Delhi High Court: Demand Notice under CGST Act Set Aside for Violating Principles of Natural Justice

In a significant ruling, the Delhi High Court, comprising Hon’ble Mr. Justice Vibhu Bakhru and Hon’ble Mr. Justice Amit Mahajan, delivered a landmark judgment on 24^th July 2023, setting aside a demand order issued under the Central Goods and Services Tax Act (CGST Act). The court found that the demand order was passed without affording the petitioner an opportunity of personal hearing, thereby violating fundamental principles of natural justice.

The petitioner, represented by eminent advocates Mr. Chinmaya Seth and Mr. A.K. Seth, challenged the validity of the demand order, raising a substantial tax demand against them. They contended that the order was passed without granting them a fair chance to present their case, which is a fundamental right enshrined in Article 226 of the Constitution of India.

The court observed, “The principles of natural justice require a meaningful opportunity for a party to present its arguments,” highlighting the importance of a proper personal hearing rather than mere telephonic conversations or office visits. The lack of clarity in the date of the hearing proceedings further substantiated the petitioner’s claim.

Referring to the relevant statutory provisions, the court emphasized that Section 75(4) and Section 75(5) of the CGST Act make it mandatory to grant an opportunity of hearing to the affected party upon receiving a written request or when contemplating any adverse decision. The court affirmed that such hearings are not mere formalities but essential aspects of audi alteram partem, the principle that no one should be condemned unheard.

Despite the availability of alternate remedies, the court asserted that the availability of an alternate remedy does not necessarily bar the writ jurisdiction. The High Courts have the discretionary power to entertain writ petitions, especially when there is a clear violation of principles of natural justice or statutory provisions.

The court also expressed its displeasure over the respondent’s conduct for failing to file a counter affidavit and contesting the case without a proper response. As a consequence, the respondent was directed to pay a cost of ₹5,000, and action may be taken against the officer responsible for the misconduct.

Delhi High Court set aside the impugned demand notice and remanded the matter to the respondent for passing a fresh order after providing the petitioner with a proper and fair opportunity to be heard.

Date of Decision: 24th July 2023

M/S JUPITER EXPORTS   vs COMMISSIONER OF GST