2025 (5) TMI 235 - HC - GST

Compliance and the requirement of prior recommendation by the GST Council for extending time limits for adjudication under Section 73 of the CGST Act - Challenged the Notifications Nos. 9/2023-Central Tax and 56/2023-Central Tax - Validity of show cause notice and adjudication order - N o opportunity for personal hearing - principles of natural justice - HELD THAT - As observed by this Court in the order dated 22nd April 2025 since the challenge to the above mentioned notifications is presently under consideration before the Supreme Court in M/s HCC-SEW-MEIL-AAG JV v. Assistant Commissioner of State Tax Ors 2025 (4) TMI 60 - SC ORDER the challenge made by the Petitioner to the notifications in the present proceedings shall also be subject to the outcome of the decision of the Supreme Court. From the facts clearly shows non-application of mind on behalf of the Adjudicating Authority with respect to the reply filed by the Petitioner. Considering this and the fact that the opportunity for personal hearing could not be availed by the Petitioner the Court is of the opinion that the matter deserves to be relegated for the Petitioner to be properly heard and for an order to be passed on merits upon duly considering the reply. Accordingly the impugned order is set aside. The petition is disposed of in the above terms.

Summary

The core legal questions considered in this judgment include:

(i) Whether the impugned Notifications Nos. 9/2023-Central Tax and 56/2023-Central Tax issued under Section 168A of the Central Goods and Services Tax Act, 2017 (CGST Act) are valid, particularly focusing on procedural compliance and the requirement of prior recommendation by the GST Council for extending time limits for adjudication under Section 73 of the CGST Act;

(ii) Whether the adjudication order dated 26th April, 2024, passed under Section 73 of the CGST Act, is liable to be set aside on grounds of non-consideration of the petitioner's reply and denial of personal hearing;

(iii) The effect of conflicting High Court decisions on the validity of the impugned notifications and the impact of pending Supreme Court proceedings on the present petition;

(iv) The procedural safeguards to be afforded to the petitioner in adjudication proceedings under the GST regime, especially in cases where ex-parte orders have been passed.

Issue-wise Detailed Analysis:

1. Validity of the Impugned Notifications Nos. 9/2023 and 56/2023 under Section 168A of the CGST Act

The legal framework centers on Section 168A of the CGST Act, which mandates that any extension of the time limit for adjudication of show cause notices under Section 73 requires a prior recommendation of the GST Council. The notifications in question purportedly extended the limitation periods for adjudication.

The Court noted a divergence of opinion among various High Courts: the Allahabad High Court upheld Notification No. 9, the Patna High Court upheld Notification No. 56, while the Guwahati High Court quashed Notification No. 56. The Telangana High Court also expressed reservations about Notification No. 56's validity, though it did not conclusively rule on the vires of the notifications.

The Supreme Court has admitted a Special Leave Petition (SLP No. 4240/2025) challenging these notifications, specifically questioning whether the time limits for adjudication under Section 73 could be extended through such notifications without strictly adhering to the procedural mandate of Section 168A. The Supreme Court's order highlighted the cleavage of opinion and stayed the matter for final adjudication.

In light of these conflicting judicial pronouncements and the pending Supreme Court proceedings, the Court refrained from expressing any definitive view on the validity of the impugned notifications. It observed that the outcome of the Supreme Court's decision would be binding and dispositive for the issues raised.

2. Validity of the Adjudication Order dated 26th April, 2024

Section 73 of the CGST Act empowers the adjudicating authority to pass orders on show cause notices issued for recovery of tax demands. The petitioner challenged the impugned order on the grounds that it was passed without considering the petitioner's reply and without affording an opportunity for personal hearing, resulting in an ex-parte order.

The Court examined the record and found that the adjudicating authority's order explicitly indicated that no payment or response was received from the petitioner within 30 days, and the demand was created based on available documents without due consideration of the petitioner's reply. This indicated a lack of application of mind and procedural unfairness.

The Court held that the principles of natural justice require that the petitioner be given a proper personal hearing and that their reply be duly considered before passing any order. The absence of such procedural safeguards rendered the impugned order unsustainable.

Accordingly, the Court set aside the impugned order and directed that the matter be reconsidered afresh. The petitioner was to be given a personal hearing, and the adjudicating authority was to pass an order on merits after duly considering the petitioner's reply. The Court specifically directed that the personal hearing notice be served by email to the petitioner's designated email address and allowed 30 days for filing any further reply.

3. Impact of Pending Supreme Court Proceedings and Conflicting High Court Decisions

The Court acknowledged the ongoing Supreme Court proceedings and the conflicting decisions of various High Courts on the validity of the impugned notifications. It emphasized judicial discipline and the principle of stare decisis by deferring to the Supreme Court's eventual ruling on the matter.

The Court noted that in related petitions, interim orders had been passed, and those orders would continue to operate until the Supreme Court's final decision. It also observed that the Punjab and Haryana High Court had disposed of connected petitions with a similar approach, deferring to the Supreme Court's decision.

Therefore, the Court expressly left open the question of the validity of the impugned notifications and clarified that any future orders passed by the adjudicating authority would be subject to the Supreme Court's ruling.

4. Procedural Safeguards and Relief to Petitioners in GST Adjudication Proceedings

The Court recognized the practical difficulties faced by petitioners, including inability to file replies or attend personal hearings, leading to ex-parte orders and imposition of large demands and penalties. It identified six categories of cases pending before it and indicated a prima facie view that, notwithstanding the pending validity challenge, the petitioners should be afforded an opportunity to present their case before the adjudicating authority.

The Court suggested that in some cases, appellate remedies might be pursued without resolving the validity of the notifications at this stage. This approach balances the need for procedural fairness with the ongoing legal uncertainty.

Significant Holdings

"The above extraction clearly shows non-application of mind on behalf of the Adjudicating Authority with respect to the reply filed by the Petitioner. Considering this and the fact that the opportunity for personal hearing could not be availed by the Petitioner, the Court is of the opinion that the matter deserves to be relegated for the Petitioner to be properly heard and for an order to be passed on merits upon duly considering the reply."

"However, it is made clear that the issue in respect of the validity of the impugned notification is left open. Any order passed by the Adjudicating authority shall be subject to the outcome of the decision of the Supreme Court."

The Court established the core principle that procedural fairness, including the right to personal hearing and consideration of replies, is fundamental in GST adjudication proceedings under Section 73 of the CGST Act. It underscored that ex-parte orders without such safeguards are liable to be set aside.

Further, the Court reinforced the principle that questions of law regarding the validity of notifications issued under Section 168A must await the Supreme Court's authoritative pronouncement, thereby respecting judicial hierarchy and consistency.

In conclusion, the Court set aside the impugned adjudication order, directed a fresh hearing and consideration of the petitioner's reply, and stayed any final determination on the validity of the impugned notifications pending the Supreme Court's decision.