Demand Order Without Opportunity to File Reply and Be Heard is Invalid, Remanded for Fresh Adjudication

I. Demand Order Without Opportunity to File Reply and Be Heard is Invalid, Remanded for Fresh Adjudication

Issue:

Whether a demand order passed under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act), is valid if the assessee was not afforded an opportunity to file a reply to the show cause notice (SCN) and was not given an opportunity of being heard.

Facts:

For the period 2019-20, a show cause notice (SCN) was issued to the assessee, and subsequently, an impugned order in original was passed. The assessee contended that they were not given an opportunity to file a reply to the SCN and that the impugned order was passed without affording them an opportunity of being heard.

Decision:

The court held that the assessee had indeed not been afforded an opportunity to be heard. It was therefore necessary to grant the assessee an opportunity to contest the matter on merits. Accordingly, the matter was remanded, and the assessee was granted time to file a reply to the SCN, following which a fresh order was to be passed.

Key Takeaways:

• Principle of Natural Justice: This case reiterates the fundamental principle of natural justice, which requires that no person should be condemned unheard (audi alteram partem). Before passing an adverse order, especially one creating a demand, the assessee must be given a fair and reasonable opportunity to present their case, including filing a reply to the SCN and being heard.
• Mandatory Opportunity to File Reply: The right to file a reply to an SCN is a crucial part of the opportunity of being heard. Without it, the assessee cannot effectively explain their position or challenge the allegations.
• Consequence of Violation: Failure to provide such an opportunity is a material procedural irregularity that renders the impugned order invalid.
• Remand for Fresh Adjudication: When a violation of natural justice is found, the typical remedy is to set aside the impugned order and remand the matter back to the original authority for fresh adjudication after providing the assessee with the necessary opportunities.

II. Validity of GST Limitation Period Extension Notifications Subject to Supreme Court Decision

Issue:

Whether the validity of CBIC Notification Nos. 9/2023-Central Tax, dated 31-03-2023, and 56/2023-Central Tax, dated 28-12-2023, and corresponding State Circulars (likely extending limitation periods for demand orders under Section 168A of the CGST Act) is legally valid.

Facts:

The assessee challenged the validity of CBIC Notification Nos. 9/2023-Central Tax, dated 31-03-2023, and 56/2023-Central Tax, dated 28-12-2023, as well as the corresponding state notifications (Notification No. 9/2023 – State Tax, dated 22-06-2023; Notification No. 56/2023 – State Tax, dated 11-07-2024). These notifications, issued under Section 168A of the CGST Act, typically extend time limits for various actions, including the issuance of demand orders.

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:

• Sub Judice Principle: When a critical legal question, such as the validity of statutory notifications, is pending before the apex court, lower courts often defer or make their decisions contingent on the Supreme Court’s ruling. This ensures consistency and avoids conflicting judgments on a common issue.
• Scope of Section 168A: The challenge centers on the extent and legality of the powers granted under Section 168A of the CGST Act, which allows the government to extend time limits in exceptional circumstances, particularly force majeure events like the COVID-19 pandemic.
• Impact on Limitation Periods: The outcome of the Supreme Court’s decision will have widespread implications for the validity of demand orders issued beyond the original statutory limitation periods, where such extensions were relied upon by the revenue authorities.
• Interim Status: The “matter stayed” status means that while the assessee’s challenge remains active, its final resolution is paused, awaiting the Supreme Court’s authoritative pronouncement on the core legal issue. This provides temporary relief for the assessee concerning the contested demand period.