2025 (5) TMI 238 - 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 - Validity of the show cause notice issued - Challenged the Notification No. 9/2023-Central Tax and Notification No. 56/2023-Central Tax - GST registration cancelled retrospectively - 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. To elaborate the impugned order raises a demand of Rs. 4, 34, 04, 126/- on account of the Input Tax Credit ( ITC ) availed by the Petitioner from one of its suppliers namely M/s Essar Foods Commodities. The demand was raised by the Respondent-CGST Department on the ground that the said supplier s GST registration was cancelled retrospectively (i.e. with effect from 30th November 2017). Consequently the Respondent-CGST Department through the impugned Show Cause Notice proposed reversal of the ITC claimed by the Petitioner in respect of transactions with the said supplier during the relevant period. The said demand has since been confirmed by way of the impugned order giving rise to the filing of the present writ petition. In view thereof the impugned order dated 13th April 2024 is set aside and the matter is relegated to the concerned adjudicating authority for a fresh hearing. The access to the portal shall be made available to the Petitioner in order to enable him filing the reply as also for accessing personal hearing notice if so required. The petition is disposed of.

Summary

1. ISSUES PRESENTED and CONSIDERED

(i) Whether the impugned show cause notice (SCN) and adjudication order under Section 73 of the Delhi/Central Goods and Services Tax Act, 2017 (DGST/CGST Act, 2017) for the financial year 2018-19, raising demand on account of Input Tax Credit (ITC) reversal due to retrospective cancellation of supplier's GST registration, are valid and sustainable.

(ii) Whether the retrospective cancellation of GST registration of the supplier, which formed the basis for the reversal of ITC, is valid in light of a coordinate bench's order setting aside such retrospective cancellation.

(iii) The validity and vires of Notification Nos. 9/2023-Central Tax and 56/2023-Central Tax issued by the Central Board of Indirect Taxes and Customs (CBIC) under Section 168A of the CGST Act, 2017, which purportedly extend the time limit for adjudication of SCNs and passing of orders under Section 73 of the GST Act.

(iv) The procedural propriety and constitutional validity of the impugned notifications, specifically whether the prior recommendation of the GST Council was obtained as mandated under Section 168A of the CGST Act before issuance of the notifications.

(v) The impact of the pendency of the challenge to the impugned notifications before the Supreme Court on the adjudication proceedings and relief available to the petitioners.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i) & (ii): Validity of the SCN and adjudication order based on retrospective cancellation of supplier's GST registration

Relevant legal framework and precedents: Section 73 of the CGST Act empowers the tax authorities to recover tax not paid or short paid along with interest and penalty after issuing a show cause notice and adjudication. Input Tax Credit (ITC) availed from a supplier whose registration is cancelled retrospectively is liable to be reversed. However, the validity of such retrospective cancellation is subject to judicial scrutiny.

Court's interpretation and reasoning: The Court noted that the impugned order raised a demand exceeding Rs. 4.34 crores on account of reversal of ITC availed from a supplier whose GST registration was cancelled retrospectively with effect from 30th November, 2017. The petitioner challenged this demand on the ground that the retrospective cancellation itself was set aside by a coordinate bench of the same Court in W.P.(C) No. 4826/2024 by an order dated 16th October, 2024.

Key evidence and findings: The coordinate bench's order setting aside the retrospective cancellation was a pivotal fact. The Court observed that since the foundational basis for the demand-the retrospective cancellation-had been quashed, the impugned adjudication order deserved reconsideration.

Application of law to facts: The Court set aside the impugned order dated 13th April, 2024 and directed the matter to be heard afresh by the adjudicating authority. The petitioner was permitted to file a fresh reply to the SCN within 30 days, and a personal hearing was to be granted.

Treatment of competing arguments: While the revenue department relied on the retrospective cancellation to justify the demand, the petitioner's argument that the cancellation was invalid was accepted in view of the coordinate bench's order. The Court did not delve into the substantive merits of the cancellation but deferred to the coordinate bench's ruling.

Conclusions: The adjudication order premised on a now-invalid retrospective cancellation was set aside, and a fresh adjudication was mandated with opportunity for the petitioner to be heard.

Issue (iii) & (iv): Validity and procedural propriety of Notifications Nos. 9/2023 and 56/2023 under Section 168A of the CGST Act

Relevant legal framework and precedents: Section 168A of the CGST Act empowers the Central Government, on the recommendation of the GST Council, to extend the time limit for adjudication of SCNs and passing of orders under Section 73. The notifications challenged purportedly extended such deadlines.

Various High Courts have taken divergent views on the validity of these notifications. The Allahabad High Court upheld Notification No. 9, while the Guwahati High Court quashed Notification No. 56. The Patna High Court upheld Notification No. 56. The Telangana High Court observed on the invalidity of Notification No. 56 without deciding on its vires.

Court's interpretation and reasoning: The Court noted that the challenge to these notifications was pending before the Supreme Court in S.L.P No. 4240/2025. The Supreme Court had issued notice and was yet to decide on the validity of the notifications, particularly on whether the extension of time limits under Section 168A was validly made with prior GST Council recommendation.

Key evidence and findings: The Court relied on the orders and observations of various High Courts and the pendency of the Supreme Court proceedings to conclude that the issue was sub judice.

Application of law to facts: The Court refrained from expressing any opinion on the validity of the notifications and held that the adjudicating authority's orders would be subject to the Supreme Court's final decision. The Court also noted that the notifications were challenged on grounds including non-compliance with the procedure under Section 168A and retrospective ratification instead of prior recommendation.

Treatment of competing arguments: The revenue argued in favor of the notifications' validity based on prior recommendation (in case of Notification No. 9) and subsequent ratification (in case of Notification No. 56). The petitioners challenged the notifications on procedural and constitutional grounds. The Court deferred to the Supreme Court's determination.

Conclusions: The Court left the question of the notifications' validity open, subject to the Supreme Court's ruling, and directed that any orders passed by adjudicating authorities would be governed accordingly.

Issue (v): Impact of pendency of Supreme Court proceedings on ongoing adjudication and relief to petitioners

Relevant legal framework and precedents: Judicial discipline mandates that lower courts and tribunals refrain from deciding issues pending before the Supreme Court. Interim relief may be granted to protect parties' rights pending final adjudication.

Court's interpretation and reasoning: The Court acknowledged the pendency of the Supreme Court proceedings and noted that other High Courts had either stayed or disposed of similar petitions subject to the Supreme Court's decision. The Punjab and Haryana High Court had disposed of petitions with interim orders continuing till the Supreme Court's final decision.

Key evidence and findings: The Court observed that many petitioners had been unable to file replies or avail personal hearings, resulting in ex-parte orders and huge demands with penalties.

Application of law to facts: The Court proposed categorizing cases and affording opportunities to petitioners to file replies and seek personal hearings, without prejudging the validity of notifications. The Court permitted fresh replies and personal hearings in the present case.

Treatment of competing arguments: Petitioners sought relief from ex-parte adjudications and penalties, while the revenue sought to proceed with adjudications. The Court balanced these interests by allowing fresh opportunities but leaving the validity issues open.

Conclusions: The Court directed that fresh adjudication be conducted with opportunity for the petitioners to be heard, and that the final outcome would be subject to the Supreme Court's decision on the notifications.

3. SIGNIFICANT HOLDINGS

"Considering the above position, the impugned order dated 13th April, 2024 is set aside and the matter is relegated to the concerned adjudicating authority for a fresh hearing."

"The Petitioner is permitted to file a fresh reply to the show cause notice dated 4th December, 2023 within 30 days."

"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."

"Keeping in view the judicial discipline, we refrain from giving our opinion with respect to the vires of Section 168-A of the Act as well as the notifications issued in purported exercise of power under Section 168-A of the Act which have been challenged, and we direct that all these present connected cases shall be governed by the judgment passed by the Hon'ble Supreme Court and the decision thereto shall be binding on these cases too."

Core principles established:

- The retrospective cancellation of GST registration, if set aside by a competent Court, invalidates the basis for reversal of ITC and demands raised thereon.

- Adjudication orders premised on such retrospective cancellations must be reconsidered afresh with opportunity to the affected party.

- Notifications issued under Section 168A of the CGST Act extending time limits for adjudication must comply with the procedural mandate of prior GST Council recommendation; failure to do so raises serious legal questions.

- Divergent High Court decisions on the validity of such notifications necessitate Supreme Court adjudication, and lower courts must await such pronouncement before expressing views on the issue.

- Pending Supreme Court decisions, affected parties must be afforded procedural fairness including opportunity to file replies and personal hearings, and ex-parte orders should be avoided where possible.

Final determinations:

- The impugned adjudication order based on retrospective cancellation is set aside and remanded for fresh adjudication.

- The challenge to the impugned notifications is left open and subject to the Supreme Court's final decision.

- The petitioner is granted liberty to file fresh replies and avail personal hearings.

- The Court refrains from expressing any opinion on the validity of the impugned notifications pending Supreme Court adjudication.