2025 (8) TMI 1635 - HC - GST

Show-cause notices issued with one-day or post-hearing emails violate natural justice; 30 days to reply and personal hearing ordered

HC held the issuance of show-cause notices with one-day or post-hearing emails violated principles of natural justice, as taxpayers require time to ... Violation of principles of natural justice - issuance of SCN without prior pre-notice consultation - summons were issued one day before the hearing itself - HELD THAT:- Insofar as the compliance of principles of natural justice is concerned, there can be no doubt that the same ought to be mandatorily complied with. The manner in which the Department has issued on one occasion an email communication after the date of hearing has already passed or given email communication before the date of hearing would not be acceptable as such SCN would obviously require tax payers to prepare a detailed reply in consultation with their GST lawyers/consultants and also collect various documents which are to be presented to the Department. One day’s notice for hearing would be completely violative of the principles of natural justice. Under these circumstances, the Department ought to ensure that at least reasonably, sufficient time is granted to the Petitioners and assesses in order to enable them to file a reply. Under these circumstances, this Court is of the opinion that the Petitioner ought to be afforded a proper 30 days’ time to file a reply to the SCN. There is no jurisdictional challenge to the SCN which warrants the interference of this Court under writ jurisdiction - Let the SCN be replied to by 30th September, 2025. The notice for personal hearing shall be granted to the Petitioner. After hearing the Petitioner, a detailed reasoned order shall be passed by the Adjudicating Authority. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether issuance of the Show Cause Notice (SCN) without prior pre-notice consultation under Rule 142 of the CGST Rules and without affording the opportunity under Section 74(5) of the CGST Act vitiates the SCN. 2. Whether the manner and timing of service of summons/hearing notices (including e-mail communication after the hearing date and one-day notice) rendered the proceedings violative of the principles of natural justice, warranting quashing of the SCN. 3. Whether, in the factual matrix where the taxpayer had received investigation attention from DGGI since January 2024 and had not filed a substantive reply, the writ jurisdiction should be exercised to set aside the SCN on grounds of procedural infirmity. 4. Remedies and directions appropriate where procedural irregularities (short notice, absence of pre-notice consultation) are alleged but no jurisdictional defect is shown and the assessee seeks time to file a reply. ISSUE 1 - Pre-notice consultation under Rule 142 and opportunity under Section 74(5) Legal framework: Rule 142 (as amended) permits the proper officer to communicate details of tax/interest/penalty in Part A of FORM GST DRC-01A prior to service of notice under Section 73/74; Section 74(5) permits a person to deposit tax, interest and a 15% penalty prior to service of notice on the basis of self-ascertainment or ascertained by the officer. Precedent treatment: The Court refers to the statutory scheme and the amendment rendering Rule 142(1A) discretionary; no binding precedent was invoked to displace the statutory text. Interpretation and reasoning: Rule 142, post-amendment, is discretionary (proper officer 'may' communicate). Section 74(5) is a substantive self-help provision enabling a person to pre-empt notice by payment on own ascertainment; it is available even where the Department has not communicated a demand. The Court reasoned that where the taxpayer was aware of ongoing investigation since January 2024, the taxpayer could have availed Section 74(5) by making its own ascertainment and payment if it believed tax was due. The petitioner's contention that absence of pre-notice consultation deprived it of an opportunity to deposit under Section 74(5) is not tenable because the statutory self-help remedy does not depend on Departmental initiation and, in any event, the petitioner maintained that no further tax was due beyond amounts already paid. Ratio vs. Obiter: Ratio: Discretionary nature of Rule 142 post-amendment means absence of pre-notice consultation is not per se fatal; Section 74(5) is available to the assessee independently of Departmental communication. Obiter: Observation that even had pre-notice consultation been given, the petitioner would not have accepted it given its stance. Conclusion: Challenge to the SCN solely on grounds of non-issuance of pre-notice consultation under Rule 142 and non-compliance with Section 74(5) is not sustainable in the facts of this case. ISSUE 2 - Principles of natural justice and adequacy of notice for hearing Legal framework: Principles of natural justice require reasonable notice and opportunity to prepare a detailed reply, consult advisors, and produce documents before a hearing/adjudication in tax proceedings. Precedent treatment: The judgment relies on general administrative law principles mandating reasonable opportunity; no specific prior case law was cited but established notions of fair hearing were applied. Interpretation and reasoning: The Court accepted that service of an email after the date of hearing and furnishing one-day notice are unacceptable and violative of natural justice because taxpayers require time to consult counsel and collate documents. However, the Court balanced this principle against the contemporaneous facts: repeated summons/communications from June onwards and the absence of any substantive reply or stance on record by the taxpayer. The Court therefore concluded that while short notice is objectionable, the remedy is not automatic quashing of the SCN; a fair opportunity to respond must be provided before adjudication. Ratio vs. Obiter: Ratio: One-day notice or post-dated communication violates natural justice; the appropriate remedy is to grant reasonable time to reply and a personal hearing rather than automatic setting aside of the SCN where no jurisdictional defect exists. Obiter: Observations on practical expectations of taxpayers during long-running investigations. Conclusion: The SCN is not quashed on the ground of short notice; the taxpayer must be afforded reasonable time (the Court directs 30 days) and a personal hearing to cure the procedural deficiency before adjudication. ISSUE 3 - Exercise of writ jurisdiction and jurisdictional challenge Legal framework: Writ jurisdiction under Article 226 may be exercised where there is a jurisdictional error, lack of authority, or breach of fundamental rights/principles of natural justice that cannot be remedied in ordinary proceedings. Precedent treatment: The Court applied established principles that interference in adjudicatory tax proceedings is unwarranted absent jurisdictional infirmity. Interpretation and reasoning: The Court found no jurisdictional defect in the issuance of the SCN. Given the absence of a jurisdictional challenge and the availability of effective remedies before the adjudicating authority (including raising compliance with Section 74(5)), the Court held that writ relief to quash the SCN was not justified. The petitioner's failure to put on record any substantive response further weighed against grant of extraordinary relief. Ratio vs. Obiter: Ratio: Where no jurisdictional defect is shown, and effective remedies remain available before the adjudicating authority, writ jurisdiction should not be exercised to quash SCNs on procedural grounds alone. Obiter: Emphasis that procedural non-compliance should be addressed by allowing opportunity rather than blanket invalidation. Conclusion: Writ petition dismissed insofar as it seeks quashing of the SCN; petitioner must pursue remedies and contentions before the adjudicating authority. ISSUE 4 - Appropriate directions and preservation of rights Legal framework: Courts may fashion equitable directions to secure fair opportunity and ensure reasoned administrative decision-making while preserving rights of parties to challenge orders. Precedent treatment: Applied administrative law norms of granting adequate opportunity and requiring reasoned orders from taxing authorities. Interpretation and reasoning: Balancing the petitioner's procedural complaints and the Department's investigatory interest, the Court directed that the petitioner be granted 30 days (till a specified date) to file a reply to the SCN, be afforded a notice for personal hearing, and that after hearing a detailed reasoned order be passed by the adjudicating authority. The Court left open all rights to challenge the adjudicating authority's order and directed that issues including alleged non-compliance with Section 74(5) be raised before that authority. Ratio vs. Obiter: Ratio: Where procedural infirmities are shown but no jurisdictional defect exists, the appropriate remedy is to afford a reasonable opportunity to respond and mandate reasoned adjudication; rights to challenge remain preserved. Obiter: None beyond directions tailored to facts. Conclusion: Petitioner granted 30 days to reply and a personal hearing; adjudicating authority to pass a detailed reasoned order; all rights and remedies reserved for challenge against any ensuing order.