2025 (7) TMI 389 - HC - GST

GST rectification order set aside for being non-reasoned and denying mandatory hearing under Section 161

M/s Ambiience Metcorp Private Limited Versus Central Board Of Indirect Taxes And Customs

Delhi HC set aside a rectification order in a GST matter for being non-reasoned and cryptic. The court found that while the original demand order was ... Challenge to SCN and orders - vires of N/N. 56/2023- Central Tax dated 28th December, 2023 and N/N. 9/2023- Central Tax dated 31st March, 2023 - non-reasoned order - violation of principles of natural justice - HELD THAT:- It is noticed that the detailed reply has been filed to the impugned Show Cause Notice. The impugned demand order is also a reasoned order. However, it is noticed that the impugned rectification order while dismissing the rectification application only states that the application filed by the Petitioner is found to be ‘unsatisfactory’ without recording any reasons to substantiate its finding. The impugned rectification order is cryptic and non-speaking in nature. Further considering the fact that hearing, in terms of proviso 3 to Section 161 of the CGST/DGST Act, has not been provided, following the decision in HVR Solar Private Limtied (Supra), this Court is inclined to set aside the impugned rectification order. The matter is relegated back to the concerned Adjudicating Authority for the Petitioner to be provided a proper hearing in the rectification application - petition disposed off by way of remand. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court include:(a) The validity and vires of Notification No. 56/2023-Central Tax dated 28th December, 2023 and Notification No. 9/2023-Central Tax dated 31st March, 2023, issued under Section 168A of the Central Goods and Services Tax Act, 2017 (hereinafter 'GST Act'), particularly whether these notifications were issued following the proper procedure, including prior recommendation of the GST Council.(b) Whether the extension of time limits for adjudication of show cause notices and passing of orders under Section 73 of the GST Act and the respective State GST Acts for the financial year 2019-2020 could validly be effected by the impugned notifications.(c) The legality and reasonableness of the impugned Show Cause Notice dated 24th May, 2024, the demand order dated 29th August, 2024, and the rectification order dated 28th February, 2025 passed by the Sales Tax Officer Class II/AVATO, Delhi.(d) Whether the Petitioner was entitled to a hearing in the rectification proceedings under proviso 3 to Section 161 of the GST Act, which mandates adherence to principles of natural justice where rectification adversely affects any person.(e) The effect of ongoing proceedings before the Supreme Court concerning the validity of the impugned notifications and how this impacts the present petition.2. ISSUE-WISE DETAILED ANALYSIS(a) Validity of Notifications under Section 168A of the GST ActLegal Framework and Precedents: Section 168A of the GST Act empowers the Central Government to extend the time limit for adjudication of show cause notices and passing of orders beyond the prescribed period, but only upon prior recommendation of the GST Council. The impugned notifications purportedly extend such deadlines.Several High Courts have taken divergent views on these notifications: the Allahabad High Court upheld Notification No. 9/2023, the Patna High Court upheld Notification No. 56/2023, whereas the Guwahati High Court quashed Notification No. 56/2023. The Telangana High Court made observations on the invalidity of Notification No. 56/2023 without deciding the issue finally. These conflicting views have resulted in the Supreme Court admitting Special Leave Petitions (SLPs) for final adjudication.Court's Interpretation and Reasoning: The Delhi High Court recognized the cleavage of opinion among various High Courts and noted that the issue is pending before the Supreme Court in SLP No. 4240/2025. The Court refrained from expressing any opinion on the validity of the notifications, emphasizing judicial discipline and the binding nature of the Supreme Court's forthcoming decision.Application of Law to Facts: The Court observed that since the validity of the impugned notifications is sub judice before the Supreme Court, it would not delve into the issue but would govern the matters in accordance with the Supreme Court's final decision.Treatment of Competing Arguments: The Petitioner's challenge to the notifications was initially pressed but subsequently withdrawn. The Court acknowledged the submissions but deferred the issue to the Supreme Court's determination.Conclusion: The question of validity of the impugned notifications remains unsettled and is reserved for the Supreme Court's decision.(b) Extension of Time Limits for Adjudication under Section 168ALegal Framework and Precedents: Section 168A requires prior GST Council recommendation before extending time limits for adjudication. The impugned notifications extended deadlines for financial year 2019-2020 proceedings. The Supreme Court has admitted the issue for consideration, focusing on whether such extensions were validly granted.Court's Interpretation and Reasoning: The Court noted the ongoing Supreme Court proceedings and the conflicting High Court decisions on this issue. It recognized that the extension of time limits is a crucial question affecting the legality of the show cause notices and demand orders issued pursuant to such extensions.Application of Law to Facts: Pending the Supreme Court's ruling, the Court refrained from deciding on the validity of the time extensions and instead focused on procedural fairness in adjudication.Conclusion: The extension of time limits remains a contested issue, pending Supreme Court adjudication.(c) Legality of Show Cause Notice, Demand Order, and Rectification OrderLegal Framework and Precedents: The GST Act prescribes procedural safeguards, including the right to be heard before passing demand orders and rectification of such orders under Section 161. The proviso 3 to Section 161 mandates adherence to principles of natural justice where rectification adversely affects a person.Court's Interpretation and Reasoning: The Court examined the impugned rectification order dated 28th February, 2025 and found it to be cryptic and non-speaking, merely stating the rectification application was 'unsatisfactory' without reasons. Further, the Petitioner was not afforded any hearing before rejection of the rectification application, violating the proviso to Section 161.The Court relied on its previous decision in W.P.(C) 4506/2025 ('HVR Solar Private Limited v. Sales Tax Officer Class II AVATO Ward 67 & Anr'), where the absence of a proper hearing in rectification proceedings led to setting aside the order.Key Evidence and Findings: The record showed that the Petitioner had filed a detailed reply to the show cause notice and that the demand order was reasoned. However, the rectification order lacked any reasoning and did not comply with natural justice.Application of Law to Facts: The Court applied the principle that any adverse rectification must be preceded by a hearing. Since no hearing was provided, the rectification order was set aside, and the matter was remanded to the adjudicating authority for a fresh hearing and order.Treatment of Competing Arguments: The Respondent argued the validity of the demand order and rectification order. The Court, however, emphasized procedural fairness and natural justice over the merits of the demand order at this stage.Conclusion: The impugned rectification order is quashed. The Petitioner must be given a proper hearing, and the adjudicating authority must pass a fresh reasoned order on the rectification application.(d) Right to Hearing in Rectification Proceedings under Section 161(3) of the GST ActLegal Framework and Precedents: Section 161(3) of the GST Act provides that where rectification adversely affects any person, the principles of natural justice must be followed. This includes providing an opportunity of hearing before passing any order.Court's Interpretation and Reasoning: The Court underscored the mandatory nature of this provision, holding that failure to provide a hearing renders the rectification order invalid. The Court's reliance on the HVR Solar Private Limited decision reinforced this principle.Application of Law to Facts: Since the Petitioner was not heard before the rectification order rejecting the application, the order was non-compliant with Section 161(3).Conclusion: The Petitioner's right to be heard in rectification proceedings was violated, necessitating setting aside the rectification order and remand for fresh hearing.(e) Impact of Pending Supreme Court Proceedings on the Present PetitionLegal Framework and Precedents: The principle of judicial discipline requires lower courts to refrain from deciding issues pending before the Supreme Court. The Punjab and Haryana High Court and others have disposed of similar petitions subject to the Supreme Court's final ruling.Court's Interpretation and Reasoning: The Delhi High Court followed this approach, refraining from expressing any opinion on the validity of the impugned notifications and related substantive issues, and disposed of the petitions subject to the Supreme Court's decision.Application of Law to Facts: The Court disposed of the present petition while leaving all rights and remedies open, and directed that the matter be governed by the Supreme Court's forthcoming decision.Conclusion: The petition is disposed of with liberty to the parties to pursue remedies after the Supreme Court's ruling.3. SIGNIFICANT HOLDINGS'The impugned rectification order while dismissing the rectification application only states that the application filed by the Petitioner is found to be 'unsatisfactory' without recording any reasons to substantiate its finding.''The impugned rectification order is cryptic and non-speaking in nature. Further considering the fact that hearing, in terms of proviso 3 to Section 161 of the CGST/DGST Act, has not been provided, following the decision in HVR Solar Private Limited (Supra), this Court is inclined to set aside the impugned rectification order.''The matter is relegated back to the concerned Adjudicating Authority for the Petitioner to be provided a proper hearing in the rectification application.''All the rights and remedies of the parties are left open. Access to the GST Portal, if not already available, shall be provided to the Petitioner to enable access to the notices and related documents.'Core principles established:Where a rectification order adversely affects a person, principles of natural justice including the right to a hearing are mandatory under proviso 3 to Section 161 of the GST Act.Cryptic and non-speaking orders that fail to record reasons for rejecting rectification applications violate natural justice and are liable to be set aside.Judicial discipline requires courts to refrain from deciding issues pending before the Supreme Court and dispose of matters subject to the Supreme Court's final decision.Parties must be afforded an opportunity to present their case before adverse orders are passed, including in rectification proceedings.Final determinations:The Court declined to decide on the validity of the impugned notifications and the extension of time limits under Section 168A, deferring to the Supreme Court's pending adjudication.The impugned rectification order was set aside for non-compliance with natural justice.The Petitioner is entitled to a hearing in the rectification proceedings and a fresh reasoned order.The petition was disposed of with all rights and remedies preserved, subject to the Supreme Court's ruling.