2025 (10) TMI 792 - HC - GST

Failure to consider taxpayer reply before final order under Section 73(9) CGST breaches natural justice; order quashed

HC held that non-consideration of a taxpayer's reply to a show-cause notice before passing a final order under Section 73(9) CGST violated principles of ... Violation of principles of natural justice - the reply submitted by the petitioner to the show cause notice dated 25.11.2024 has not been considered - tax demand for the financial year 2020-2021 - whether non-consideration of such reply/representation filed by the assessee in response to the show cause notice would vitiate the order passed under Section 73(9) of the SGST Act, 2017 being in violation of principles of natural justice? - HELD THAT:- The time period for submitting reply to the show cause notice issued under Section 73(1) has not been statutorily prescribed. However, nothing stops or prevents the proper officer to solicit reply to the show cause notice within a reasonable period fixed by it. It is true that if the period prescribed for giving reply to the show cause notice or filing reply/representation has expired, it is open to the proper officer to presume that assessee has nothing to say in the matter and pass an order under Section 73(9) of the CGST Act, 2017, however, in a case where before the proper authority could pass a final order under Section 73(9), reply/representation submitted by the assessee to show cause notice is received, it becomes incumbent upon the proper officer to consider the reply/representation and then pass a speaking order in terms of Section 73(9) of the Act after dealing with such response/representation. It is so because the time to file response to the show cause notice is not statutorily fixed and is left to the discretion of the proper officer. If response to the show cause notice is received by the proper officer after the period stipulated in the show cause notice, but before the final order is passed, it is incumbent upon the proper officer as also in the interest of justice, equity and fairplay to consider such response/representation before passing a final order under Section 73(9) of the CGST Act, 2017. It is made clear that nothing stops or prevents the proper officer to pass an appropriate order under Section 73(9) immediately on the expiry of period stipulated in the show cause notice for filing response/representation on the assumption that assessee has nothing to say in defence - In the instant case, there is no dispute with regard to the fact that reply to the show cause notice issued by the proper officer under Section 73(1) was received before the final order under Section 73(9) dated 26.02.2025 was passed by the proper officer. In these circumstances, the proper officer should not have declined to consider the reply and pass the order under Section 73(9) of CGST Act, 2017 as if there was no reply/explanation or representation submitted by the assessee. The impugned order dated 26.02.2025 passed by STO Cirrcle Kishtwar under Section 73(9) of the CGST Act, 2017 is set aside - petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the proper officer is legally obliged to consider a reply/representation filed by the person chargeable with tax in response to a show cause notice under Section 73(1) of the SGST Act where the reply was submitted after the period stipulated in the show cause notice but before issuance of the final order under Section 73(9). 2. Whether non-consideration of such a reply/representation (filed after the stipulated period but before the final order) vitiates an order passed under Section 73(9) of the SGST Act for being violative of principles of natural justice. ISSUE-WISE DETAILED ANALYSIS Issue 1: Obligation to consider a late reply received before the final order Legal framework: Section 73 of the SGST Act prescribes the show cause notice mechanism where the proper officer shall serve a notice and, under sub-section (9), determine tax after 'considering the representation, if any, made by person chargeable with tax.' Rule 142(1)(a) provides for service of the show cause summary in FORM GST DRC-01. The statutory scheme does not prescribe a fixed period for filing a reply to the show cause notice; the issuing officer may specify a time. Precedent treatment: No judicial precedents were cited or relied upon in the judgment; the Court's reasoning rests on statutory text, principles of administrative fairness, and the discretionary power conferred on the proper officer to solicit replies within a reasonable period. Interpretation and reasoning: Because Section 73(9) expressly requires the proper officer to consider any representation 'if any,' and because the statute does not fix a mandatory outer time-limit for consideration of responses once a reply is received, the Court reasons that where a reply is received before a final order is passed, the proper officer must consider that reply. The discretion to fix a reasonable time for response does not permit the officer to ignore a response actually received prior to passing the final order. While the officer may proceed on expiry of the stipulated period if no response is received, once a response is on record before the decision, principles of justice, equity and fair play require consideration of that response and a reasoned decision addressing it. Ratio vs. Obiter: The holding that a reply received after the stipulated period but before the final order must be considered by the proper officer is ratio decidendi of the judgment. Observations that the officer may pass an order immediately upon expiry of the stipulated period if no reply is received are explanatory and supportive but incidental to the primary holding. Conclusions: The proper officer is obliged to consider a reply/representation filed after the time prescribed in the show cause notice but received before the final order under Section 73(9), and thereafter pass a reasoned order addressing that representation. Issue 2: Effect of non-consideration of the late reply on validity of order under Section 73(9) - natural justice vitiation Legal framework: Section 73(9) mandates determination 'after considering the representation, if any,' thereby importing a requirement of consideration. Administrative law principles (audi alteram partem, reasoned decision-making) are engaged in tax determination proceedings, particularly where the statute envisages consideration of representations. Precedent treatment: No prior authority was invoked; the Court applied statutory language and general principles of natural justice to conclude on the legal effect of non-consideration. Interpretation and reasoning: The Court holds that non-consideration of a reply which was received before passing the final order is tantamount to denying the assessee an opportunity to be heard and results in a failure to comply with Section 73(9)'s requirement. Such non-consideration therefore renders the order vulnerable to being set aside as violative of principles of natural justice. The Court distinguishes the situation where no reply is received within the stipulated time (permitting the officer to assume there is nothing to say) from the situation where a reply is actually on record prior to the order (requiring consideration). The judgment emphasizes that consideration must be meaningful and reflected in a speaking order; mere receipt of papers without adjudicative engagement does not satisfy the statutory obligation. Ratio vs. Obiter: The conclusion that non-consideration of the reply received before the final order vitiates the order is ratio decidendi. Observations about the officer's latitude to act immediately after the expiry of a stipulated period (where no reply has been received) are obiter explanatory remarks clarifying boundaries of the holding. Conclusions: Failure to consider a representation filed before the final order constitutes breach of the statutory duty under Section 73(9) and principles of natural justice, and will invalidate the impugned order, requiring remand for fresh consideration. Remedial and ancillary directions (derived from Court's disposition) The impugned order that ignored the late but timely-received reply was set aside. The proper officer is directed to pass a fresh order under Section 73(9) after taking the petitioner's reply into account and, preferably, affording an opportunity for oral hearing. Any tax provisionally recovered under the quashed order shall remain subject to the outcome of the fresh adjudication. Cross-references and limiting points - The obligation to consider a reply applies only where the reply is received before the final order is passed; if no reply is received within the time stipulated, the officer may proceed on the assumption the assessee has nothing to say. - The Court's ruling is grounded in the statutory requirement to 'consider the representation, if any' under Section 73(9) and in general principles of natural justice; it does not create a fixed statutory timeline for replies nor preclude the proper officer from setting and enforcing reasonable deadlines.