An adjudication order passed without considering the assessee’s reply or providing a proper hearing is a violation of natural justice and will be set aside.
Issue
- Whether a demand order issued under Section 73 of the CGST/DGST Act is sustainable if it is passed without adequately considering the assessee’s reply to the show cause notice (SCN) and without affording a proper opportunity of being heard.
- What is the status of a challenge to the validity of Notification No. 56/2023-Central Tax and the corresponding State Tax Notification, which extend the period of limitation for adjudication?
Facts
The assessee challenged a demand order for the period 2018-19, which was passed following a show cause notice. The assessee contended that the Adjudicating Authority passed the order without properly considering the detailed reply submitted. In its reply, the assessee had admitted to a clerical mistake in filing a return and explained that this mistake was rectified through a credit note in the subsequent financial year (June 2019). The assessee argued that this specific explanation was not addressed or dealt with in the impugned order. Furthermore, it was submitted that no opportunity for a personal hearing was provided before the order was passed.
Concurrently, the assessee also challenged the constitutional validity of CBIC Notification No. 56/2023-Central Tax, dated December 28, 2023, and the parallel State Notification No. 56/2023-State Tax, dated July 11, 2024, which extended the statutory time limit for the Adjudicating Authority to pass the order.
Decision
The Court ruled in favor of the assessee on the issue of natural justice and remanded the matter for fresh consideration. On the challenge to the notifications, the Court decided to keep the matter pending, subject to higher court rulings.
- Demand Order: The Court observed that the assessee’s detailed reply, which explained the clerical error and its subsequent reversal, was not dealt with in the impugned order. Finding merit in the assessee’s contention that a proper opportunity to be heard was not provided and the reply was not duly considered, the Court set aside the demand order. The matter was remanded to the Adjudicating Authority for fresh adjudication after providing a proper hearing and considering the assessee’s submissions.
- Limitation Period: The Court noted that the validity of the central notification was already under consideration by the Supreme Court, and the challenge to the state notification was pending before the High Court. Therefore, the Court ruled that the assessee’s challenge to these notifications in the present case would be contingent upon the final decisions rendered by the Supreme Court and the High Court in the pending matters.
Key Takeaways
- An adjudicating authority is legally bound to consider all points raised by an assessee in its reply to a show cause notice. An order that fails to address the substantive defenses of the assessee is procedurally flawed.
- The principles of natural justice mandate that a proper opportunity of being heard must be granted to the assessee before an adverse order is passed. Failure to do so renders the order liable to be set aside.
- When the validity of a central or state notification is sub judice before the Supreme Court or a High Court, the outcome of related challenges in lower courts will typically be made subject to the final decisions of the higher judicial forums.
CM APPL. No. 32385 OF 2025
“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 31-32023 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.”
“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 Actas 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.”