2025 (7) TMI 402 - HC - GST

Challenge to SCN and consequent order - vires of N/N. 56/2023-Central Tax dated 28th December 2023 and N/N. 9/2023-Central Tax dated 31st March 2023 - no reconciliation between GSTR-01 and GSTR-09 - Input Tax Credit has been claimed from dealers return defaulters and tax non payers - HELD THAT - Considering the fact that the Petitioner s application for rectification was decided without granting a proper hearing the matter deserves to be remanded to the concerned Authority to be considered afresh. Let the rectification application be heard afresh by the concerned Authority since clearly one of the grounds on which the demand has been raised in the impugned order for non-reconciliation of the GSTR-01 and GSTR-09 is that the GSTR-01 was not filed along with the reply to the SCN. However a perusal of the record would show that the GSTR-01 was clearly available with the Adjudicating Authority itself as is evident from the attachment to the DRC-07. The rectification application filed by the Petitioner is restored to its original number. The order dated 30th July 2024 rejecting the rectification application filed by the Petitioner is set aside - Petition disposed off.

Summary

The core legal questions considered in this judgment are:

1. Whether the show cause notice dated 4th December 2023 and the consequent order dated 29th April 2024 passed under the Delhi Trade & Taxes Department for the financial year 2018-19 are valid and sustainable.

2. The vires and validity of Notification No. 56/2023-Central Tax dated 28th December 2023 and Notification No. 9/2023-Central Tax dated 31st March 2023, issued under Section 168A of the Central Goods and Services Tax Act, 2017 (GST Act), particularly concerning the extension of time limits for adjudication under the GST framework.

3. Whether the adjudication and demand raised on grounds of non-reconciliation between GSTR-01 and GSTR-09 returns and the claim of Input Tax Credit (ITC) from dealers who are return defaulters or tax non-payers are justified.

4. Whether the rectification application filed by the petitioner against the impugned order was rightly dismissed without granting a hearing, and if not, the consequences thereof.

Issue-wise Detailed Analysis

Validity of Show Cause Notice and Impugned Order:

The petitioner challenged the show cause notice (SCN) and the impugned order for the financial year 2018-19, which raised a demand of approximately Rs. 2.38 crores on two grounds: (i) non-reconciliation of GSTR-01 and GSTR-09 returns, and (ii) wrongful claim of Input Tax Credit from dealers who were return defaulters or tax non-payers. The petitioner contended that the SCN and order were passed without proper opportunity for hearing, particularly highlighting that the rectification application was dismissed without hearing.

The Court noted that the rectification application was dismissed on 30th July 2024 without affording a hearing, which was procedurally improper. The Court emphasized that the adjudicating authority had the GSTR-01 return available on record (as per the attachment to DRC-07), and thus the ground of non-filing of GSTR-01 along with the reply to the SCN was factually incorrect. Consequently, the Court set aside the dismissal order of the rectification application and restored it to its original number, directing the authority to hear the petitioner afresh and decide the application.

The Court also mandated that no adjournment would be granted and that the petitioner must appear for the personal hearing, ensuring procedural fairness and adherence to principles of natural justice.

Validity of Notifications Nos. 56/2023 and 9/2023 (Central Tax):

The petitioner challenged the vires of the two notifications issued under Section 168A of the GST Act, which purportedly extended the time limits for adjudication of show cause notices and passing of orders under Section 73 of the GST Act for certain financial years.

The Court observed that the validity of these notifications was already under consideration before the Supreme Court in S.L.P. No. 4240/2025. The notifications were challenged on the ground that the proper procedure, including prior recommendation of the GST Council as mandated under Section 168A, was not followed. Specifically, Notification No. 56/2023 was alleged to have been issued without prior recommendation, with ratification occurring only subsequent to issuance, thus violating the statutory mandate.

The Court noted divergent views from various High Courts: the Allahabad and Patna High Courts upheld the validity of the notifications, while the Guwahati High Court quashed Notification No. 56/2023. The Telangana High Court's observations on the invalidity of Notification No. 56/2023 were under Supreme Court consideration. The Punjab and Haryana High Court refrained from expressing any opinion on the vires of the notifications, deferring to the Supreme Court's eventual decision.

Given the pendency of the issue before the Supreme Court and the conflicting High Court decisions, the Court declined to adjudicate the validity of the notifications at this stage and disposed of the petitions subject to the outcome of the Supreme Court proceedings.

Application of Law to Facts and Treatment of Competing Arguments:

The Court carefully balanced the procedural and substantive aspects. While it refrained from ruling on the notifications' validity due to ongoing Supreme Court proceedings, it nonetheless addressed the procedural impropriety in the adjudication process vis-`a-vis the rectification application. The Court's approach ensured that the petitioner's right to be heard was protected notwithstanding the larger legal controversy surrounding the notifications.

The Court also acknowledged the petitioner's contention that ex-parte orders were passed without providing adequate opportunity for filing replies or personal hearings, which raised serious concerns of fairness. The Court's direction for a fresh hearing on the rectification application was a remedial measure to uphold natural justice.

Significant Holdings

The Court held that:

"Under such circumstances, considering the fact that the Petitioner's application for rectification was decided without granting a proper hearing, the matter deserves to be remanded to the concerned Authority to be considered afresh."

Further, the Court observed:

"The rectification application filed by the Petitioner is restored to its original number. The order dated 30th July, 2024, rejecting the rectification application filed by the Petitioner is set aside."

On the validity of the impugned notifications, the Court stated:

"Various High Courts have taken a view and the matter is squarely now pending before the Supreme Court."

And, in deference to judicial discipline, the Court refrained from expressing any opinion on the vires of the notifications, leaving the matter to be decided by the Supreme Court.

Finally, the Court emphasized procedural fairness by directing:

"Let the Petitioner be sent a notice of personal hearing... Upon hearing the Petitioner, the rectification application be decided. It is made clear that no adjournment shall be granted to the Petitioner and the Petitioner shall appear on the date being fixed by the concerned Authority in the rectification application. All rights and remedies of parties are left open."