2025 (4) TMI 1636 - HC - GST

Challenge to SCN and N/N. 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 - extension of time limits for adjudication under the GST regime - Petitioner has not been afforded an opportunity to be heard - 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 SCNs and concurrent impugned orders have been passed without hearing the Petitioner an opportunity ought to be afforded to the Petitioner to contest the matter on merits. Conclusion - The Petitioner is granted 30 days time to file the reply to SCNs. Upon filing of the reply the Adjudicating Authority shall issue to the Petitioner a notice for personal hearing. The impugned order set aside - petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment are:

- Whether the impugned Notifications Nos. 9/2023-Central Tax and 56/2023-Central Tax issued under Section 168A of the Central Goods and Services Tax Act, 2017 (CGST Act) are valid, particularly regarding the procedural requirements for extension of time limits for adjudication under the GST regime.

- Whether the issuance of Show Cause Notices (SCNs) and concurrent orders under Section 73 of the DGST/CGST Act, 2017 against the Petitioner's concern is valid, given that the GST registration of the Petitioner was cancelled prior to issuance of such notices.

- Whether the Petitioner was afforded adequate opportunity of hearing before passing the impugned orders.

- The applicability and effect of ongoing proceedings before the Supreme Court and other High Courts on the validity of the impugned notifications and orders.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Impugned Notifications under Section 168A of the CGST Act, 2017

Relevant Legal Framework and Precedents: Section 168A of the CGST Act mandates that any extension of the time limit for adjudication of show cause notices requires prior recommendation from the GST Council. The Notifications Nos. 9/2023 and 56/2023 were issued purportedly under this provision to extend deadlines for adjudication of SCNs and passing orders under Section 73 of the CGST Act.

Multiple High Courts have taken divergent views on the validity of these notifications. The Allahabad High Court upheld Notification No. 9, while the Patna High Court upheld Notification No. 56. Conversely, the Guwahati High Court quashed Notification No. 56. The Telangana High Court expressed concerns about the validity of Notification No. 56 without deciding on its vires, and this issue is presently under consideration before the Supreme Court in S.L.P No. 4240/2025.

Court's Interpretation and Reasoning: The Delhi High Court acknowledged the conflicting judicial opinions and noted that the matter is sub judice before the Supreme Court. It observed that Notification No. 9 was issued following the GST Council's recommendation, whereas Notification No. 56 was issued prior to such recommendation and incorrectly stated that it was based on the GST Council's recommendation, thus raising procedural infirmities.

Treatment of Competing Arguments: The Court noted the challenge to Notification No. 56 on the ground that it was issued after the expiry of limitation as per Notification No. 13/2022 (State Tax). The Court refrained from expressing any opinion on the validity of these notifications, deferring to the Supreme Court's pending adjudication.

Conclusions: The Court held that the challenge to the impugned notifications shall be subject to the final outcome of the Supreme Court's decision in S.L.P No. 4240/2025. Interim orders passed by other High Courts will continue to operate until the Supreme Court delivers its judgment.

Issue 2: Validity of SCNs and Orders Passed under Section 73 of the DGST/CGST Act against a Cancelled GST Registration

Relevant Legal Framework: 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 Petitioner's GST registration was cancelled on 23rd June 2020. Subsequently, SCNs and orders imposing tax liability and penalties were issued for financial years 2018-19 and 2019-20.

Court's Interpretation and Reasoning: The Court noted the Petitioner's submission that since the GST registration was cancelled before issuance of SCNs, the Petitioner was never served with the notices and was denied an opportunity to file replies or participate in personal hearings. The Court emphasized the fundamental principle of natural justice that no order should be passed without affording an opportunity to be heard.

Key Evidence and Findings: The Petitioner was unable to file replies or participate in hearings due to non-service of SCNs post cancellation of registration. The impugned orders were passed ex-parte, resulting in imposition of substantial demands and penalties.

Application of Law to Facts: The Court held that the impugned orders were passed without affording the Petitioner an opportunity of hearing, which is a violation of principles of natural justice and statutory requirements.

Treatment of Competing Arguments: Though the Respondents contended on the validity of the orders and notifications, the Court prioritized the Petitioner's right to be heard over the procedural challenges to the notifications, especially since the latter is sub judice before the Supreme Court.

Conclusions: The Court set aside the impugned orders and directed that the Petitioner be granted 30 days to file replies to the SCNs. The Adjudicating Authority was directed to issue personal hearing notices and consider the Petitioner's submissions before passing fresh orders.

Issue 3: Effect of Pending Supreme Court Proceedings on the Present Petitions

Relevant Legal Framework: The Supreme Court is seized of the issue regarding the validity of the impugned notifications under Section 168A of the CGST Act.

Court's Interpretation and Reasoning: The Court acknowledged the principle of judicial discipline and the need to avoid conflicting decisions on the same issue. It noted that various High Courts have stayed or disposed of petitions subject to the Supreme Court's final decision.

Conclusions: The Court disposed of the present petitions with the direction that the challenge to the impugned notifications will be governed by the Supreme Court's decision. Interim reliefs granted will continue until the Supreme Court pronounces its judgment.

3. SIGNIFICANT HOLDINGS

- "The broad challenge to both sets of Notifications is on the ground that the proper procedure was not followed prior to the issuance of the same. In terms of Section 168A, prior recommendation of the GST Council is essential for extending deadlines."

- "Notification No. 56 of 2023 (Central Tax) the extension was granted contrary to the mandate under Section 168A of the Central Goods and Services Tax Act, 2017 and ratification was given subsequent to the issuance of the notification. The notification incorrectly states that it was on the recommendation of the GST Council."

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

- "The impugned orders are set aside. The Petitioner is granted 30 days' time to file the reply to SCNs. Upon filing of the reply, the Adjudicating Authority shall issue to the Petitioner, a notice for personal hearing."

- "All these present connected cases shall be governed by the judgment passed by the Hon'ble Supreme Court and the decision thereto shall be binding on these cases too."

Core principles established include the mandatory requirement of prior GST Council recommendation for extension notifications under Section 168A, the necessity of adherence to natural justice principles in tax adjudication proceedings, and judicial discipline in deferring to the Supreme Court's ultimate authority on contentious legal questions.

Final determinations are that the validity of the impugned notifications is to be decided by the Supreme Court, and the impugned orders passed without hearing the Petitioner are set aside with directions for fresh adjudication after affording opportunity of hearing.