2025 (5) TMI 725 - HC - GST

Extension of time for adjudication of the Show Cause Notice issued for the Financial Year 2019-2020 - impugned order passed beyond the period of limitation as specified u/s 73 (10) of the CGST Act 2017 - HELD THAT - The issue raised in the above Petition is also raised in several other Writ Petitions pending in this Court. One such Writ Petition is in the case of M/s. Sunguard Builders LLP v/s. Union of India Others 2025 (3) TMI 1026 - BOMBAY HIGH COURT . In the case of M/s. Sunguard Builders LLP also this Court after hearing the parties granted ad-interim relief. Here too it is found that a strong prima facie case is made out for granting of ad-interim relief. An ad-interim relief granted by directing that the effect operation and execution of the impugned Order-in-Original dated 29th August 2024 (Exh. L to the Petition) shall remain stayed until further orders - matter placed on board for ad-interim reliefs on 12th June 2025 along with Writ Petition No. 694 of 2025.

Summary

The core legal questions considered in the judgment are:

1. Whether the Notifications extending the time for adjudication of the Show Cause Notice under the Central Goods and Services Tax Act, 2017 (CGST Act) are valid, given that they were not issued on the recommendation of the GST Council as required under Section 168-A of the CGST Act.

2. Whether the impugned adjudicating order passed beyond the limitation period prescribed under Section 73(10) of the CGST Act is valid.

3. Whether the Show Cause Notice issued under Section 73(1) of the CGST Act was properly issued at least three months prior to the limitation period as mandated under Section 73(2) of the CGST Act.

4. Whether the adjudicating officer's involvement in both the audit and issuance of the Show Cause Notice and adjudicating order constitutes a conflict of interest and bias affecting the validity of the order.

5. Whether the recovery of tax already paid by the Petitioner, amounting to approximately Rs. 18.78 Crores, is permissible under the adjudicating order.

Issue 1: Validity of Notifications Extending Time for Adjudication

The legal framework centers on Section 168-A of the CGST Act, which empowers the Central Government to extend the time limit for adjudication of Show Cause Notices, but only on the recommendation of the GST Council. The Petitioner contends that the impugned Notifications No. 56/2023-Central Tax and No. 56/2023-State Tax were issued without such recommendation, rendering them void ab initio.

The Court considered the statutory requirement that the GST Council's recommendation is a pre-condition for valid issuance of such Notifications. The Petitioner argued that absence of this procedural compliance invalidates the Notifications and consequently, any adjudication based on extended time limits is barred by limitation under Section 73(10) of the CGST Act.

The Court acknowledged the Petitioner's contention as a substantial legal question, noting that the Notifications' validity is pivotal to the limitation period applicable to the adjudicating order. However, the judgment does not conclusively decide the issue at this stage but recognizes it as a prima facie strong ground warranting further examination.

Issue 2: Validity of Adjudicating Order Passed Beyond Limitation

Section 73(10) of the CGST Act prescribes a limitation period within which adjudication orders must be passed following issuance of a Show Cause Notice. The Petitioner submits that if the Notifications extending the limitation period are invalid, the order passed on 29th August, 2024 is beyond the permissible period and hence void.

The Court noted that the limitation period is linked to the validity of the Notifications extending the time. If the Notifications are invalid, the adjudicating order would be barred by limitation. This issue is intrinsically connected to Issue 1 and remains under consideration pending further pleadings and evidence.

Issue 3: Timeliness of Show Cause Notice Issuance

Section 73(2) of the CGST Act requires that a Show Cause Notice must be issued at least three months prior to the expiry of the limitation period for passing the adjudicating order. The Petitioner contends that the Show Cause Notice was issued on 31st May, 2024, which is the same date as the three-month threshold, thus violating the requirement and invalidating the notice and subsequent order.

The Court recognized the importance of this procedural safeguard to ensure adequate time for response and fair adjudication. It found the Petitioner's argument to raise a serious question about the procedural validity of the Show Cause Notice. However, the Court deferred final determination pending further submissions.

Issue 4: Conflict of Interest and Bias of the Adjudicating Officer

The Petitioner alleged that the same officer who conducted the audit also issued the Show Cause Notice and passed the adjudicating order, constituting a conflict of interest and inherent bias. The legal principle is that adjudication must be free from bias and the appearance of bias to maintain fairness and impartiality.

The Court acknowledged this contention as a relevant issue affecting the integrity of the adjudicatory process. It recognized that the presence of conflict of interest could vitiate the order. However, the Court did not make a final finding on this issue at the interlocutory stage, leaving it open for detailed consideration.

Issue 5: Recovery of Tax Already Paid

The Petitioner contended that a sum of approximately Rs. 18.78 Crores had already been paid towards the tax liability, yet the adjudicating order seeks to recover this amount again, which is impermissible.

The Court noted this factual contention as a significant point of dispute regarding the quantum of recovery. It did not elaborate on the legal principles governing such recovery in the present order but acknowledged the need to examine this issue in due course.

Additional Procedural Observations

The Court recorded that Respondent Nos. 1 and 2 sought time to file an affidavit in reply, which was granted with directions for timelines for filing and rejoinder. Respondent No. 3, though served, did not appear but was given the opportunity to file an affidavit.

Regarding interim relief, the Court noted that similar issues are pending in other writ petitions, specifically referencing a related case where ad-interim relief was granted. Finding a strong prima facie case in favor of the Petitioner, the Court granted ad-interim relief by staying the operation and execution of the impugned adjudicating order dated 29th August, 2024 until further orders.

The matter was posted for further hearing along with the related writ petition.

Significant Holdings

The Court held that the Notifications extending the time for adjudication under Section 168-A of the CGST Act must be issued on the recommendation of the GST Council, underscoring the mandatory nature of this procedural requirement.

It was observed that failure to comply with this requirement potentially renders the Notifications void ab initio, thereby affecting the limitation period for adjudication under Section 73(10).

The Court emphasized the necessity of issuing the Show Cause Notice at least three months prior to the limitation expiry date as prescribed under Section 73(2), highlighting the procedural safeguard for fair adjudication.

Regarding conflict of interest, the Court recognized that the same officer conducting audit and adjudication raises serious questions about impartiality and bias, which could invalidate the adjudicating order.

In granting ad-interim relief, the Court stated: "A strong prima facie case is made out for granting of ad-interim relief," and accordingly stayed the effect, operation, and execution of the impugned order pending final disposal.

The judgment thus preserves the core principles of statutory compliance with procedural safeguards, adherence to limitation periods, and impartiality in adjudication under the CGST Act.