2025 (5) TMI 1110 - HC - GST

Vires of Notification No. 56/2023-Central Tax dated 28th December 2023 and Notification No. 56 of 2023-State Tax dated 11th July 2024 - Petitioner was not provided a proper hearing to present his case on merits - Principles of natural justice - HELD THAT - The Court has heard the parties and perused the records. Upon considering the totality of the circumstances and the fact that the Petitioner was not provided a proper hearing to present his case on merits the Court is inclined to give the Petitioner another opportunity to be heard. The impugned order dated 26th April 2024 is set aside. The Show Cause Notice shall now be replied to by the Petitioner both on the question of non-satisfaction of audit conditions under Section 66 as also on merits. The reply shall be filed by 10th July 2025 - Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

(a) The validity and vires of Notification No. 56/2023-Central Tax dated 28th December 2023 and Notification No. 56/2023-State Tax dated 11th July 2024 issued under Section 168A of the Central Goods and Services Tax Act, 2017 (CGST Act).

(b) Whether the procedure prescribed under Section 168A, including the prior recommendation of the GST Council, was duly followed before issuance of these notifications extending deadlines for adjudication under GST laws.

(c) The legality of the impugned Audit Notice dated 24th August 2023, Show Cause Notice dated 30th January 2024, and the order dated 26th April 2024 passed pursuant thereto.

(d) Whether the Petitioner was afforded a fair hearing and opportunity to present its case before the adjudicating authority, especially regarding non-satisfaction of audit conditions under Section 66 of the CGST Act.

(e) The scope of relief available to the Petitioner pending final adjudication on the validity of the notifications, particularly in light of conflicting High Court decisions and the ongoing Supreme Court proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Validity of Notifications under Section 168A of the CGST Act

The impugned notifications purportedly extend the time limits for adjudication of show cause notices under GST laws. Section 168A mandates that such extensions require prior recommendation of the GST Council. The Petitioner challenged the notifications on grounds that this procedural requirement was not complied with, and that the notifications were issued after expiry of limitation periods.

The Court noted that this issue is part of a larger batch of matters pending before various High Courts and the Supreme Court. Different High Courts have taken divergent views: the Allahabad and Patna High Courts upheld the validity of the notifications, while the Guwahati High Court quashed Notification No. 56/2023 (Central Tax). The Telangana High Court observed invalidity but did not conclusively decide the matter.

The Supreme Court has admitted a Special Leave Petition (SLP No. 4240/2025) addressing the legality of these notifications and has issued notice, acknowledging the cleavage of opinion among High Courts. The Supreme Court's order dated 21st February 2025 specifically framed the issue as whether the time limits for adjudication under Section 73 of the CGST Act and corresponding State GST Acts could be extended by the impugned notifications issued under Section 168A.

The Court recognized that the final determination on this issue is pending before the Supreme Court and accordingly refrained from expressing any opinion on the validity of the notifications. The Punjab and Haryana High Court, in a similar context, also refrained from deciding on the vires of Section 168A and the notifications, deferring to the Supreme Court's eventual ruling.

(b) Compliance with Audit Conditions under Section 66 of the CGST Act and Fair Hearing

On facts, the Petitioner contended that the audit conditions prescribed under Section 66 of the CGST Act were not satisfied in the present case and that despite repeated communications, no proper hearing was granted. The Petitioner submitted that replies were not considered, and adjudication orders were passed ex-parte, resulting in substantial demands and penalties.

The Department disputed these claims, asserting that the Petitioner had filed replies which were duly considered.

The Court, after hearing both sides and reviewing the records, found that the Petitioner was not provided a proper hearing to present its case on merits. In view of principles of natural justice and fair procedure, the Court set aside the impugned order dated 26th April 2024 and directed that the Petitioner be granted an opportunity to file a comprehensive reply addressing both the non-satisfaction of audit conditions under Section 66 and the merits of the case.

The Court further directed that a personal hearing be granted and that access to the GST Portal be ensured to facilitate the Petitioner's participation in the proceedings. The adjudicating authority was instructed to pass a fresh order after hearing the Petitioner on merits.

(c) Interim Relief and Scope of Adjudication Pending Supreme Court Decision

Given the pendency of the Supreme Court proceedings and conflicting judicial opinions, the Court examined whether interim relief could be granted to Petitioners who have been adversely affected by the impugned notifications and subsequent adjudication orders.

The Court observed that while the validity of the notifications is a threshold issue, it need not preclude the adjudicating authority from allowing Petitioners to present their case and pursue appellate remedies. The Court identified six broad categories of cases and indicated that depending on the category, appropriate procedural relief could be granted without prejudging the validity of the notifications.

The Court emphasized that all rights and remedies of the parties remain open and that the adjudication orders shall be subject to the outcome of the Supreme Court's decision on the notifications.

3. SIGNIFICANT HOLDINGS

"The issue in respect of the validity of the impugned notifications is left open and the order of the adjudicating authority shall be subject to the outcome of the decision of the Supreme Court and this Court."

"Upon considering the totality of the circumstances and the fact that the Petitioner was not provided a proper hearing to present his case on merits, the Court is inclined to give the Petitioner another opportunity to be heard."

"The impugned order dated 26th April, 2024 is set aside. The Show Cause Notice shall now be replied to by the Petitioner, both on the question of non-satisfaction of audit conditions under Section 66 as also on merits. The reply shall be filed by 10th July, 2025."

"Access to the GST Portal, if not already available, shall be ensured to be provided to the Petitioner to enable access to the notices and related documents."

"All the rights and remedies of the parties are left open."

The Court established the core principle that procedural fairness and opportunity to be heard must be ensured in GST adjudication proceedings, irrespective of the pending challenge to the validity of notifications extending limitation periods.

It also reaffirmed the doctrine of judicial restraint by deferring the question of the validity of the impugned notifications to the Supreme Court, recognizing the ongoing national litigation and divergent High Court rulings.

Finally, the Court's directions provide a framework for interim relief by permitting Petitioners to file replies, seek hearings, and have adjudication orders passed on merits, subject to future judicial pronouncements.