Telangana HC Orders Fresh GST Appeal Hearing After Natural Justice Violation

Rythu Seva Kendram Bairanpally Vs Superintendent of Central Tax (Telangana High Court)

Telangana High Court Sets Aside GST Appellate Order Passed Without Hearing and Keeps Challenge to Section 16(2)(c) Open Analysis of M/s. Rythu Seva Kendram Bairanpally v. Superintendent of Central Tax  

In an important ruling concerning appellate procedure, natural justice, and challenges to supplier default-based ITC denial provisions, the Telangana High Court in M/s. Rythu Seva Kendram Bairanpally v. Superintendent of Central Tax held that an appellate order rejecting an appeal without granting hearing cannot be sustained.

The judgment dated 30.03.2026 is particularly significant because it also addresses the increasingly litigated constitutional challenge to Sections 16(2)(c) and 16(2)(aa) of the CGST Act, while simultaneously protecting the assessee from coercive recovery during remanded appellate proceedings.

Background of the Dispute

The writ petition challenged:

• Appellate rejection order in FORM GST APL-02 dated 13.11.2025;
• Order-in-Original dated 13.02.2025;
• DRC-07 dated 20.02.2025; and
• constitutional validity of Sections 16(2)(c) and 16(2)(aa) of the CGST Act.

The petitioner also sought protection against recovery proceedings and bank attachment.

The dispute primarily arose from denial of Input Tax Credit (ITC), allegedly linked to supplier defaults under Section 16(2)(c).

Core Grounds Raised by the Petitioner

The petitioner argued that:

• the appellate authority rejected the appeal without granting opportunity of hearing;
• such rejection violated:
  • Section 107(8),
  • Section 107(11),
  • Section 107(12) of the CGST Act; and
  • principles of natural justice.

Additionally, the petitioner challenged the constitutional validity of:

• Section 16(2)(c), and
• Section 16(2)(aa),

contending that:

• purchasers should not suffer for supplier defaults;
• the provisions are arbitrary and violative of Articles 14, 19, 265 and 300A of the Constitution.

Revenue’s Position

The CBIC informed the Court that:

• no opportunity of hearing was granted because the appeal itself was treated as time-barred.

High Court’s Findings

The Division Bench comprising Aparesh Kumar Singh and G.M. Mohiuddin held that:

• the appellate order deserved to be set aside;
• the matter should be remanded for fresh adjudication after granting hearing opportunity.

The Court therefore:

• quashed the appellate order dated 13.11.2025; and
• remitted the matter back to the appellate authority.

Significant Observations on Constitutional Challenge

One of the most notable aspects of the judgment is the Court’s handling of the vires challenge to Sections 16(2)(c) and 16(2)(aa).

The Court observed that:

• the petitioner had not initially approached the Court directly challenging the vires provisions;
• instead, the challenge emerged during appellate proceedings.

Accordingly, the Court held that:

the petitioner may first exhaust the appellate remedy, and thereafter, if still aggrieved, raise the constitutional challenge in separate writ proceedings.

This observation is important because the Court:

• did not reject the constitutional challenge outright;
• but postponed adjudication until completion of statutory remedies.

Protection Against Coercive Recovery

The petitioner also highlighted that:

• despite making statutory pre-deposit;
• its bank attachment had not been revoked.

The Court accordingly directed that:

during pendency of remanded appeal proceedings, there shall be stay of the Order-in-Original, provided statutory pre-deposit has already been made.

This portion of the order offers substantial practical protection to taxpayers.

Key Legal Takeaways

1. Appellate Authorities Must Grant Opportunity of Hearing

Even in cases involving limitation issues, appellate authorities are expected to:

• follow principles of natural justice;
• provide hearing opportunity; and
• pass reasoned orders.

Mechanical rejection of appeals without hearing continues to invite judicial interference.

2. Constitutional Challenge to Section 16(2)(c) Remains Alive

The judgment reflects that:

• constitutional validity challenges to supplier-default based ITC restrictions remain open issues.

The Court did not decide:

• whether Section 16(2)(c) is unconstitutional;
• whether bona fide purchasers can be denied ITC due to supplier defaults.

Instead, the Court deferred consideration pending exhaustion of statutory remedy.

This leaves the larger constitutional debate very much alive.

Section 16(2)(c): The Larger GST Litigation Landscape

Section 16(2)(c) requires that:

tax charged in respect of supply must actually be paid to the Government by the supplier for the recipient to claim ITC.

This provision has triggered widespread litigation across India because:

• recipients often have no control over supplier tax compliance;
• ITC denial can occur despite genuine transactions;
• recipients may already possess:
  • tax invoices,
  • proof of payment,
  • goods receipt evidence.

The present ruling indicates that Telangana High Court is willing to entertain such constitutional questions at an appropriate stage.

Practical Implications for Taxpayers

Appeals Cannot Be Dismissed Mechanically

Taxpayers facing appellate rejection orders without hearing now have strong support to:

• seek remand;
• invoke natural justice principles; and
• request fresh consideration.

Pre-deposit Can Help Secure Interim Protection

Where statutory pre-deposit is already made:

• taxpayers may seek stay against recovery proceedings;
• including bank attachment relief.

Constitutional Challenges Should Be Strategically Timed

The ruling suggests that:

• High Courts may prefer exhaustion of appellate remedies first;
• unless the vires challenge is the primary and direct cause of action.

Conclusion

The decision in M/s. Rythu Seva Kendram Bairanpally v. Superintendent of Central Tax is an important addition to Telangana GST jurisprudence on:

• natural justice in appellate proceedings;
• remand of mechanically rejected appeals;
• interim protection against recovery; and
• the evolving constitutional challenge to Section 16(2)(c).

The judgment reinforces that:

• appellate authorities must follow fair procedure;
• taxpayers cannot be denied hearing merely on technical grounds; and
• constitutional scrutiny of supplier-default based ITC denial provisions remains an open and developing area under GST law.

FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT

Mr. Md. Shabaz, learned counsel for the petitioner.

Mr. Dominic Fernandes, learned Senior Standing Counsel for Central Board of Indirect Taxes and Customs (CBIC) appears for respondent No.5.

2. The writ petition has been preferred with the following prayers:

“For all the reasons stated in the accompanying affidavit, it is prayed that this Hon’ble High Court may be pleased to issue a writ, order, or direction more particularly one in the nature of a Writ of Mandamus

(i) To declare the impugned Form APL 02 dated 13.11.2025 rejecting the appeal by the 3rd Respondent under the provisions of CGST/TGST Act, 2017 as being in violation of Section 107(8), 107(11) and 107(12) of GST Act, 2017 being in violation of Principles of natural justice, without authority and the Constitution of India, by condoning the delay in filing the appeal, and to consequently set aside any action taken pursuant thereto including recovery proceedings if any and pass such further or other order(s) as this Hon’ble Court may deem fit and proper in the circumstances of the case; and/or

(ii) To direct the Respondent No.3 to re-adjudicate the appellate proceedings by considering the submissions made by this petitioner; and/or

(iii) To declare the impugned Order in Original No.92/2024- 25-Adjn (Supdt) GST dated 13.02.2025 and also issued Form DRC 07 vide ref. No. ZD360225053160V dated 20.02.2025 confirming the demand by the 1st Respondent under the provisions of CGST/TGST Act, 2017 as being in violation of Section 16(2)(c) and 16(2)(aa) of GST Act, 2017 being in violation of Principles of natural justice, without authority and jurisdiction and in violation of Articles 14, 19(1)(g) and 265 of the Constitution of India, and to consequently set aside any action taken pursuant thereto including recovery proceedings if any and pass such further or other order(s) as this Hon’ble Court may deem fit and proper in the circumstances of the case; and/or

(iv) To declare that provisions of Section 16(2)(c) of CGST Act, 2017 and corresponding TGST provisions and the rules made thereunder is illegal, arbitrary and irrational as well as violative of Article 14, 19 and 265 r/w 300A of the Constitution of India (ii) to declare that Petitioner is not liable for defaults of their suppliers; in the interest of justice, equity and in accordance with the scheme of the GST Acts and pass such other order or orders as the Hon’ble High Court may deem fit and proper in the circumstances of the case; (or) in the alternative to pass a writ, order or direction, reading down the relevant extract of Section 16(2)(c) of CGST Act and corresponding TGST Act, 2017.”

3. On 18.02.2026, the matter was adjourned to enable the learned Senior Standing Counsel for CBIC to obtain instructions.

4. On instructions, learned Senior Standing Counsel for CBIC submits that the appellate authority did not grant any opportunity of hearing as the appeal was time barred.

5. Learned counsel for the petitioner submits that the petitioner has also questioned the vires of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 (for short, “the Act”) in the present writ petition. Therefore, the writ petition may be entertained on the question of vires also.

6. However, we find that the petitioner amongst the number of reliefs sought quashing of the rejection of the appeal in Form APL-02, dated 13.11.2025 by respondent No.3 as being in violation of Section 107(8), 107(11) and 107(12) of the Act, and also in violation of principles of natural justice. Petitioner has not approached this Court upon issuance of the show cause notice or after passing the order-inoriginal assailing the vires of Section 16(2)(c) and 16(2)(aa) of the Act. Petitioner has also relied upon the order passed by this Court in W.P.No.34650 of 2025, wherein, in similar circumstances, the matter was remanded to the appellate authority to pass fresh order in accordance with law after granting an opportunity of hearing to the petitioner.

7. We are therefore of the view that the question of vires of Section 16(2)(c) and 16(2)(aa) of the Act can be raised after exhausting the appeal remedy if the petitioner is aggrieved. Therefore, the impugned order in appeal dated 13.11.2025 is set aside. The matter is remitted to the appellate authority to pass a fresh order in accordance with law aftergranting opportunity of hearing to the petitioner. Needless to say that if the petitioner is aggrieved with the order passed in appeal, it is at liberty to avail appropriate remedy in law and also raise the issue of vires of Section 16(2)(c) and 16(2)(aa) of the Act in a writ proceedings.

8. Learned counsel for the petitioner submits that despite filing of an appeal before respondent No.3 by making statutory pre-deposit on 21.09.2025, the attachment of its bank account dated 03.09.2025 has not been revoked. It is therefore, observed that during pendency of the appeal on remand, if the petitioner has already paid the pre-deposit, there shall be a stay of the order-in-original till disposal of the appeal.

9. With the above observations, the writ petition is disposed of. There shall be no order as to costs.

Miscellaneous applications, if any pending, shall stand closed.