the validity of the impugned notifications, making it clear that any order passed by the adjudicating authority would be subject to the Supreme Court's decision.

3. SIGNIFICANT HOLDINGS

"Since the challenge to the above mentioned notifications 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 impugned notification in the present proceedings shall also be subject to the outcome of the decision of the Supreme Court."

"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."

"Let the entire matter be considered afresh and an order be passed on merits after duly considering the reply and the submissions made by the Petitioner in the personal hearing."

"It is relevant to note that post 16th January 2024, the Department has effected changes in the portal to ensure that the SCNs become visible to parties. Though the SCN in the present case is of May 2024, considering the Petitioner has not been afforded an opportunity to file a reply or given a personal hearing, following the above decision in W.P.(C) 13727/2024, the impugned order is set aside."

Core principles established include the requirement of effective communication of show cause notices to ensure the affected party has actual knowledge, the necessity of affording an opportunity for personal hearing before passing orders, and judicial restraint in deciding the validity of statutory notifications pending Supreme Court adjudication. The Court emphasized adherence to procedural fairness and natural justice in tax adjudication proceedings.

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