GST demand order set aside due to denied hearing opportunity after audit, remanding for fresh adjudication.

I. GST demand order set aside due to denied hearing opportunity after audit, remanding for fresh adjudication.

II. Challenge to GST limitation extension notifications is stayed pending Supreme Court’s decision.

I. GST Demand Order Set Aside Due to Denied Hearing Opportunity After Audit.

Issue:

Whether a GST demand order passed subsequent to an audit and show cause notice (SCN) should be set aside if the assessee was not granted a proper opportunity of hearing to present its case, and their emails were not considered.

Facts:

• An audit notice was issued to the assessee under Section 66 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017).
• Following the audit, a show cause notice (SCN) was issued, which was then followed by the impugned demand order under Section 73.
• The assessee challenged the demand order on several grounds:
  1. The requisite conditions under Section 66 (for conducting the audit) were not satisfied.
  2. Emails sent by the assessee during the process were not considered.
  3. A proper reply was not granted (implying no opportunity to file a full reply).
  4. A proper hearing was not granted.

Decision I:

The court held in favor of the assessee. It found that since the assessee was not granted a proper hearing opportunity to present its case, the court was inclined to grant another opportunity to be heard. Accordingly, the impugned order was set aside, and the assessee was directed to file a reply to the show cause notice, implying a remand for fresh adjudication after providing the necessary opportunity.

Key Takeaways I:

• Principles of Natural Justice are Paramount: This judgment strongly re-emphasizes the non-negotiable requirement for tax authorities to provide a proper and effective opportunity of hearing to an assessee before passing any adverse order. This includes the right to file a comprehensive reply to an SCN and to be personally heard.
• “Proper Hearing Opportunity”: The court’s finding that a “proper hearing opportunity” was not granted is crucial. This goes beyond mere issuance of a notice and requires active consideration of submissions and providing a chance for the assessee to explain their position.
• Non-consideration of Submissions (Emails): The fact that emails sent by the assessee were not considered further indicates a denial of effective opportunity.
• Remedy for Violation of Natural Justice: When such a fundamental procedural flaw is identified, the standard judicial remedy is to set aside the impugned order and remand the matter back to the adjudicating authority for fresh consideration after providing the necessary opportunity to the assessee.
• Audit Irregularities (Section 66): While the assessee raised contentions about Section 66, the court primarily focused on the violation of natural justice, which is a more immediate and fundamental ground for setting aside an order. The legality of the audit process itself might be a separate ground to be argued on merits after the remand.

II. Challenge to GST Limitation Extension Notifications Stayed Pending Supreme Court Decision.

Issue:

Whether a High Court should proceed with a challenge to the validity of Notification No. 9/2023-Central Tax, dated March 31, 2023, and Notification No. 56/2023-Central Tax, dated December 28, 2023 (issued by the Central Board of Indirect Taxes and Customs (CBIC) for extending limitation periods), when the same legal question is pending consideration before the Supreme Court.

Facts II:

• The assessee challenged the validity of two Central Tax Notifications:
  • Notification No. 9/2023-Central Tax, dated March 31, 2023.
  • Notification No. 56/2023-Central Tax, dated December 28, 2023.
• These notifications were issued under Section 168A of the CGST Act, 2017 (Power to issue removal of difficulty orders) and extended various limitation periods.
• It was brought to the court’s attention that the larger issue of the validity of such notifications extending limitation periods was pending consideration before the Supreme Court in HCC-SEW-MEIL-AAG JV v. Asstt. Commissioner of State Tax [S.L.P. No. 4240 of 2025, dated February 21, 2025].

Decision II:

The court ruled that the challenge made by the assessee to the notifications in the present proceedings would be subject to the outcome of the decision of the Supreme Court, as the matter was pending consideration before the apex court. The matter was effectively stayed on this point.

Key Takeaways II:

• Judicial Propriety: High Courts generally defer to the Supreme Court on questions of law that are already under its consideration, ensuring consistency and avoiding conflicting judgments.
• Significance of Section 168A Notifications: These notifications have broad implications as they directly impact statutory deadlines for assessments, refunds, and other GST proceedings. Their legal validity is a critical issue for numerous taxpayers.
• Stay of Proceedings: The court’s decision to “stay” the challenge means that the High Court will not issue a ruling on the validity of these notifications until the Supreme Court provides its judgment. This is a procedural relief for the assessee, keeping their challenge alive.
• Outcome Dependent on Supreme Court: The ultimate fate of the assessee’s challenge to the limitation extensions will depend entirely on the Supreme Court’s verdict in the referenced S.L.P.