Ex-Parte GST Orders Set Aside as Notice on Old Portal Denied Effective Hearing to Successor.

Issue

Whether ex-parte GST assessment orders are legally valid when the Show Cause Notices (SCNs) were uploaded to the GST portal of the erstwhile proprietorship (which remained active but unmonitored by the successor), thereby denying the petitioner an effective opportunity to respond and be heard.

Facts

• Petitioner: Kalyr Retail Pvt. Ltd., operating as the successor in interest of M/s. Freeway Clothing Company.

• Business Transfer: The petitioner had taken over the business of a proprietorship firm and obtained a fresh GST registration for the new entity.

• Old Registration Status: Crucially, the GST registration of the erstwhile proprietorship remained “active” despite the takeover.

• Service of Notice: The GST department issued Show Cause Notices (SCNs) for past periods (FY 2017-18 and 2018-19) to the old registration number/portal of the erstwhile firm.

• Missed Communication: The petitioner did not monitor the old portal and was unaware of these notices. Consequently, no reply was filed, and they did not attend any personal hearing.

• Impugned Orders: The department passed ex-parte orders confirming the tax demand, which the petitioner challenged in the High Court on the grounds of a violation of natural justice.

Decision

• The Delhi High Court set aside the impugned ex-parte orders.

• Breach of Natural Justice: The Court held that the absence of a reply and the lack of representation were due to the petitioner not monitoring the old portal. Passing adverse orders without ensuring the petitioner had actual knowledge or an “effective opportunity” to be heard constituted a breach of natural justice.

• Remand with Liberty: The matter was remanded back to the adjudicating authority. The petitioner was granted liberty to file replies to the SCNs within a prescribed time.

• Fresh Hearing: The proper officer was directed to provide a personal hearing to the petitioner and pass fresh, reasoned orders thereafter.

• Notification Challenge Kept Open: The Court explicitly refrained from ruling on the validity of the time-limit extension notifications (e.g., Notification No. 56/2023), keeping those legal questions subject to the outcome of pending Supreme Court proceedings.

Key Takeaways

• Effective Service vs. Technical Compliance: Merely uploading a notice to a technically “active” portal is insufficient if it fails to provide effective notice to the taxpayer, especially in cases involving business transfers.

• Successor’s Right to Defend: A successor entity liable for past dues must be given a fair chance to defend the case on its merits. Relying solely on the old portal for communication can defeat this right.

• Remand is the Standard Remedy: In cases where the violation is a denial of hearing (rather than a lack of jurisdiction), courts prefer to remand the case for a fresh adjudication rather than quashing the demand outright.

• Natural Justice is Paramount: Procedural lapses by a taxpayer (like not checking an old portal) may be excused by the court if the result is a gross violation of the principle of audi alteram partem (no one should be condemned unheard).