Delhi HC sets aside demand orders for SCN issued under notifications 56/2023 and 9/2023 violating natural justice principles

Delhi HC set aside demand orders challenging show cause notices (SCN) issued under notifications 56/2023 and 9/2023 Central Tax for violating natural justice principles. The SCN was uploaded on 'Additional Notices Tab' before 16th January 2024 when the tab was not visible to taxpayers. Following precedent in Neelgiri Machinery case, HC found petitioner lacked proper opportunity to respond. Matter remanded to adjudicating authority allowing petitioner thirty days to file reply to SCN. Petition disposed through remand.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

• 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 (CGST Act), particularly whether the procedural requirements including prior recommendation of the GST Council were complied with before issuance.
• Whether the time limits for adjudication of show cause notices and passing of orders under Section 73 of the CGST Act for the relevant financial years could be extended by the impugned notifications.
• The legality of the issuance and service of the Show Cause Notice (SCN) dated 8th January, 2024, specifically whether the SCN uploaded on the 'Additional Notices Tab' of the GST portal constituted valid service, and whether the Petitioner was afforded a fair opportunity to respond.
• The correctness of the demand raised by the Sales Tax Officer in the impugned order dated 15th April, 2024, including alleged miscalculation of the amount payable by the Petitioner.
• The procedural fairness in adjudication, including the opportunity for personal hearing and filing of replies by the Petitioner.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Notifications No. 56/2023 and No. 9/2023 under Section 168A of the CGST Act

Legal framework and precedents: Section 168A of the CGST Act mandates that any extension of time limits for adjudication of show cause notices and passing of orders requires prior recommendation of the GST Council. The impugned notifications purportedly extend such deadlines.

Several High Courts have adjudicated on the validity of these notifications with divergent views: 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 expressed reservations regarding Notification No. 56, and its judgment is currently under consideration by the Supreme Court in S.L.P. No. 4240/2025.

The Supreme Court has issued notices and interim orders in the said S.L.P., recognizing the existence of conflicting High Court decisions and the complexity of the issues involved.

Court's reasoning and findings: The Court acknowledged the ongoing litigation and conflicting judicial opinions on the validity of the impugned notifications. It noted that the matter is squarely pending before the Supreme Court, which will provide the final authoritative ruling.

Application of law to facts: Given the pendency of the Supreme Court proceedings, the Court refrained from expressing any opinion on the validity of the notifications at this stage. Instead, it held that the outcome of the Supreme Court's decision will govern the present and similar cases.

Treatment of competing arguments: While the Petitioner challenged the notifications' validity on procedural grounds, the Court deferred the issue to the Supreme Court, emphasizing judicial discipline and the need for uniformity in interpretation.

Conclusion: The Court left the question of validity of the impugned notifications open, subject to the final adjudication by the Supreme Court.

Service and Opportunity to Respond to the Show Cause Notice (SCN)

Legal framework and precedents: Principles of natural justice require that a party be given adequate notice and opportunity to respond before adverse orders are passed. Prior judgments of this Court, including in cases titled 'Neelgiri Machinery' and 'Satish Chand Mittal', have held that SCNs uploaded only under the 'Additional Notices Tab' on the GST portal, without proper communication, do not constitute valid service.

Court's interpretation and reasoning: The Court noted that the SCN dated 8th January, 2024, was uploaded on the 'Additional Notices Tab' of the GST portal, which was not prominently visible or known to the Petitioner at the time. Consequently, the Petitioner was unaware of the SCN and did not file a reply. The Court observed that the GST Department had since made the 'Additional Notices Tab' more visible, but this change occurred after the issuance of the SCN in question.

Key evidence and findings: The Petitioner's inability to file a reply was attributed to lack of proper notice and the fact that the email address linked to the GST portal was operated by the Petitioner's chartered accountant, who did not respond. The impugned order was thus passed ex parte without hearing the Petitioner on merits.

Application of law to facts: The Court relied on its prior rulings to hold that the impugned order was liable to be set aside for violation of natural justice. It directed that proper service of notices be effected, including email communication and mobile alerts, to ensure the Petitioner's awareness and opportunity to be heard.

Treatment of competing arguments: The Department argued that the notices were issued in accordance with the GST portal's system. The Court, however, emphasized that mere uploading on a less accessible tab is insufficient for valid service and that procedural fairness demands more effective communication.

Conclusion: The Court set aside the impugned order and remanded the matter to the Adjudicating Authority with directions to provide the Petitioner a fair opportunity to file replies and appear for personal hearings.

Correctness of the Demand and Procedural Fairness in Adjudication

Legal framework: Section 73 of the CGST Act governs the determination of tax not paid or short paid and the issuance of show cause notices. The adjudicating authority must hear the party and consider submissions before passing orders.

Court's reasoning: The Petitioner contended that the demand raised was miscalculated and unsustainable. However, the Court did not delve into the merits of the demand due to the procedural infirmities in service and hearing. The Court emphasized the necessity of adjudication on merits after providing a fair hearing.

Application of law to facts: The Court directed that the Petitioner be granted time till 25th July, 2025, to file replies to the SCN. The Adjudicating Authority was instructed to issue personal hearing notices communicated through email and mobile and to consider the Petitioner's submissions before passing a fresh order.

Treatment of competing arguments: The Department's position on the correctness of the demand was not accepted at this stage due to the lack of opportunity afforded to the Petitioner to contest the SCN.

Conclusion: The Court remanded the matter for fresh adjudication in accordance with law and principles of natural justice.

3. SIGNIFICANT HOLDINGS

The Court held:

"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 in S.L.P No 4240/2025."

"The impugned order is set aside. The Petitioner is granted time till 25th July 2025, to file the reply to SCN. Upon filing of the reply, the Adjudicating Authority shall issue a notice for personal hearing to the Petitioner. The personal hearing notice shall be communicated to the Petitioner on the following mobile no. and e-mail address."

"The reply filed by the Petitioner to the SCN along with the submissions made in the personal hearing proceedings shall be duly considered by the Adjudicating Authority and a fresh order with respect to the SCN shall be passed."

"Access to the GST Portal shall be provided to the Petitioner to enable uploading of the reply as also access to the notices and related documents."

Core principles established include:

• Procedural fairness and natural justice require that show cause notices be effectively communicated, not merely uploaded in obscure tabs, to ensure the noticee's awareness and opportunity to respond.
• The validity of notifications extending time limits under Section 168A of the CGST Act is a substantial question pending before the Supreme Court, and lower courts should refrain from deciding on this issue prematurely.
• Adjudication orders passed ex parte due to lack of proper notice and hearing are liable to be set aside and remanded for fresh consideration.
• Judicial discipline mandates that courts defer to the Supreme Court's final ruling on conflicting High Court decisions concerning statutory notifications.

Final determinations:

• The impugned notifications' validity remains undecided pending the Supreme Court's judgment.
• The impugned order demanding Rs. 32,44,376/- is set aside due to procedural infirmities.
• The Petitioner is entitled to file replies and be heard personally before any fresh order is passed.
• All rights and remedies of the parties are expressly left open.

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