Delhi HC sets aside tax order for failing to consider petitioner's reply, violates natural justice principles

Delhi HC set aside the impugned order challenging SCN and consequent order regarding various Central Tax and State Tax notifications. The court found that petitioner's reply was not properly considered, constituting a violation of natural justice principles. The authority had rejected petitioner's case with a standard one-line observation without examining the submitted reply. Court directed that petitioner's reply dated 24th July, 2024 be duly considered, hearing be afforded, and fresh order be passed within three months. Petition disposed of.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

(a) The validity and legality of several notifications issued under the Central Goods and Services Tax Act, 2017 (hereinafter "GST Act"), specifically Notification Nos. 09/2023 and 56/2023 (Central and State Tax), which purportedly extend the time limits for adjudication of show cause notices under Section 168A of the GST Act.

(b) Whether the impugned notifications were issued following the proper statutory procedure, including the requirement of prior recommendation by the GST Council as mandated under Section 168A.

(c) The impact of conflicting judicial pronouncements from various High Courts on the validity of these notifications and the extent to which such divergence affects the present proceedings.

(d) The procedural fairness in adjudication proceedings initiated pursuant to the impugned show cause notice dated 31st May, 2024, including whether the petitioner was afforded an adequate opportunity to be heard, specifically regarding the grant or denial of personal hearings.

(e) The extent to which the adjudicating authority applied its mind to the petitioner's reply submitted after the deadline and whether the impugned order dated 20th August, 2024, properly considered the petitioner's submissions.

(f) The interim relief and procedural directions that may be appropriate pending final adjudication on the validity of the notifications, especially in light of the Supreme Court's ongoing consideration of the issue.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Validity of the Impugned Notifications under Section 168A of the GST Act

The legal framework centers around Section 168A of the GST Act, which empowers the extension of time limits for adjudication of show cause notices upon the prior recommendation of the GST Council. The notifications challenged purportedly extend the limitation period for adjudication for the financial year 2019-2020.

Precedents reveal a split in judicial opinion: the Allahabad and Patna High Courts upheld the validity of Notifications Nos. 09 and 56 respectively, while the Guwahati High Court quashed Notification No. 56. The Telangana High Court expressed reservations about the validity of Notification No. 56 but did not conclusively rule on its vires. The Supreme Court has admitted a Special Leave Petition (SLP No. 4240/2025) concerning these notifications and has issued a notice, indicating the matter is sub judice.

The Court recognized that the notifications in question were issued purportedly under Section 168A, but there are allegations that the procedure mandated by the statute-specifically, the requirement of prior GST Council recommendation-was not strictly followed, particularly with Notification No. 56/2023 (Central Tax), where ratification was given post issuance.

The Court noted that the Supreme Court's decision will be binding and decisive on this issue, and therefore, refrained from expressing a final view on the validity of the notifications at this stage. This judicial restraint aligns with principles of comity and avoids conflicting rulings pending the apex court's determination.

(b) Procedural Fairness and Consideration of Petitioner's Reply

The petitioner challenged the impugned show cause notice and the consequential order on grounds that the adjudicating authority did not apply its mind to the petitioner's reply submitted five days late and that the petitioner was denied a personal hearing after submission of the reply.

The petitioner's reply dated 24th July, 2024, was not considered in the impugned order dated 20th August, 2024, which contained a standard one-line rejection without detailed reasoning. The petitioner contended that the personal hearing afforded on 19th July, 2024, was not availed of due to the reply being filed later, and a subsequent request for hearing was refused.

The respondents contended that a personal hearing was granted but not availed of by the petitioner. However, the Court found that the failure to consider the petitioner's reply amounted to a lack of application of mind and procedural unfairness.

The Court emphasized the fundamental principle of natural justice that an opportunity to be heard must be meaningful and that the adjudicating authority must consider submissions made by the party before passing an order.

Accordingly, the Court set aside the impugned order and directed the adjudicating authority to consider the petitioner's reply afresh and afford a personal hearing within three months. The Court also directed that the personal hearing notice be communicated to the petitioner through specified contact details to ensure effective communication.

(c) Impact of Conflicting High Court Decisions and Pending Supreme Court Proceedings

The Court acknowledged the divergence of views among various High Courts on the validity of the impugned notifications and noted that the Supreme Court is seized of the matter. The Punjab and Haryana High Court had earlier refrained from expressing an opinion on the vires of Section 168A and related notifications, deferring to the Supreme Court's forthcoming decision.

In light of this, the Court held that the validity of the impugned notifications would remain open and subject to the Supreme Court's final adjudication. The Court explicitly stated that any order passed by the adjudicating authority following reconsideration would be subject to the outcome of the Supreme Court's decision in SLP No. 4240/2025 and the Court's own pending matter concerning parallel State notifications.

(d) Interim Relief and Procedural Directions

Recognizing the pendency of the Supreme Court proceedings and the petitioner's inability to file timely replies or avail personal hearings in many cases, the Court indicated that procedural relief could be granted to enable petitioners to place their stand before the adjudicating authority.

The Court underscored the importance of access to the GST Portal for the petitioner to upload replies and access notices and related documents, thus ensuring procedural fairness and transparency.

The Court disposed of the writ petition with directions to re-examine the petitioner's submissions and afford a personal hearing, leaving all rights and remedies open to the parties.

3. SIGNIFICANT HOLDINGS

The Court held:

"A perusal of records shows that a reply has been filed by the Petitioner to the impugned SCN, however, the same has not been considered. The impugned order has simply rejected the case of the Petitioner with a standard one-line observation. Under these circumstances, the reply filed by the petitioner deserves to be considered in a proper manner and a fresh order is required to be passed."

Further, the Court emphasized:

"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 in S.L.P No 4240/2025 titled M/s HCC-SEW-MEIL-AAG JV v. Assistant Commissioner of State Tax & Ors. and of this Court in W.P.(C) 9214/2024 titled Engineers India Limited v. Union of India &Ors."

Core principles established include:

• The requirement of procedural fairness in tax adjudication proceedings, mandating that replies filed by parties must be duly considered and personal hearings granted where requested.
• The necessity of adherence to statutory procedures for issuance of notifications under Section 168A of the GST Act, particularly the prior recommendation of the GST Council.
• The judicial discipline of refraining from adjudicating on issues pending before the Supreme Court to maintain consistency and avoid conflicting rulings.
• The preservation of parties' rights and remedies pending final adjudication on the validity of the impugned notifications.

Final determinations on each issue are deferred pending the Supreme Court's decision, except that the impugned order dated 20th August, 2024 is set aside for non-consideration of the petitioner's reply and denial of a personal hearing, with directions for fresh adjudication in compliance with principles of natural justice.

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