Ex-Parte Order Quashed: Business Shutdown Treated as Bona Fide Reason for Non-Reply to Notices

Issue

Whether an ex-parte adjudication order passed under Section 73(9) of the CGST/KGST Act is legally sustainable when the assessee failed to file a reply to the Show Cause Notice (SCN) because the emails went unnoticed due to the shutdown of the business, and whether such circumstances warrant a remand for fresh consideration.

Facts

The Notice: The Respondent Authority issued a Show Cause Notice (SCN) under Section 73(1) pursuant to a final audit report, alleging discrepancies.
The Default: The assessee did not submit any reply to the SCN. Consequently, the Authority passed an ex-parte order under Section 73(9) confirming the demand.
Assessee’s Plea: The assessee approached the High Court, explaining that their business had been shut down. Due to this closure, the emails sent by the Department went un-noticed, and they were unaware of the proceedings.
Bona Fide Error: The assessee contended that the omission to reply was not deliberate but due to “unavoidable circumstances” and “bona fide reasons” arising from the business shutdown.

Decision

The Karnataka High Court ruled in favour of the assessee.
Sufficient Cause: The Court accepted the assessee’s explanation that the failure to respond was due to bona fide reasons (business shutdown) and not willful negligence.
Violation of Natural Justice: Passing an adverse order without the assessee’s participation, when valid reasons for non-appearance existed, was held to be a violation of the principles of natural justice.
Remand: The Court set aside the impugned order passed under Section 73(9). The matter was remitted back to the Respondent Authority for fresh consideration.
Direction: The assessee was granted an opportunity to file a reply to the SCN and contest the proceedings on merits.

Key Takeaways

Business Closure is a Valid Defense: Courts may consider the practical reality of a closed business (where emails/notices might be missed) as a “sufficient cause” to condone procedural lapses like non-reply to SCNs.
Opportunity to be Heard: The judgment reinforces that the right to a fair hearing is paramount. If a taxpayer misses the opportunity due to genuine hardship, the Court will likely reset the clock to ensure adjudication happens on merits, not by default.
Vigilance Required: While relief was granted, this case serves as a reminder for taxpayers to keep their contact details updated or monitor communications even after closing operations to avoid ex-parte liabilities.

HIGH COURT OF KARNATAKA

SDB Infrastructures

State of Karnataka^*

S.R.Krishna Kumar, J.

WRIT PETITION NO.28907 OF 2025 (T-RES)

OCTOBER 14, 2025

Dakshina Murthy R. and Lalu M.A., Advs. for the Petitioner. Hema Kumar K., AGA for the Respondent.

ORDER

1. In this petition, petitioner seeks the following reliefs:

“A. Quash the Adjudication Order in No.DCCT/(A)-2/DVG/GST/ADJN/2024-25/T-884 DT: 29.01.2025 passed by the Respondent No.2 in Annexure-H and Summary order in Form DRC-07 in Reference No.ZD2901251133191 dt: 29.01.2025 issued by the Respondent No.2 in Annexure-H1.

B. Issue a writ of certiorari or such other Writ, Order or direction as this Hon’ble Court may deem fit to quash the Recovery Notice in No.DCCT(ADT)-2/DVG/2025-26/57 dated 02.06.2025 in Annexure-J, issued by Respondent No.2, as illegal, arbitrary unsustainable and contrary to the provisions of CGST Act & KGST Act, 2017.”

C. Pass such other order or orders, directions and writs as this Hon’ble High Court may deem fit in the facts and circumstances of the case, and in the interests of justice, including the costs of this writ petition.”

2. Heard learned counsel for the petitioner and learned AGA for the respondents and perused the material on record.

3. A perusal of material on record will indicate that pursuant to the Final Audit Report dated 14.11.2024, the respondent issued a show-cause notice dated 23.11.2024 under Section 73(1) of the CGST/KGST Act, 2017 alleging that there were several discrepancies committed by the petitioner that were noticed during the audit proceedings. Since the petitioner did not submit its reply to the said show-cause notice, the respondent proceeded to pass the impugned order dated 29.01.2025 under Section 73(9) of the KGST Act, 2017 confirming the total demand of Rs.28,05,004/- including the tax, interest and penalty.

4. Learned counsel for the petitioner submits that since the petitioner’s business had been shut down, the e-mails which were sent by the respondents went un-noticed by the petitioner and consequently, couldn’t submit replies / documents to the showcause notice under Section 73(1) of the CGST/KGST Act, 2017 and resultantly, couldn’t contest the proceedings. Aggrieved by the said order, the petitioner having no option has approached this Court by way of the present petition interalia contending that the inability and omission on the part of the petitioner to submit a reply to the intimation notice and show-cause notice and contest the proceedings was due to bonafide reasons, unavoidable circumstances and sufficient cause and submits that if one more opportunity is provided, by setting aside the impugned order, the petitioner would submit a reply to the show-cause notice and contest the proceedings.

5. Per contra, learned AGA for the respondents submits that there is no merit in the petition and the same is liable to be dismissed.

6. Though several contentions have been urged by both sides, the counsel for the petitioner submits that the petitioner’s business had shut down its operations and the said notices that were sent by the respondent to the petitioner’s e-mail Id went unnoticed by the petitioner and the fact that the petitioner did not file its reply / documents culminated in the impugned ex-parte order.

7. Under these circumstances, having regard to the specific assertion on the part of the petitioner that its inability and omission to submit replies and contest the proceedings was due to bonafide reasons, unavoidable circumstances and sufficient cause, I deem it just and appropriate to adopt a justice oriented approach and provide one more opportunity to the petitioner by setting aside the impugned order dated 29.01.2025 and remitting the matter back to the respondent for reconsideration of the matter afresh in accordance with law from the stage of petitioner submitting reply to the impugned show-cause notice dated 23.11.2024.

8. In the result, I pass the following:

ORDER

(i) The petition is hereby allowed subject to the petitioner depositing cost of Rs.15,000/- to the Karnataka High Court Legal Services Authority, Bengaluru, within a period of six weeks from today.

(ii) The impugned order dated 29.01.2025 passed by the 2^nd respondent under Section 73(9) of the KGST Act, 2017 at Annexure – H is hereby set aside.

(iii) The matter is remitted back to the 2^nd respondent for reconsideration afresh in accordance with law from the stage of petitioner submitting its reply to the notice dated 23.11.2024 issued under Section 73(1)of the CGST/KGST Act, 2017.

(iv) The petitioner is directed to appear before the respondent on 18.11.2025 without awaiting further notice from the 2^nd respondent.

(v) The liberty is reserved in favour of the petitioner to submit replies, documents etc., which shall be considered by the 2^nd respondent, who shall provide sufficient and reasonable opportunity to the petitioner and hear them and proceed further in accordance with law.

(vi) In the event, the Petitioner does not appear before the respondent on 18.11.2025 as stated supra, present order shall stand automatically recalled without further orders.