GST demand order set aside and remanded for fresh adjudication due to denial of opportunity to reply to SCN

I. GST demand order set aside and remanded for fresh adjudication due to denial of opportunity to reply to SCN and be heard.

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

I. GST Demand Order Set Aside and Remanded Due to Denial of Opportunity to Reply to SCN and be Heard.

Issue:

Whether a GST demand order passed under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017), should be set aside and the matter remanded if the assessee was not afforded an opportunity to file a reply to the show cause notice (SCN) and was not granted an opportunity of being heard.

Facts:

• For the period 2019-20, pursuant to the issuance of a show cause notice (SCN), an impugned order in original was passed against the assessee.
• The assessee contended that they were not afforded an opportunity to file a reply to the SCN.
• Furthermore, the impugned order was passed without affording the assessee an opportunity of being heard.

Decision I:

The court held in favor of the assessee. It found that the assessee had not been afforded an opportunity to be heard, and therefore, an opportunity ought to be afforded to the assessee to contest the matter on merits. Accordingly, the assessee was granted time to file a reply to the SCN, and a fresh order was to be passed by the Adjudicating Authority. The matter was remanded.

Key Takeaways I:

• Fundamental Principle of Natural Justice: The judgment strongly reaffirms the “audi alteram partem” (hear the other side) principle. It is a fundamental requirement of natural justice that before any adverse order is passed, the affected party must be given proper notice of the allegations, a chance to respond in writing (file a reply), and an opportunity to be heard personally.
• Consequences of Non-Compliance: A demand order passed in violation of these fundamental principles is deemed procedurally invalid and unsustainable.
• Remedy of Remand: The standard judicial remedy for such procedural violations is to set aside the flawed order and remand the matter back to the original authority for fresh adjudication, ensuring that the assessee is given a proper opportunity to present their case on merits.
• Section 73: Even for demands not involving fraud, misstatement, or suppression (Section 73), strict adherence to procedural safeguards, including the right to be heard, is mandatory.

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 Nos. 9/2023-Central Tax and 56/2023-Central Tax, issued by the Central Board of Indirect Taxes and Customs (CBIC), concerning the extension of limitation periods for passing orders under the Central Goods and Services Tax Act, 2017 (CGST Act, 2017), when a similar matter 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.
• The assessee also challenged corresponding state notifications.
• These notifications, issued under Section 168A (Power to issue removal of difficulty orders) of the CGST Act, extended various limitation periods.
• It was brought to the court’s attention that a similar matter 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 held 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 similar matter was pending before the apex court. This implies a stay on this particular aspect of the writ petition.

Key Takeaways II:

• Judicial Comity and Restraint: High Courts typically defer to the Supreme Court on questions of law that are already under its consideration. This ensures consistency in legal interpretation and efficient use of judicial resources.
• Significance of Limitation Extensions: Notifications extending limitation periods, particularly under Section 168A, are crucial for taxpayers as they impact the finality of assessments. Their legal validity is a substantial question of law.
• “Subject to Outcome”: This means the High Court did not dismiss the assessee’s challenge to the notification outright but rather kept it alive, making its resolution contingent upon the Supreme Court’s ruling. This is a procedural relief for the assessee.
• Impact of Supreme Court Decision: The Supreme Court’s verdict on the validity of such notifications will have a binding effect on all courts and tax authorities, determining the validity of assessment orders passed within these extended periods.
• “Partly in favour of assessee/Matter stayed”: While the outcome of the stay is a procedural win for the assessee (as their challenge is not dismissed), it’s important to note that it’s not a definitive ruling on the merits of the notification’s validity.