2025 (5) TMI 912 - HC - GST

Wrongful availment of Input Tax Credit on the basis of certain differences in the returns filed by the Petitioner - challenge to N/Ns. 56/2023-Central Tax dated 28th December 2023 and 56/2023-State Tax dated 11th July 2024 - no reply has been filed to the SCN by the Petitioner and it appears that the Petitioner has missed the SCN - Violation of principles of natural justice - HELD THAT - This Court is of the opinion that since the Petitioner has not been afforded an opportunity to be heard and the said SCN and consequent impugned order have been passed without hearing the Petitioner an opportunity ought to be afforded to the Petitioner to contest the matter on merits. 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

1. ISSUES PRESENTED and CONSIDERED

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

- Whether the impugned order dated 9th August 2024 passed by the Sales Tax Officer is valid, given the alleged non-service of the Show Cause Notice (SCN) and denial of opportunity to the Petitioner to file a reply or to be heard.

- Whether the impugned Notifications Nos. 56/2023-Central Tax and 56/2023-State Tax, challenged on grounds of procedural irregularity and validity under Section 168A of the Central Goods and Services Tax Act, 2017 (GST Act), are legally sustainable.

- The applicability and effect of judicial precedents and pending Supreme Court proceedings concerning the validity of these notifications and the extension of limitation periods for adjudication under the GST Act.

- The procedural fairness and principles of natural justice in the adjudication process, specifically whether ex-parte orders can be passed without affording the Petitioner an opportunity to be heard.

- The scope of relief available to the Petitioner in light of the ongoing legal challenges to the notifications and the procedural lapses alleged in the impugned order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Impugned Order in Light of Non-Service of SCN and Denial of Hearing

Relevant Legal Framework and Precedents: The principles of natural justice, particularly the audi alteram partem rule, require that a party be given an opportunity to be heard before adverse orders are passed. The GST Act mandates issuance of a Show Cause Notice and opportunity to reply before passing an order under Section 73.

Court's Interpretation and Reasoning: The Court noted that the Petitioner had not filed any reply to the SCN and appeared to have missed the SCN altogether. The impugned order was passed without affording the Petitioner an opportunity to file a reply or be heard. This rendered the order a non-speaking order and violative of natural justice.

Key Evidence and Findings: The record showed no evidence of service of the SCN or notice of personal hearing to the Petitioner. The Petitioner's submission that they were not served and hence could not respond was accepted.

Application of Law to Facts: Since the Petitioner was denied the opportunity to contest the allegations, the impugned order was set aside. The Court directed that the Petitioner be given 30 days to file a reply, followed by issuance of a notice for personal hearing, ensuring adherence to procedural fairness.

Treatment of Competing Arguments: The Respondents contended that the Petitioner had missed the SCN and that the order was passed in accordance with law. However, the Court emphasized that even if the Petitioner missed the SCN, procedural fairness mandates fresh opportunity before passing final orders.

Conclusion: The impugned order was quashed for non-compliance with principles of natural justice, and a fresh adjudication was directed after affording the Petitioner an opportunity to be heard.

Issue 2: Validity of Notifications Nos. 56/2023-Central Tax and 56/2023-State Tax

Relevant Legal Framework and Precedents: Section 168A of the GST Act governs extension of limitation periods for adjudication of show cause notices. Notifications issued under this provision require prior recommendation of the GST Council. Judicial precedents have shown divergence of opinion among various High Courts regarding the validity of these notifications.

Court's Interpretation and Reasoning: The Court reviewed the batch of petitions challenging the notifications, noting that the matter is sub judice before the Supreme Court in SLP No. 4240/2025. The Court acknowledged the conflicting High Court decisions: Allahabad and Patna High Courts upheld validity, Guwahati High Court quashed the notification, and Telangana High Court made observations on invalidity without deciding the vires.

Key Evidence and Findings: The Court relied on the interim orders and observations of other High Courts and the Supreme Court's order admitting the SLP and issuing notice on the validity of the notifications.

Application of Law to Facts: Given the ongoing Supreme Court proceedings, the Court refrained from expressing any opinion on the validity of the notifications and held that the outcome of the Supreme Court decision would be binding.

Treatment of Competing Arguments: The Petitioner challenged the notifications on procedural grounds, including lack of prior GST Council recommendation and expiry of limitation period. The Respondents defended the notifications as valid and binding. The Court deferred to the Supreme Court's adjudication.

Conclusion: The Court held that the challenge to the notifications would be subject to the Supreme Court's final decision, and no conclusive finding was made at this stage.

Issue 3: Relief and Interim Measures Pending Supreme Court Decision

Relevant Legal Framework and Precedents: The Court referred to prior orders of the Punjab and Haryana High Court and other courts, which stayed proceedings or granted interim relief pending Supreme Court adjudication.

Court's Interpretation and Reasoning: The Court recognized that many Petitions before it fall into categories where relief can be granted by allowing the Petitioners to file replies and pursue appellate remedies without delving into the validity of the notifications at this stage.

Key Evidence and Findings: The Court noted that in many cases, adjudication orders were passed ex-parte due to non-filing of replies or non-appearance, resulting in huge demands and penalties.

Application of Law to Facts: The Court directed that the Petitioner be given an opportunity to file replies and be heard, and that fresh adjudication orders be passed after considering the Petitioner's submissions. The Court also ordered that the personal hearing notices be sent to the Petitioner's counsel's email.

Treatment of Competing Arguments: While the Respondents sought enforcement of the impugned orders, the Court balanced the need for procedural fairness with the ongoing legal uncertainty, opting for a pragmatic approach to allow Petitioner to contest the matter on merits.

Conclusion: Interim relief was granted by setting aside the impugned order and directing fresh adjudication after opportunity to be heard, without prejudging the validity of the notifications.

3. SIGNIFICANT HOLDINGS

- "Since the Petitioner has not been afforded an opportunity to be heard and the said SCN and consequent impugned order have been passed without hearing the Petitioner, an opportunity ought to be afforded to the Petitioner to contest the matter on merits."

- "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."

- "Insofar as the validity of the notifications under challenge are concerned, the same would be bound by the outcome of the decision of the Supreme Court."

- The Court established the principle that procedural fairness and natural justice are paramount in tax adjudication proceedings, and ex-parte orders passed without hearing are liable to be set aside.

- The Court preserved judicial discipline by refraining from expressing an opinion on the validity of the impugned notifications pending the Supreme Court's decision, thereby underscoring the binding effect of apex court rulings on subordinate courts.

- The Court's final determination on the impugned order was to quash it and mandate fresh adjudication with full opportunity to the Petitioner, while the challenge to the notifications remains pending before the Supreme Court.