Ex parte tax adjudication set aside for SCN upload flaw, conditional remand ordered to uphold natural justice

HC held that the ex parte adjudication order, founded on a SCN uploaded only under the "Additional Notices" tab and not effectively communicated, violated principles of natural justice as the taxpayer had no real opportunity to respond. Relying on its earlier precedent in a similar factual matrix, HC set aside the impugned order and remanded the matter to the Adjudicating Authority for fresh consideration, particularly as the validity of the impugned notifications is sub judice. However, given the belated approach to HC, the remand and setting aside of the order were made conditional upon fulfilment of specified terms by the petitioner.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether an ex parte adjudication order passed under the GST laws, without the assessee's reply to the show cause notice and without effective hearing, ought to be set aside and the matter remanded on grounds of violation of principles of natural justice.

1.2 Whether the assessee's defences for non-participation in adjudication - namely, (a) alleged uploading of the show cause notice and order under an "Additional Notices Tab" on the GST portal, and (b) alleged failure by its Chartered Accountant to inform it - could justify interference with the impugned order.

1.3 What consequential and interim directions should be issued regarding (a) remand and further adjudication, (b) costs and conditions imposed on the assessee, and (c) the subsistence and modification of provisional attachment of bank accounts under Section 83 of the GST enactment.

1.4 Whether the Court should adjudicate the challenge to the validity of specified Central and State GST notifications extending time limits, in view of pending proceedings before the Supreme Court and other High Courts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Ex parte adjudication order and principles of natural justice

Interpretation and reasoning

2.1 The Court noted that the show cause notice was issued, a reminder was sent, no reply was filed by the assessee, no personal hearing was attended, and the adjudication order was then passed raising tax, interest and penalty demands. The assessee approached the Court only after its bank accounts were provisionally attached.

2.2 The Court referred to its earlier decision in a comparable matter where, in similar circumstances of no reply to the show cause notice and absence of effective hearing, the order was held to be a non-speaking order and was set aside to afford an opportunity of hearing on merits.

2.3 Applying that approach, the Court held that the assessee had not been afforded a proper opportunity to be heard before the impugned order was passed, and that an opportunity ought to be granted to contest the demand on merits, notwithstanding the assessee's own lapses.

Conclusions

2.4 The impugned adjudication order was set aside and the matter remanded to the Adjudicating Authority for fresh consideration, with liberty to the assessee to file a reply and be heard on merits, subject to conditions stipulated by the Court.

Issue 2 - Justifications for non-participation: GST portal "Additional Notices Tab" and conduct of Chartered Accountant

Interpretation and reasoning

2.5 The assessee contended that the show cause notice and order had been uploaded on the GST portal under an "Additional Notices Tab", and therefore had not come to its knowledge. The Court found that no screenshot or documentary material had been placed on record to substantiate this assertion.

2.6 The Court further recorded that, in any event, the Department had modified the GST portal after 16 January 2024. In that context, the Court held that the contention predicated on the "Additional Notices Tab" was untenable.

2.7 The assessee also contended that its Chartered Accountant did not inform it about the show cause notice or subsequent order. The Court treated this as an internal arrangement or lapse on the assessee's side, which could not negate the legal effect of issuance of the show cause notice and order by the Department.

Conclusions

2.8 The Court did not accept the assessee's explanations as legally tenable grounds to invalidate the issuance or service of the show cause notice and order; however, it still granted a remand on the broader ground that the assessee had not effectively been heard before the ex parte order was passed.

Issue 3 - Manner of remand, conditions imposed, and modification of provisional attachment under Section 83

Legal framework (as discussed)

2.9 The Court recorded that provisional attachment of the assessee's bank account was ordered in FORM GST DRC-22 under Section 83 of the State GST enactment, in aid of proceedings initiated under Section 73. The order froze debits from the concerned bank accounts to protect the interests of revenue.

Interpretation and reasoning

2.10 While setting aside the impugned adjudication order and remanding the matter, the Court took into account that the assessee had approached the Court only after adverse action by way of bank attachment, and that there had been non-compliance in responding to the show cause notice and attending the personal hearing.

2.11 To balance the assessee's right to a hearing with the need to protect revenue, the Court imposed monetary and protective conditions: (a) payment of costs to a specified welfare fund, and (b) maintenance of a portion of the balances in the bank accounts which had been subjected to provisional attachment.

2.12 The Court then structured detailed directions to ensure effective further adjudication, including timelines, communication modes, and access to the GST portal, thereby ensuring the assessee a full opportunity to respond to the show cause notice and participate in personal hearing.

Conclusions

2.13 The impugned adjudication order was set aside subject to the following principal conditions and directions:

(a) The assessee must deposit costs of Rs. 10,000/- with the Delhi High Court Clerks Welfare Funds in the specified bank account.

(b) In each of the three bank accounts identified in the attachment order, 25% of the balance is to be maintained; upon maintaining this 25% balance in each account, the freezing order stands lifted in respect of the remaining funds.

(c) The assessee is granted time up to 31 January 2026 to file a reply to the impugned show cause notice.

(d) Upon filing of the reply, the Adjudicating Authority shall issue a notice of personal hearing to the assessee, to be communicated on the specified email address and mobile number.

(e) The Adjudicating Authority shall consider the reply and submissions made in personal hearing, and pass a fresh, reasoned order on the show cause notice.

(f) The Department shall provide the assessee access to the GST portal within one week, to enable uploading of the reply and access to notices and related documents.

Issue 4 - Challenge to the validity of Central and State notifications extending limitation under Section 168A-type powers

Legal framework (as discussed)

2.14 The petition included a challenge to specified Central and State GST notifications extending limitation periods for adjudication, issued purportedly under Section 168A of the Central Goods and Services Tax Act, 2017 and corresponding State provisions.

2.15 The Court noted that similar challenges to the same notifications have been considered by multiple High Courts, resulting in divergent views: some upholding, some quashing, and some observing on their validity without finally deciding.

2.16 The Court recorded that the validity of Notification No. 56/2023 (Central Tax) and related notifications is presently under consideration by the Supreme Court in a pending special leave petition, where notice has been issued, and the Supreme Court has identified the core issue relating to extension of time for adjudication under Section 73 by recourse to Section 168A.

2.17 The Court also referred to orders of other High Courts that, in view of the pending proceedings before the Supreme Court, have refrained from pronouncing on the vires of Section 168A and the impugned notifications, and have directed that their pending matters be governed by the eventual decision of the Supreme Court.

Interpretation and reasoning

2.18 In light of the pending adjudication of the same core questions by the Supreme Court and the existence of divergent High Court views, the Court considered it appropriate not to pronounce upon the validity of the impugned notifications in this petition at this stage.

2.19 The Court adopted a course similar to that taken in related matters before it: disposing of the petition on a narrower, case-specific ground (denial of effective hearing and remand), while leaving the constitutional and statutory validity issues open and making the eventual adjudication subject to the outcome of higher judicial proceedings.

Conclusions

2.20 The Court expressly left open the issue of the validity of the impugned Central and State GST notifications. Any fresh order passed by the Adjudicating Authority pursuant to the remand shall remain subject to:

(a) the outcome of the decision of the Supreme Court in the pending special leave petition concerning the validity and effect of Notification No. 56/2023 (Central Tax) and related notifications; and

(b) the decision of the Court in the lead matter concerning the challenge to parallel State notifications.

2.21 All rights and remedies of the parties in relation to the challenge to the notifications were preserved.

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