2025 (5) TMI 255 - HC - GST

Violation of principles of natural justice - submission of the Petitioner is that the impugned order has been passed without giving the Petitioner any opportunity to be heard - Challenge to adjudication order and N/Ns. 9/2023-Central Tax dated 31st March 2023 and 56/2023- Central Tax dated 28th December 2023 issued by the Central Board of Indirect Taxes and Customs - HELD THAT - This Court is of the opinion that the impugned order has been passed without affording the Petitioner with sufficient opportunity to be heard. Thus an opportunity ought to be afforded to the Petitioner to contest the matter on merits. The Petitioner is permitted to file a supplementary reply within a period of 30 days. The impugned order is set aside. The Petitioner is granted 30 days time to file the reply to SCN. Upon filing of the reply the Adjudicating Authority shall issue to the Petitioner a notice for personal hearing - Petition disposed off.

Summary

The core legal questions considered by the Court in this matter include:

1. Whether the impugned Notification No. 56/2023-Central Tax dated 28th December, 2023, issued under Section 168A of the Central Goods and Services Tax Act, 2017 (CGST Act), is valid, having regard to the procedural requirements, specifically the necessity of prior recommendation by the GST Council before issuance.

2. Whether the extension of time limits for adjudication under Section 73 of the CGST Act for the financial year 2019-2020, as effected by the impugned notifications, was legally permissible.

3. The impact of conflicting judicial pronouncements from various High Courts on the validity of the impugned notifications and the role of the Supreme Court in resolving these conflicts.

4. Whether the Petitioner was afforded adequate opportunity of personal hearing before passing the impugned adjudication order under Section 73 of the CGST Act.

5. The extent to which the adjudicating authority can rely on grounds beyond those specified in the show cause notice (SCN) when passing an order.

Issue 1: Validity of Notification No. 56/2023-Central Tax under Section 168A of the CGST Act

The legal framework governing this issue is Section 168A of the CGST Act, which mandates that any extension of the time limit for adjudication of show cause notices must be preceded by a recommendation from the GST Council. The Petitioner challenged the impugned notification on the ground that it was issued without the requisite prior recommendation; rather, the ratification was given only subsequent to issuance, rendering the notification procedurally defective.

The Court noted that this issue is part of a larger batch of petitions with similar challenges, and that various High Courts have taken divergent views. For instance, the Allahabad and Patna High Courts upheld the validity of the notification, while the Guwahati High Court quashed it. The Telangana High Court also expressed reservations on the validity of Notification No. 56/2023.

Furthermore, the Supreme Court has admitted a Special Leave Petition (SLP No. 4240/2025) concerning this very issue, recognizing the cleavage of opinion among High Courts. The Supreme Court's order explicitly identified the question of whether the time limit for adjudication under Section 73 and the corresponding State GST Act could be extended by such notifications under Section 168A.

The Court in the present case refrained from expressing any opinion on the validity of the notification, deferring to the pending Supreme Court adjudication. This approach aligns with judicial discipline and the principle of avoiding conflicting rulings on identical issues.

Issue 2: Extension of Time Limits for Adjudication under Section 73 of the CGST Act

Section 73 of the CGST Act deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized. The time limit for adjudication under this section is statutorily prescribed. The impugned notifications purportedly extended these time limits for the financial year 2019-2020.

The Court acknowledged that the extension of limitation periods is a critical issue, as it affects the validity of adjudication proceedings initiated after the original limitation expired. The notifications in question were challenged on the ground that the extensions were not validly granted.

Given the pendency of the matter before the Supreme Court and the conflicting High Court decisions, the Court did not delve into the merits of this issue but noted that the final determination would depend on the Supreme Court's ruling.

Issue 3: Conflicting Judicial Pronouncements and Supreme Court Intervention

The Court highlighted the existence of differing views among various High Courts on the validity of the impugned notifications and the extensions granted under Section 168A. This judicial discord necessitated Supreme Court intervention to ensure uniformity and legal certainty.

The Punjab and Haryana High Court, in its order, refrained from expressing any opinion on the vires of Section 168A and the notifications, directing that the matter be governed by the Supreme Court's eventual decision. The present Court adopted a similar stance, emphasizing adherence to judicial discipline.

Issue 4: Adequacy of Opportunity of Personal Hearing Before Passing the Adjudication Order

The Petitioner contended that despite filing a reply to the show cause notice dated 31st May 2024, and requesting an adjournment for personal hearing, no subsequent hearing opportunity was granted. The Petitioner argued that the impugned order was passed ex-parte and on grounds beyond those raised in the SCN, thus violating principles of natural justice.

The Court examined the impugned order and found that the adjudicating authority had recorded that the Petitioner did not avail the personal hearing but had sent a reply by speed post. The order noted deficiencies in the Petitioner's submissions, including failure to produce documents proving receipt of goods/services and that the tax collected by suppliers was actually paid to the government, as required under Section 16(2)(c) of the CGST Act.

However, the Court held that the Petitioner was not afforded sufficient opportunity to be heard, particularly in light of the Petitioner's request for adjournment and the absence of any subsequent hearing notice. The Court emphasized the fundamental principle of natural justice that an opportunity to be heard must be provided before adverse orders are passed.

Accordingly, the Court set aside the impugned order and granted the Petitioner 30 days to file a supplementary reply to the SCN. The adjudicating authority was directed to issue a fresh notice for personal hearing, communicate it properly, and consider the Petitioner's submissions before passing a fresh order.

Issue 5: Reliance on Grounds Beyond Those in the Show Cause Notice

The Petitioner submitted that the impugned order was passed on grounds not raised in the SCN, rendering the reply inadequate and the adjudication unfair.

The Court's examination of the impugned order revealed that the adjudicating authority indeed considered issues beyond the Petitioner's initial reply, particularly the failure to produce supporting documents for receipt of goods/services and payment of tax by suppliers.

While the Court did not explicitly rule on the legality of reliance on such additional grounds, it implicitly recognized the need for the Petitioner to have an opportunity to address these new grounds through the supplementary reply and personal hearing. This approach safeguards the Petitioner's right to fair adjudication and natural justice.

Significant Holdings and Core Principles Established

"In view of the above position, this Court is of the opinion that the impugned order has been passed without affording the Petitioner with sufficient opportunity to be heard. Thus, an opportunity ought to be afforded to the Petitioner to contest the matter on merits."

"The Petitioner is permitted to file a supplementary reply within a period of 30 days. Upon filing of the supplementary reply, the Adjudicating Authority shall issue to the Petitioner, a notice for personal hearing."

"The supplementary reply filed by the Petitioner to the SCN along with the submissions made in the personal hearing proceedings shall be duly considered by the Adjudicating Authority and fresh order with respect to the SCN shall be passed accordingly."

"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 underscored the paramount importance of adherence to the principles of natural justice, particularly the right to be heard, before passing adverse orders under tax adjudication proceedings.

It also reaffirmed the principle of judicial discipline by deferring the question of validity of the impugned notifications to the Supreme Court, recognizing the ongoing litigation and conflicting High Court judgments on this issue.

Finally, the Court's directions ensure that the Petitioner's substantive rights are protected by mandating a fresh opportunity to present their case, thereby promoting fairness and due process in tax adjudication.