Demand Order Set Aside for Non-Consideration of Assessee’s Detailed Reply, Matter Remanded

By | June 3, 2025
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I. Demand Order Set Aside for Non-Consideration of Assessee’s Detailed Reply, Matter Remanded

Issue:

Whether a demand order passed under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act), is valid if it fails to adequately consider the detailed reply filed by the assessee to the show cause notice (SCN), thereby violating the principles of natural justice.

Facts:

A show cause notice (SCN) was issued, and subsequently, an impugned order in original was passed under Section 73 of the CGST Act. The assessee contended that a detailed reply to the SCN had been filed, but it was not considered in the impugned order. While the impugned order stated that the reply filed by the assessee was “not satisfactory,” a perusal of the assessee’s reply revealed that various substantial grounds had been raised, which were not addressed or discussed in the order.

Decision:

The court held that since various grounds raised by the assessee in their detailed reply were not considered, the impugned order was to be set aside. The matter was remanded for fresh adjudication by the Adjudicating Authority, thereby ruling in favor of the assessee.

Key Takeaways:

  • Application of Mind by Adjudicating Authority: It is a fundamental principle of natural justice that the adjudicating authority must apply its mind to the submissions made by the assessee. Merely stating that a reply is “not satisfactory” without addressing the specific points raised constitutes a failure to consider the reply.
  • Speaking Order Requirement: A demand order, being a quasi-judicial order, must be a “speaking order.” This means it must contain reasons for the conclusions drawn and demonstrate that all material contentions and arguments raised by the assessee have been duly considered and dealt with.
  • Violation of Natural Justice: The non-consideration of a detailed reply to an SCN amounts to a denial of a proper opportunity of hearing and thus a violation of natural justice.
  • Remand as Remedy: When such a violation occurs, the typical remedy is to set aside the flawed order and remand the matter back to the original authority for fresh adjudication, with a direction to properly consider the assessee’s submissions.

II. Validity of GST Demand Limitation Period Extension Notifications Contingent on Supreme Court Ruling

Issue:

Whether the validity of CBIC Notification Nos. 9/2023-Central Tax, dated 31-03-2023, and 9/2023 – State Tax, issued by the Central Board and State respectively (which likely extend limitation periods for demand orders under Section 168A of the CGST Act), is legally sound.

Facts:

The assessee challenged the validity of CBIC Notification Nos. 9/2023-Central Tax, dated 31-03-2023, and 9/2023 – State Tax, dated 22-06-2023. These notifications are generally issued under Section 168A of the Central Goods and Services Tax Act, 2017, and its state counterparts, enabling the government to extend various time limits, often for the purpose of issuing demand orders under Section 73.

Decision:

The court noted that a similar matter concerning the validity of these notifications was already 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 21-02-2025). Therefore, the challenge made by the assessee to these notifications in the present proceedings would be subject to the outcome of the Supreme Court’s decision.

Key Takeaways:

  • Judicial Deference to Apex Court: Courts frequently defer to or make their decisions contingent upon the outcome of a similar legal challenge pending before the Supreme Court. This maintains judicial discipline and prevents conflicting interpretations on common questions of law.
  • Scope of Section 168A: The core legal debate revolves around the interpretation and application of Section 168A of the CGST Act, which grants powers to extend time limits for various compliance and enforcement actions. The Supreme Court’s ruling will provide definitive clarity on the extent and conditions under which such extensions are permissible.
  • Impact on Demand Orders: The validity of these notifications directly affects the legality of numerous demand orders issued by tax authorities that rely on these extensions to overcome the standard limitation periods.
  • Matter Stayed: The case being “stayed” implies that the proceedings related to the demand (specifically the aspect dependent on the validity of these notifications) are put on hold, awaiting the Supreme Court’s binding pronouncement. This offers interim relief to the assessee.
HIGH COURT OF DELHI
Korea Marine Transport Co. Ltd.
v.
Sales Tax Officer, Avato
PRATHIBA M. SINGH and Rajneesh Kumar Gupta, JJ.
W.P. (C) No. 323 of 2025
CM APPL. No. 1540 of 2025
MAY  7, 2025
Pulkit Verma, Adv. for the Petitioner. K.G. Gopalakrishnan, Sumit K. Batra, Ms. Nisha Mohandas, Subham Kumar, Dipak Raj and Anurag Ojha, SSC for the Respondent.
ORDER
Prathiba M. Singh, J.- This hearing has been done through hybrid mode.
2. The present petition has been filed by the Petitioner – Korea Marine Transport Co. Ltd. under Articles 226 of the Constitution of India inter alia challenging the following:
(i)The impugned order dated 30th December, 2023 passed by the Office of Sales Tax Officer Class II/AVATO Jurisdiction, Ward 204, Delhi;
(ii)Notification No. 9/2023-Central Tax dated 31st March, 2023, and;
(iii)Notification No. 9/2023-State Tax dated 22nd June, 2023.
3. The said notifications are challenged on the ground that the same are ultra vires to the Central Goods and Service Tax Act, 2017 and Delhi Goods and Service Tax Act, 2017.
4. The validity of the impugned notifications was under consideration before this Court in a batch of petitions with the lead petition being DJST Traders (P.) Ltd. v. Union of India  W.P.(C) 16499/2023. In the said batch of petitions, 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 S.L.P No 4240/2025 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 31-3-2023 & 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 7-3-2025.”

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. “
5. Thereafter, on 23rd April, 2025, this Court, having noted that the validity of the impugned notifications is under consideration before the Supreme Court, had disposed of several matters in the said batch of petitions after addressing other factual issues raised in the respective petitions. Additionally, while disposing of the said petitions, this Court clearly observed that the validity of the impugned notifications therein shall be subject to the outcome of the proceedings before the Supreme Court in HCC-SEW-MEIL-AAG JV v. Asstt. Commissioner of State Tax [S.L.P No. 4240 of 2025, dated 21-2-2025].
6. However, in cases where the challenge is to the parallel State Notifications, the same have been retained for consideration by this Court. The lead matter in the said batch is Engineers India Limited v. Union of India [W.P. (C) No. 9214 of 2024, dated 23-4-2025].
7. However, on facts, the submission of the Petitioner is that a detailed reply to the Show Cause Notice dated 24th November, 2023 has been filed which has not been considered in the impugned order.
8. The Court has perused the impugned order. The relevant portion of the same is extracted hereunder for ready reference:
“‘Whereas, a notice DRC-01 under section 73 of DGST/CGST Act, 2017 was issued to the taxpayer with details of tax demand as an attachment with the advice to pay the tax along with interest in DRC-03 within stipulated time given in the notice.
And whereas, the taxpayer through the notice DRC-01 under section 73 was also advised to file their objections/reply/supporting documents in DRC-06 within stipulated time i.e. 30 days from the date of issuance of the notice, if the taxpayer is not agreeing with the proposed demand of tax and interest in the notice DRC-01.
The taxpayer filed their reply. On scrutiny of the same, it has been observed that the same is not acceptable as incomplete, not duly supported by adequate documents, without proper justification and thus unable to clarify the issue.
Since, the reply filed is not clear and satisfactory, the demand of tax and interest conveyed via DRC-01 is confirmed, with the direction to deposit the amount mentioned in DRC-07 within three months from the date of receipt of this demand notice, failing which recovery proceedings u/s 79 of CGST Act will be initiated and the actions as per law will be initiated without further reference.”
9. On a perusal of the reply to the Show Cause Notice dated 24th November, 2023, it would show that various grounds have been raised by the Petitioner which have not been considered in the impugned order at all.
10. Accordingly the matter is remanded for fresh adjudication by the Adjudicating Authority.
11. It is however made clear that the issue in respect of the validity of the impugned notifications is left open. Any order passed by the Adjudicating Authority shall be subject to the outcome of the decision of the Supreme Court in HCC-SEW-MEIL-AAG JV (supra)and of this Court in Engineers India Limited (supra) qua the State notification.
12. Accordingly, the impugned order is set aside. The Adjudicating Authority shall issue a notice for personal hearing to the Petitioner. The personal hearing notice shall be communicated to the Petitioner on the following e-mail address:
Email ID: pulkit@enurelegal. com
13. The reply filed by the Petitioner dated 24th November, 2023, along with the submissions made by the Petitioner in the personal hearing shall be considered before passing the fresh order.
14. All the rights and remedies of the parties are left open. Access to the GST Portal, if not already available, shall be ensured to be provided to the Petitioner to enable access to the notices and related documents.
15. Petition is disposed of in these terms. All pending applications are also disposed of.