“Every Show Cause Notice Must Culminate in a Final, Reasoned Order”: Supreme Court Underscores Adjudication Is Mandatory Under GST Law, Even After Payment

“Section 129(5) Does Not Override Section 129(3); Officer Must Pass Speaking Order Despite Payment to Preserve Right of Appeal”, Supreme Court Sets Precedent: GST Officers Must Issue Reasoned Orders Even If Tax and Penalty Are Paid – Deeming Fiction Cannot Defeat Due Process.

On 24 July 2025, the Supreme Court of India, in a landmark judgment in M/s ASP Traders v. State of Uttar Pradesh & Ors. (Civil Appeal No. 9764 of 2025), decisively held that GST authorities are statutorily bound to pass a final, reasoned adjudication order under Section 129(3) of the Central Goods and Services Tax Act, 2017, even when the taxpayer chooses to pay tax and penalty to secure release of detained goods.

Rejecting the State’s contention that the proceedings stood concluded under the deeming fiction of Section 129(5), the Court ruled:

“The deeming fiction under Section 129(5) cannot be interpreted to imply that the assessee has agreed to waive or abandon the right to challenge the levy – a right that is protected by the very enactment itself.”

This significant ruling reinforces the importance of procedural fairness, transparency, and the constitutional guarantee under Article 265, which mandates that “no tax shall be levied or collected except by authority of law.”

Goods Detained, Payment Made Under Protest, But No Order Passed

M/s ASP Traders, a registered dealer of red arecanut based in Karnataka, dispatched a consignment of 17,850 kg to Delhi. During the transit, 7 bags were found missing after a vehicle change, prompting the Mobile Squad in Jhansi to detain the vehicle on 17 January 2022. A notice under Section 129(3) of the CGST Act was issued alleging short delivery and fictitious details of the consignee.

In response, the appellant filed written objections on 24 January 2022 denying the allegations. However, citing business exigencies, it paid Rs. 7,20,440/- under Form GST DRC-03 on 27 January 2022 to secure release of the goods.

While the goods were released through Form GST MOV-05, no final adjudication order was passed in Form GST MOV-09, and no summary of demand was uploaded in Form GST DRC-07. The department later claimed that objections had been orally withdrawn and the matter stood concluded under Section 129(5).

The appellant denied any withdrawal of objections and persistently sought a reasoned order, invoking their right to challenge the levy under Section 107, which allows appeal only against a formal order. When repeated representations went unanswered, they approached the Allahabad High Court, which dismissed their petition holding that the proceedings were concluded under the law.

Aggrieved, the appellant brought the matter before the Supreme Court.

Supreme Court's Analysis: Right to Adjudication and Appeal Cannot Be Waived by Payment Alone

The apex court framed the central issue as:

“Whether, upon payment of tax and penalty under protest, the proper officer is still mandatorily required to pass a final order under Section 129(3), or whether the deeming fiction under Section 129(5) dispenses with such requirement.”

Justice R. Mahadevan, writing the judgment, dissected the statutory framework of Section 129 and Rule 142 of the CGST Rules. The Court emphasized:

“The use of the words ‘and thereafter, pass an order’ in Section 129(3) reinforces the mandatory nature of passing a reasoned order, regardless of payment, particularly where protest or dispute is raised.”

Further, addressing the circular dated 13 April 2018 issued by the CBIC, which is binding under Section 168 of the Act, the Court held:

“The proper officer must issue the release order in Form GST MOV-05. Additionally, he is required to pass a formal order in Form GST MOV-09 and upload it on the common portal. A summary of this order must be uploaded in Form GST DRC-07.”

Rejecting the State’s claim that the payment was voluntary and objections had been withdrawn orally, the Court noted:

“As between a written reply and an oral submission contrary to such reply, the written reply would prevail.”

It also highlighted a systemic flaw: the GST portal classifies all DRC-03 payments as “voluntary”, leaving no mechanism for recording payment “under protest”. This, the Court noted, cannot be held against taxpayers:

“Such procedural limitations cannot be allowed to defeat the rights of the taxpayer, particularly where the detention of goods is ultimately found to be unlawful.”

“There Can Be No Acquiescence in Tax”: Waiver Must Be Express and Voluntary

In strong terms, the Court reiterated that tax obligations cannot be created by presumption or implied waiver:

“By the constitutional mandate under Article 265, no tax can be levied or collected except with the authority of law. There is not only a bar against levy but also against collection.”

Citing Sha Mulchand & Co. Ltd. v. Jawahar Mills Ltd. and Bhau Ram v. Baij Nath Singh, the Court underscored:

“Waiver or acquiescence must be express or so unequivocally implied that it is tantamount to estoppel. Payment under protest, especially to avoid business losses, cannot be deemed a waiver.”

Fairness in Quasi-Judicial Function: Reasoned Orders Are Essential to Ensure Right of Appeal

Relying on the judgment in Kranti Associates v. Masood Ahmed Khan, the Court reaffirmed that:

“Reasons facilitate the process of judicial review. A pretence of reasons or ‘rubber-stamp reasons’ is not to be equated with a valid decision-making process.”

The absence of a reasoned order under Section 129(3), the Court held, renders the statutory right of appeal under Section 107 nugatory:

“An appeal can lie only against an ‘order’. In the absence of a reasoned order passed under Section 129(3), the taxpayer is effectively deprived of the statutory remedy of appeal.”

Final Directions: Respondents Must Pass Speaking Order in GST MOV-09 and Upload DRC-07

Allowing the appeal, the Supreme Court set aside the High Court’s judgment and directed:

“Respondent No. 3 is directed to pass a reasoned final order under Section 129(3) of the CGST Act, 2017, in Form GST MOV-09, after granting an opportunity of being heard under Section 129(4), and upload the summary thereof in Form GST DRC-07 within one month from receipt of this judgment.”

It further clarified:

“Thereafter, it shall be open to the appellant to pursue appropriate legal remedies against such order, in accordance with law.”

A Verdict with Broader Ramifications: Ensuring Procedural Justice in GST Enforcement

This judgment stands as a strong reminder to the tax authorities that compliance with procedural law is not optional, and that “ease of doing business” must be matched by “ease of seeking justice”.

By affirming the mandatory requirement of adjudication and the preservation of appellate rights, the Supreme Court has reinforced taxpayers’ protections against arbitrary enforcement under GST, ensuring that “justice must not only be done but must also appear to be done.”

Date of Decision: July 24, 2025