Denial of ITC for Mismatch Without Opportunity of Hearing Set Aside

Denial of ITC for Mismatch Without Opportunity of Hearing Set Aside; Validity of Limitation Extension Notifications to be Decided by Supreme Court.

Issue:

Whether an Input Tax Credit (ITC) denial order based on a mismatch in returns can be upheld if the assessee was not served with the Show Cause Notice (SCN) and/or not afforded proper opportunities to file a reply and be heard.
What is the status of the challenge to Notification Nos. 56/2023-Central Tax dated December 28, 2023, and 56/2023-State Tax dated July 11, 2024, which extend the limitation period for passing orders, allegedly contrary to Section 168A of the CGST Act, 2017.

Facts:

A show cause notice (SCN) was issued to the assessee, alleging wrongful availment of Input Tax Credit (ITC) due to certain differences in the returns filed by the assessee. Subsequently, an impugned order was passed. The assessee’s primary contention was that they were not properly served with the SCN and, more critically, were not afforded adequate opportunities to file a reply and to be heard before the impugned order was passed. The assessee also challenged the validity of Notification Nos. 56/2023-Central Tax and 56/2023-State Tax, arguing that these notifications, which extended the limitation period for passing orders, were issued contrary to the mandate of Section 168A of the CGST Act, 2017.

Decision:

In favor of the assessee: The court acknowledged that the challenge to the aforementioned notifications (regarding the extension of the limitation period under Section 168A) is currently under consideration before the Supreme Court in HCC-SEW-MEIL-AAG JV v. Assistant Commissioner of State Tax [S.L.P No. 4240 of 2025, dated February 21, 2025]. Therefore, the assessee’s challenge to these notifications in the present proceedings will also be subject to the outcome of the Supreme Court’s decision.

Crucially, the court held that since the assessee was not afforded a proper opportunity to be heard, such an opportunity ought to have been granted to them to contest the matter on merits. Accordingly, the impugned order was set aside, and the assessee was granted time to file a reply to the SCN.

Key Takeaways:

Fundamental Right to Hearing (Natural Justice): Regardless of the merits of the allegations (like ITC mismatch), the principles of natural justice mandate that an assessee must be given a proper opportunity to present their case, including filing a reply to the SCN and being heard, before any adverse order is passed. Failure to provide this opportunity is a significant procedural irregularity that can lead to the setting aside of the order.
Interim Relief for Procedural Lapses: Courts often set aside orders on procedural grounds (like denial of natural justice) and remand the matter back to the lower authority for fresh adjudication after providing the necessary opportunity, rather than ruling on the merits of the tax demand immediately.
Pendency of Similar Issues Before Higher Courts: When a legal question (like the validity of notifications extending limitation periods) is sub-judice before a higher court (e.g., Supreme Court), lower courts typically acknowledge this and make their decisions on other grounds, stating that the specific issue will be governed by the higher court’s eventual ruling. This indicates the widespread legal debate and uncertainty surrounding the validity of these GST limitation extension notifications.
Section 168A and Force Majeure: The validity of extensions under Section 168A of the CGST Act hinges on whether the conditions of “force majeure” (like the COVID-19 pandemic) truly warranted such extensions and whether the procedural requirements, particularly GST Council recommendations, were fulfilled. This is a complex legal issue with conflicting High Court judgments, now awaiting definitive clarity from the Supreme Court.

HIGH COURT OF DELHI

Gardgil Vohra Ventures (P.) Ltd.

Sales Tax Officer Class II Avato

PRATHIBA M. SINGH and Rajneesh Kumar Gupta, JJ.

W.P.(C) No. 5431 OF 2025
CM APPL. No. 24753 OF 2025

APRIL 28, 2025

Pulkit Verma, Adv. for the Petitioner. Sumit K. Batra, Adv. for the Respondent.

ORDER

1. This hearing has been done through hybrid mode.

2. The present petition has been filed by the Petitioner- Gardgil Vohra Ventures Private Limited under Article 226 and 227 of the Constitution of India, inter alia, seeking issuance of an appropriate writ assailing the impugned order dated 9th August 2024 passed by the Respondent No. 1- Sales Tax Officer, Class II/AVATO, Ward 101 (hereinafter, ‘impugned order’).

3. This is a case where the Show Cause Notice (hereinafter, ‘SCN’) has been issued on 23^rd May, 2024 alleging wrongful availment of Input Tax Credit (hereinafter, ‘ITC’) on the basis of certain differences in the returns filed by the Petitioner.

4. A perusal of the SCN itself would show that reconciliation would be required of the returns filed by the Petitioner. Moreover, no reply has been filed to the SCN by the Petitioner and it appears that the Petitioner has missed the SCN.

5. The present petition inter alia challenge to Notification Nos. 56/2023-Central Tax dated 28th December 2023 and 56/2023-State Tax dated 11th July 2024 (hereinafter, ‘impugned notifications’).

6. This Court had the opportunity to hear a batch of petitions wherein inter alia, the impugned notifications have been challenged. DJST Traders (P.) Ltd. v. Union of India [W.P.(C) No. 16499 of 2023, dated 22-4-2025] is the lead matter in the said batch of petitions. In the said petition, on 22nd April, 2025, the parties were heard at length qua the validity of the impugned notifications and accordingly, the following order was passed:

“4. Submissions have been heard in part. 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. In respect of Notification no.9, the recommendation was made prior to the issuance of the same. However, insofar as Notification No. 56/2023 (Central Tax) the challenge is that 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. Insofar as the Notification No. 56 of 2023 (State Tax) is concerned, the challenge is to the effect that the same was issued on 11th July, 2024 after the expiry of the limitation in terms of the Notification No.13 of 2022 (State Tax).

5. In fact, Notification Nos. 09 and 56 of 2023 (Central Tax) were challenged before various other High Courts. The Allahabad Court has upheld the validity of Notification no.9. The Patna High Court has upheld the validity of Notification no.56. Whereas, the Guwahati High Court has quashed Notification No. 56 of 2023 (Central Tax).

6. The Telangana High Court while not delving into the vires of the assailed notifications, made certain observations in respect of invalidity of Notification No. 56 of 2023 (Central Tax). This judgment of the Telangana High Court is now presently under consideration by the Supreme Court in HCC-SEW-MEIL-AAG JV v. Assistant Commissioner of State Tax [S.L.P No. 4240 of 2025, dated 21-2-2025] titled M/s HCC-SEW-MEIL-AAG JV v. Assistant Commissioner of State Tax & Ors. The Supreme Court vide order dated 21st February, 2025, passed the following order in the said case:

“1. The subject matter of challenge before the High Court was to the legality, validity and propriety of the Notification No.13/2022 dated 5-7-2022 & Notification Nos.9 and 56 of 2023 dated 31-32023 & 8-12-2023 respectively.

2. However, in the present petition, we are concerned with Notification Nos.9 & 56/2023 dated 31-3-2023 respectively.

3. These Notifications have been issued in the purported exercise of power under Section 168 (A) of the Central Goods and Services Tax Act. 2017 (for short, the “GST Act”).

4. We have heard Dr. S. Muralidhar, the learned Senior counsel appearing for the petitioner.

5. The issue that falls for the consideration of this Court is whether the time limit for adjudication of show cause notice and passing order under Section 73 of the GST Act and SGST Act (Telangana GST Act) for financial year 2019-2020 could have been extended by issuing the Notifications in question under Section 168-A of the GST Act.

6. There are many other issues also arising for consideration in this matter.

7. Dr. Muralidhar pointed out that there is a cleavage of opinion amongst different High Courts of the country. 8. Issue notice on the SLP as also on the prayer for interim relief, returnable on 73-2025.”

7. In the meantime, the challenges were also pending before the Bombay High Court and the Punjab and Haryana High Court. In the Punjab and Haryana High Court vide order dated 12th March, 2025, all the writ petitions have been disposed of in terms of the interim orders passed therein. The operative portion of the said order reads as under:

“65. Almost all the issues, which have been raised before us in these present connected cases and have been noticed hereinabove, are the subject matter of the Hon’ble Supreme Court in the aforesaid SLP.

66. Keeping in view the judicial discipline, we refrain from giving our opinion with respect to the vires of Section 168-A of the Act as well as the notifications issued in purported exercise of power under Section 168-A of the Act which have been challenged, and we direct that 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.

67. Since the matter is pending before the Hon’ble Supreme Court, the interim order passed in the present cases, would continue to operate and would be governed by the final adjudication by the Supreme Court on the issues in the aforesaid SLP-4240-2025.

68. In view of the aforesaid, all these connected cases are disposed of accordingly along with pending applications, if any.”

8. The Court has heard Id. Counsels for the parties for a substantial period today. A perusal of the above would show that various High Courts have taken a view and the matter is squarely now pending before the Supreme Court.

9. Apart from the challenge to the notifications itself, various counsels submit that even if the same are upheld, they would still pray for relief for the parties as the Petitioners have been unable to file replies due to several reasons and were unable to avail of personal hearings in most cases. In effect therefore in most cases the adjudication orders are passed ex-parte. Huge demands have been raised and even penalties have been imposed.

10. Broadly, there are six categories of cases which are pending before this Court. While the issue concerning the validity of the impugned notifications is presently under consideration before the Supreme Court, this Court is of the prima facie view that, depending upon the categories of petitions, orders can be passed affording an opportunity to the Petitioners to place their stand before the adjudicating authority. In some cases, proceedings including appellate remedies may be permitted to be pursued by the Petitioners, without delving into the question of the validity of the said notifications at this stage.

11. The said categories and proposed reliefs have been broadly put to the parties today. They may seek instructions and revert by tomorrow i.e., 23rd April, 2025. “

7. As observed by this Court in the order dated 22nd April, 2025 as well, since the challenge to the above mentioned notifications is presently under consideration before the Supreme Court in HCC-SEW-MEIL-AAG JV v. Assistant Commissioner of State Tax [S.L.P No. 4240 of 2025, dated 21-2-2025], the challenge made by the Petitioner to the impugned notifications in the present proceedings shall also be subject to the outcome of the decision of the Supreme Court.

8. On facts, however, the submission of the Petitioner in the present petition is that the Petitioner was not served with the SCN and the impugned order. Moreover, the Petitioner was not afforded with an opportunity to file a reply to the SCN and the impugned order was passed without affording the Petitioner with an opportunity to be heard. Hence, the impugned order is a non-speaking order and is liable to be set aside on the said ground.

9. Heard. The Court has considered the submissions made.

10. This Court is of the opinion that since the Petitioner has not been afforded an opportunity to be heard and the said SCN and consequent impugned order have been passed without hearing the Petitioner, an opportunity ought to be afforded to the Petitioner to contest the matter on merits.

11. Accordingly, the impugned order is set aside. The Petitioner is granted 30 days’ time to file the reply to SCN. Upon filing of the reply, the Adjudicating Authority shall issue to the Petitioner, a notice for personal hearing. The personal hearing notice shall be communicated to the Petitioner on the following e-mail address:

E-mail Address: pulkit@enurelegal.com

12. The reply filed by the Petitioner to the SCN along with the submissions made in the personal hearing proceedings shall be duly considered by the Adjudicating Authority and fresh order with respect to the SCN shall be passed accordingly. Insofar as the validity of the notifications under challenge are concerned, the same would be bound by the outcome of the decision of the Supreme Court.

13. The petition is disposed of in these terms. All pending applications, if any, are also disposed of.