2025 (5) TMI 1109 - HC - GST

Petitioner granted fresh opportunity to respond to Show Cause Notice under Section 66 after denial of proper hearing

Delhi HC set aside an order dated 23rd April, 2024 after finding that petitioner was denied proper hearing to present case on merits, violating principles ... Vires of Notification No. 56/2023-Central Tax dated 28th December, 2023 and Notification No. 56 of 2023-State Tax dated 11th July, 2024 - Petitioner was not provided a proper hearing to present his case on merits - Principles of natural justice - HELD THAT:- The Court has heard the parties and perused the records. Upon considering the totality of the circumstances and the fact that the Petitioner was not provided a proper hearing to present his case on merits, the Court is inclined to give the Petitioner another opportunity to be heard. The impugned order dated 23rd April, 2024 is set aside. The Show Cause Notice shall now be replied to by the Petitioner, both on the question of non-satisfaction of audit conditions under Section 66 as also on merits. The reply shall be filed by 10th July, 2025 - Petition disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this matter include:Whether the impugned Notifications No. 56/2023-Central Tax dated 28th December, 2023 and No. 56/2023-State Tax dated 11th July, 2024, issued under Section 168A of the Central Goods and Services Tax Act, 2017 (CGST Act), are valid and in accordance with the statutory requirements, particularly regarding the necessity of prior recommendation by the GST Council before extending deadlines.Whether the issuance of the impugned Audit Notice dated 24th August, 2023, Show Cause Notice dated 30th January, 2024, and the adjudication order dated 23rd April, 2024, were legally sustainable, especially in light of alleged procedural irregularities and denial of proper hearing to the petitioner.The applicability and scope of Section 168A of the CGST Act in extending limitation periods for adjudication of show cause notices and passing of orders under Section 73 of the CGST Act and corresponding State GST Acts.The effect of conflicting judicial precedents from various High Courts on the validity of the impugned notifications and the impact of the pending Supreme Court proceedings on the present case.Whether the petitioner was denied a fair opportunity to present their case and file replies, resulting in ex-parte adjudication and imposition of penalties, and the appropriate remedial measures in such circumstances.2. ISSUE-WISE DETAILED ANALYSISValidity of the Impugned Notifications under Section 168A of the CGST ActThe legal framework governing the validity of the impugned notifications is Section 168A of the CGST Act, which mandates that any extension of the time limit for adjudication of show cause notices and passing of orders requires a prior recommendation of the GST Council. The notifications challenged include Notification No. 56/2023-Central Tax and Notification No. 56/2023-State Tax.Several High Courts have rendered divergent opinions on these notifications. The Allahabad High Court upheld Notification No. 9/2023 (Central Tax), while the Patna High Court upheld Notification No. 56/2023 (Central Tax). Conversely, the Guwahati High Court quashed Notification No. 56/2023 (Central Tax). The Telangana High Court expressed doubts regarding the validity of Notification No. 56/2023 (Central Tax) without delving deeply into the issue. These conflicting views highlight the complexity and unsettled nature of the legal questions involved.The Supreme Court has admitted a Special Leave Petition (SLP No. 4240/2025) concerning these notifications and has issued notices, acknowledging the cleavage of opinion among the High Courts. The Supreme Court's order dated 21st February 2025 specifically framed the issue as whether the time limits for adjudication under Section 73 of the CGST Act and corresponding State GST Acts for the financial year 2019-2020 could be validly extended by the impugned notifications issued under Section 168A.The Court noted that the notifications were purportedly issued under Section 168A but questioned the procedural propriety, particularly whether the GST Council's recommendation preceded the issuance of the notifications, as required by the statute. The Central Notification No. 56/2023 was alleged to have been ratified only after issuance, which the petitioners contend is contrary to the legal mandate.In light of the pending Supreme Court proceedings, the Court refrained from expressing a definitive opinion on the validity of the impugned notifications. It acknowledged the judicial discipline in deferring to the Supreme Court's ultimate adjudication and directed that the present matters be governed by the Supreme Court's decision.Validity of the Audit Notice, Show Cause Notice, and Adjudication OrderThe petitioner challenged the impugned Audit Notice dated 24th August 2023, Show Cause Notice dated 30th January 2024, and the adjudication order dated 23rd April 2024 on grounds including non-compliance with audit conditions under Section 66 of the CGST Act and denial of proper hearing opportunities.Section 66 of the CGST Act prescribes conditions under which audit can be conducted, and the petitioner argued that these conditions were not fulfilled. The petitioner also contended that despite repeated communications, the Department did not grant a proper hearing or consider the petitioner's submissions, resulting in ex-parte orders and imposition of substantial demands and penalties.The Department refuted these claims, asserting that the petitioner failed to file substantive replies and merely challenged the orders without engaging on merits.Upon examining the facts and submissions, the Court found merit in the petitioner's contention regarding denial of a proper hearing. The Court emphasized the fundamental principle of natural justice, holding that an opportunity to be heard is essential before passing any adverse order. Consequently, the Court set aside the impugned adjudication order dated 23rd April 2024 and directed the petitioner to file a comprehensive reply addressing both the audit conditions under Section 66 and the substantive merits of the case by 10th July 2025.The Court further directed that a personal hearing notice be issued to the petitioner via specified email and mobile contacts, and that the adjudicating authority pass a fresh order only after hearing the petitioner. The Court also mandated that access to the GST Portal be ensured to the petitioner for effective participation in the proceedings.Effect of Conflicting Judicial Opinions and Pending Supreme Court ProceedingsThe Court acknowledged the existence of conflicting High Court decisions on the validity of the impugned notifications and the ongoing Supreme Court proceedings that would ultimately settle the issue. The Punjab and Haryana High Court had disposed of connected writ petitions, deferring to the Supreme Court's decision and maintaining interim orders in the meantime.In consonance with this approach, the Court in the present matter disposed of the petition while expressly leaving open the question of the notifications' validity, subject to the Supreme Court's verdict. This approach preserves the parties' rights and ensures judicial consistency pending the apex court's ruling.Remedial Measures and Procedural FairnessGiven the procedural irregularities highlighted by the petitioner, including lack of proper hearing and inability to file replies leading to ex-parte orders, the Court took a remedial stance. It granted the petitioner an opportunity to be heard and to file replies on all issues, including audit conditions and merits. The Court underscored the importance of adherence to principles of natural justice in tax adjudication proceedings.The Court also clarified that all rights and remedies of the parties remain open, and the adjudicating authority's fresh order would be subject to the outcome of the Supreme Court's decision on the notifications' validity.3. SIGNIFICANT HOLDINGSThe Court made the following key determinations and articulated important legal principles:'The issue in respect of the validity of the impugned notifications is left open and the order of the adjudicating authority shall be subject to the outcome of the decision of the Supreme Court and this Court.''Upon considering the totality of the circumstances and the fact that the Petitioner was not provided a proper hearing to present his case on merits, the Court is inclined to give the Petitioner another opportunity to be heard.''The impugned order dated 23rd April, 2024 is set aside. The Show Cause Notice shall now be replied to by the Petitioner, both on the question of non-satisfaction of audit conditions under Section 66 as also on merits.''All the rights and remedies of the parties are left open. Access to the GST Portal, if not already available, shall be ensured to be provided to the Petitioner to enable access to the notices and related documents.'The Court established the core principle that procedural fairness, including the right to be heard, is paramount in tax adjudication proceedings. It also underscored the necessity of compliance with statutory requirements under Section 168A of the CGST Act for issuance of notifications extending limitation periods, while deferring the ultimate determination of their validity to the Supreme Court.In conclusion, the Court disposed of the petition with directions for fresh adjudication after hearing the petitioner, leaving the substantive validity of the impugned notifications open pending higher judicial scrutiny.