2025 (9) TMI 461 - HC - GST

Show cause notice under s.74(1) defective where personal hearing set before reply deadline, violating s.75(4) and natural justice

M/s R.P. Industries Versus State Of U.P. And 2 Others

HC held the show cause notice under s.74(1) was defective because the personal hearing was fixed before the deadline for filing a reply, negating the ... Service of SCN u/s 74(1) of the GST Act on the ground that the supplier was not found at the place of business - respondent no. 3 passed an ex parte order determining the tax and penalty - violation of principles of natural justice - HELD THAT:- The record shows that in the show cause notice dated 16.07.2020, the date for submission of reply was fixed as 17.08.2020, while the date of personal hearing is mentioned as 24.07.2020 (Annexure No. 2 to the writ petition), i.e., much before the submission of reply. Once the notice itself is bad, the whole proceedings goes. The issue in hand is squarely covered by the judgements of the Division Bench of this Court in M/s Excellence Trades & Services Private Limited [2025 (4) TMI 1688 - ALLAHABAD HIGH COURT] and M/s Swiftline Transport Solutions Private Limited [2025 (4) TMI 1689 - ALLAHABAD HIGH COURT], where it was held that 'In view of fact situation, wherein the provisions of Section 75(4) of the Act, envisage providing opportunity of hearing and the same apparently has been negated on account of fixing date of hearing prior to the filing of reply, the order impugned dated 05.01.2024 passed by the respondent no. 3 cannot be sustained.' Tthe impugned orders cannot be sustained in the eyes of law. The same are hereby quashed - Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a show cause notice issued under Section 74(1) of the GST Act is vitiated where the date fixed for personal hearing precedes the last date fixed for submission of reply. 2. If the show cause notice is invalid for the defect in dates, whether the entire subsequent adjudication (ex parte order and departmental appeal decision) must be quashed and remitted for fresh proceedings. 3. Whether the Court should direct a fresh show cause notice and set time-limits for reply and final disposal when departmental proceedings are quashed for procedural infirmity. 4. The effect of any amounts already deposited pending adjudication when proceedings are set aside and remitted. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of show cause notice where personal hearing date precedes reply deadline Legal framework: Natural justice principles require that a notice of proceedings afford a reasonable and coherent opportunity to the party to present its case, including an opportunity to submit written replies and to be heard; procedural fairness in tax adjudication demands consistency in timelines provided in a show cause notice. Precedent Treatment: The Court relied on and followed prior Division Bench decisions of the High Court which held that a show cause notice fixing a personal hearing date earlier than the last date for submission of reply is bad in law. Interpretation and reasoning: The presence of inconsistent dates (personal hearing on 24.07.2020 and last date for reply as 17.08.2020) renders the notice defective because it deprives the recipient of the meaningful opportunity to have written submissions considered before the hearing, thereby violating principles of fair hearing and rendering the notice legally infirm. Ratio vs. Obiter: Ratio - A show cause notice that fixes a hearing date prior to the expiry of the period allowed for filing a reply is invalid; such defect goes to the root of the proceedings. (This follows and applies the Division Bench rulings cited by the Court.) Conclusions: The notice in the present proceedings is vitiated for specifying a personal hearing date earlier than the date for filing replies, and therefore is invalid. Issue 2 - Consequence of invalid notice on subsequent adjudication Legal framework: If an initiating notice is fatally defective, consequent adjudicatory orders (including ex parte orders) cannot stand because they derive validity from the initial valid service and content of the notice; substantive adjudication requires valid initiation. Precedent Treatment: The Court followed Division Bench authority treating similarly defective notices as voiding the entire proceedings and necessitating quashing of subsequent orders. Interpretation and reasoning: Because the notice failed to provide coherent timelines and thereby denied procedural fairness at the inception, the ex parte adjudication and the departmental appellate order which relied on that process are tainted. The defect is not merely procedural or curable by remand without setting aside; rather it undermines the legitimacy of the whole proceeding. Ratio vs. Obiter: Ratio - A defective show cause notice of the nature identified invalidates subsequent orders passed pursuant to that notice and requires quashing of those orders. Conclusions: The impugned ex parte adjudication and the appellate dismissal are unsustainable and are quashed as a consequence of the invalid notice. Issue 3 - Direction to issue fresh notice and fix time-limits on remand Legal framework: When orders are quashed for procedural infirmity, courts may remit the matter to the authority with directions to issue fresh notices and conduct proceedings within stipulated time-frames so as to secure finality and avoid undue prejudice due to delay. Precedent Treatment: The Court adopted the approach in precedent rulings of issuing directions for fresh notices and prescribing periods for reply and disposal of adjudication on remand. Interpretation and reasoning: To secure a fair adjudicatory process and to obviate further delay, the Court directed the Assessing Authority to issue a fresh show cause notice within 15 days of production of certified copy of the order, permitted the petitioners to file replies within the time prescribed in that notice, and required conclusion of proceedings within two months from the date of submission of reply, if any. These directions balance the right of the revenue to adjudicate with the requirement of procedural regularity and expedition. Ratio vs. Obiter: Ratio - On quashing defective proceedings, the Court may and should mandate re-issuance of notice and fix reasonable timelines for reply and adjudication to ensure fair hearing and timely disposal. Conclusions: The Court ordered issuance of a fresh notice within 15 days and mandated completion of proceedings within two months of reply to cure the procedural defect and allow adjudication on merits. Issue 4 - Effect on amounts already deposited Legal framework: When departmental proceedings are remitted, courts often clarify the status of amounts deposited during earlier proceedings to avoid presuming outcomes; preservation of rights and clarity on deposits promotes fairness and administrative order. Precedent Treatment: The Court followed practice of leaving the consequences of earlier deposits to be determined by the outcome of the fresh adjudication. Interpretation and reasoning: Rather than adjudicating on the fate of earlier deposits, the Court expressly noted that any amount already deposited shall be dealt with in accordance with the final order passed by the assessing authority upon rehearing, thereby not prejudicing either party pending fresh adjudication. Ratio vs. Obiter: Obiter/instructional - Direction that amounts already deposited shall be the outcome of the fresh order clarifies administrative treatment but is ancillary to the main ratio concerning invalid notice and remand. Conclusions: The Court left the status of previously deposited amounts to be determined by the authority in the fresh proceedings. Cross-references Issues 1 and 2 are directly linked: the invalidity of the notice (Issue 1) is the operative ground for quashing the subsequent orders (Issue 2). Issue 3 flows from Issues 1-2 as remedial directions for securing a valid adjudicatory process. Issue 4 is an ancillary administrative clarification consequent to the remand ordered under Issue 3.