Facts of the Case

  • The petitioner challenged an order dated 07.02.2024 whereby a tax demand was created and adjusted against blocked Input Tax Credit (ITC).
  • The impugned order was stated to be passed under Section 73 of the CGST Act.
  • It was admitted by the respondent authority that no Show Cause Notice (SCN) or DRC-01 was issued prior to passing the demand order.
  • Earlier, a separate show cause notice dated 16.06.2023 had been issued for cancellation of GST registration, which was later dropped on 25.08.2023 after considering the petitioner’s reply.

Issues Involved

  1. Whether a demand order under Section 73 of the CGST Act can be passed without issuance of a Show Cause Notice?
  2. Whether such an order violates the principles of natural justice? 

Petitioner’s Arguments

  • The petitioner contended that:
    • The impugned order is illegal and unsustainable as no SCN was issued.
    • Section 73 mandates prior issuance of a show cause notice before raising any demand.
    • The action of the department violates principles of natural justice, particularly the right to be heard.

Respondent’s Arguments

  • The respondent authority, on instructions, fairly conceded that:
    • No show cause notice or DRC-01 had been issued prior to passing the impugned order. 

Court’s Findings

  • The Court observed that:
    • Section 73 clearly mandates issuance of a show cause notice before passing any demand order.
    • In the present case, admittedly no SCN was issued, making the order procedurally defective.
    • The failure to issue notice constitutes a clear violation of principles of natural justice.

Court Order / Decision

  • The Hon’ble Court:
    • Set aside (quashed) the impugned demand order dated 07.02.2024.
    • Held that the order is unsustainable solely on the ground of procedural illegality. 

Important Clarification by the Court

  • The Court clarified that:
    • The respondents are at liberty to initiate fresh proceedings in accordance with law.
    • Such proceedings must include:
      • Proper issuance of show cause notice
      • Grant of opportunity of personal hearing
    • The Court did not adjudicate on merits, and all rights and contentions remain open.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/62705042024CW49772024_112745.pdf

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