GST Case Law Compendium- May 2025 Rulings

GST Case Law Compendium- May 25 Edition

1. Whether ITC can be denied merely for non-physical receipt of goods by the purchasing dealer, where delivery was directed to end consumer?

No, the Hon’ble Patna High Court in M/s Sane Retails Private Limited vs. The State of Bihar (CWJC No. 470 of 2024 and batch | Decision Date: 11 April 2025 | CITATION – 2025 (4) TMI 1055 – PATNA HIGH COURT) held that physical delivery of goods to the purchasing dealer is not mandatory for availing Input Tax Credit, provided that the dealer has directed the supplier to deliver goods to the end consumer, and the delivery is evidenced by proper documentation. The matter was remanded back for fresh consideration in light of this interpretation. The Hon’ble Court noted that the petitioner had claimed ITC under Section 16(2) of the CGST/BGST Act. The Revenue rejected the claim, arguing that the petitioner had not physically received the goods—thus violating the condition under Section 16(2)(b). The petitioner contended that although the goods were not physically delivered to them, they had directed the supplier to deliver the goods directly to the end customer, a business model supported by valid documentation, including invoices and proof of payment.

The Hon’ble Court made the following key observations:

• The Explanation to Section 16(2)(b) clearly deems that the recipient has received the goods if the supplier delivers them to any other person on the direction of the registered person, whether acting as an agent or otherwise.
• The latest CBIC Circular No. 241/35/2024-GST dated 31.12.2024 supports the proposition that direct delivery to end customers—under dealer instructions—qualifies as receipt of goods for ITC purposes.
• The Revenue failed to appreciate the petitioner’s submissions and did not examine the Memorandum of Understanding (MoU) between the dealer and supplier, or communication with the end consumer regarding direct delivery.
• The cases relied on by the Revenue (Aastha Enterprises The State of Bihar and Another passed in CWJC No. 10359 of 2023 | citation -2023 (8) TMI 1038 – PATNA HIGH COURT and State of Karnataka vs. Ecom Gill Trading in 2023 SCC OnLine SC 248) were found factually distinguishable, as they either involved defaulting suppliers or did not concern the interpretation of ‘receipt of goods’ under Section 16(2)(b).
• The cases relied on by the Revenue (Aastha Enterprises The State of Bihar and Another passed in CWJC No. 10359 of 2023| citation -2023 (8) TMI 1038 – PATNA HIGH COURT and State of Karnataka vs. Ecom Gill Trading in 2023 SCC OnLine SC 248) were found factually distinguishable, as they either involved defaulting suppliers or did not concern the interpretation of ‘receipt of goods’ under Section 16(2)(b).
• The cases relied on by the Revenue (Aastha Enterprises The State of Bihar and Another passed in CWJC No. 10359 of 2023| citation -2023 (8) TMI 1038 – PATNA HIGH COURT and State of Karnataka vs. Ecom Gill Trading in 2023 SCC OnLine SC 248) were found factually distinguishable, as they either involved defaulting suppliers or did not concern the interpretation of ‘receipt of goods’ under Section 16(2)(b).
• The cases relied on by the Revenue (Aastha Enterprises vs. The State of Bihar and Another passed in CWJC No. 10359 of 2023| citation -2023 (8) TMI 1038 – PATNA HIGH COURT and State of Karnataka vs. Ecom Gill Trading in 2023 SCC OnLine SC 248) were found factually distinguishable, as they either involved defaulting suppliers or did not concern the interpretation of ‘receipt of goods’ under Section 16(2)(b).

Accordingly, the Hon’ble Court set aside the impugned orders and remanded the matter to the Adjudicating Authority for fresh examination limited to whether the petitioner had fulfilled the deemed receipt conditions as per Section 16(2)(b). The Hon’ble Court directed that this exercise be completed within six months, based on evidence of MoUs, delivery instructions, and other supporting documentation.

Author’s Comments

This case is a textbook example of a litigation strategy misaligned with the core legal issue. Often, taxpayers feel an uncontrollable urge to respond with elaborate replies, justifications, and factual narratives—without first dissecting the legal foundation of the notice (lis). The key to success in GST litigation is to critically evaluate whether the allegations in the notice logically support the very notice itself.

In the present case, the allegation centers around Section 16(2)(b)—which implies that Input Tax Credit was claimed without actual receipt of goods. This is an allegation of fraud, suppression, or willful misrepresentation. However, the show cause notice was issued under Section 73, which deals exclusively with non-fraudulent cases. This disconnect reveals a fatal flaw: the allegation is incompatible with the statutory basis of the notice.

The Revenue cannot approbate and reprobate on the same issue. If fraud is indeed alleged, then Section 74 must be invoked; if Section 73 is invoked, then the allegation must be limited to non-deliberate defaults. This contradiction weakens the notice itself and exposes it to judicial scrutiny. In attempting to establish a case of ineligible ITC on grounds of fraud while proceeding under Section 73, the department’s action is legally unsustainable.

Moreover, the genesis of the proceedings lay in an investigation under Section 67—which is premised on evasion of tax. Once the department concluded the investigation and proceeded under Section 73, it impliedly accepted that no evasion existed. As a matter of settled law, even a legitimate discovery flowing from an illegitimate proceeding (or one based on an erroneous premise) stands tainted.

This case reinforces a crucial litigation strategy for taxpayers: before responding to a show cause notice, assess whether the statutory provision invoked matches the nature of allegations made. If it doesn’t, the first line of defense should not be factual rebuttal—but a clear challenge to the legal sustainability of the notice itself.

2. Whether a writ petition is maintainable against a show cause notice alleging fake inward supplies?

No, the Hon’ble Madras High Court in case of P. Murugan S/o Pazhani Proprietor of Aarupadai and Co. vs. The Commercial Tax Officer & Ors. (W.P. Nos. 10525 & 10531 of 2025 | Decision Date: 09 April 2025 | Citation- 2025 (4) TMI 1013 – MADRAS HIGH COURT) held that the writ petition challenging the show cause notice itself was premature and directed the Revenue to consider the petitioner’s representation and evidence before proceeding further. The Hon’ble Court emphasized that if the invoices are found to be genuine, the request for unblocking the electronic credit ledger should be favourably considered, and the entire exercise completed within five weeks. The Hon’ble Court noted that the petitioner received SCN dated 18.02.2025 under Rule 142(1)(a), alleging that the ITC claimed was based on fake inward supplies from non-existent suppliers for FY 2023–24. The petitioner submitted a detailed reply along with all supporting documents, asserting that the inward supplies were genuine, properly accounted for, and reflected in the GSTR-1 returns. However, in parallel, the department blocked the petitioner’s electronic credit ledger, severely hampering working capital and business operations. Aggrieved, the petitioner approached the High Court to quash the SCN and direct immediate unblocking of the ledger. The Revenue submitted that the SCN had not yet been adjudicated and the petitioner’s reply would be duly considered. Accordingly, the Hon’ble Court directed the department to (i) issue a 7-day advance notice for personal hearing, (ii) verify the genuineness of transactions based on the petitioner’s records and reply, and (iii) if satisfied, consider the unblocking of ITC. The entire exercise was to be concluded within five weeks. The writ petitions were disposed of with liberty to the petitioner to avail appropriate remedies depending on the outcome.

Author’s Comments

When invoking the writ jurisdiction of the High Court, it must be established that the notice or action in question (a) warrants judicial intervention to stop the march of injustice, and (b) involves a situation where statutory remedies like adjudication or appeal are inadequate or ineffective in providing timely relief. High Courts, as constitutional courts and courts of equity, exercise discretion cautiously—stepping in where procedural overreach or abuse of process is evident at the threshold stage.

In the author’s view, this case reflects a strategic misstep in litigation approach. Rather than prematurely challenging the show cause notice—an act that courts are generally reluctant to entertain—the petitioner would have been better served by focusing exclusively on the legality of ITC blockage under Rule 86A. The correct course would have been to first seek the “reasons to believe” recorded by the Proper Officer and to test whether the invocation of Rule 86A adhered to the strict statutory conditions.

Importantly, Rule 86A is designed as a pre-emptive measure, to be used sparingly and only in cases involving fraudulent or fictitious ITC claims, prior to formal initiation of proceedings. However, once a show cause notice is issued, it signifies that the Revenue has completed its preliminary assessment and is moving forward with adjudication under Section 73 or 74. At that stage, continuing to block the Electronic Credit Ledger serves no lawful purpose—it shifts from being a preventive safeguard to an unauthorized coercive recovery mechanism, which is neither contemplated nor permitted by law.

Thus, retaining the block on ITC post-issuance of SCN amounts to abuse of power and violates the principle of proportionality. When emergency powers like Rule 86A are exercised beyond their temporal or legal limits, judicial intervention becomes not just warranted—but essential to preserve taxpayer rights and uphold procedural fairness.

3. Whether refund can be granted where the taxpayer establishes that payment was made involuntarily during GST investigation?

Yes, the Hon’ble Karnataka High Court in case of The Intelligence Officer vs. M/s Kesar Color Chem Industries (WA No. 1649 of 2024 | Decision Date: 28 January 2025 | Citation – 2025 (2) TMI 175 – KARNATAKA HIGH COURT ) dismissed the department’s writ appeal and upheld the Single Bench order granting refund of ₹2.5 crores paid under duress during investigation, holding that such coerced payment cannot be treated as voluntary self-ascertainment under Section 74(5) of the CGST Act. The Hon’ble Court noted that the respondent-taxpayer was subjected to an extended two-day search operation under Section 67 of the CGST Act, during which department officials allegedly detained personnel, seized mobile phones, and issued threats of arrest, eventually leading to the recovery of ₹2.5 crores on 31.07.2021 and 03.08.2021, purportedly as voluntary payments through Form DRC-03. However, the taxpayer later retracted his statement and submitted an affidavit dated 10.08.2021 claiming that the payments were made under coercion and without any self-acknowledgment of liability. He also pointed out that no adjudication proceedings had been initiated at the time of payment. The Revenue argued that the payment was voluntary, that it was supported by DRC-03 forms, and that the affidavit retracting voluntariness was not contemporaneously communicated to the department.

The Hon’ble High Court rejected these submissions and upheld the findings of the Single Judge, noting the following:

• The entire premise of Section 74(5) rests on voluntary self-ascertainment of tax liability, which was clearly absent in the facts of the case.
• The payment was made during a high-pressure search operation, under circumstances that vitiated free consent.
• The Court observed that even the department had later issued a show cause notice under Section 74(1), which contradicted their claim that the tax was already accepted and paid.
• The recovery, made in the absence of adjudication and without following due process, was found to be in violation of Article 265 of the Constitution, which prohibits tax collection without authority of law.

Accordingly, the Court held that the ₹2.5 crore payment could not be retained by the department and appeal being devoid of any merits, is liable to be dismissed.

Author’s Comments

This decision serves as a judicial affirmation that no tax can be recovered without following the due process prescribed under GST law. The Hon’ble Karnataka High Court’s ruling rightly reiterates that payments made under coercion during investigation proceedings—without adjudication or voluntary self-ascertainment—cannot be treated as lawful recoveries under Section 74(5) of the CGST Act.

This aligns squarely with Paragraph 3 of CBIC Instruction No. 01/2022-23 (GST-Investigation) dated 25.05.2022, which categorically directs that recovery of unpaid or short-paid taxes must be carried out only under Section 79, and only after issuance of notice and proper adjudication. Any deviation from this process, especially coercive recovery during inspection or search, amounts to abuse of authority and procedural impropriety.

Further, Rule 142(2) of the CGST Rules mandates issuance of Form DRC-04 to acknowledge payment made under Section 74(5). In the absence of such acknowledgment, and where the taxpayer clearly disputes liability and asserts coercion—as in this case—the payment cannot be presumed to be voluntary. The absence of DRC-04 in such cases reinforces the taxpayer’s claim of involuntariness, and the amount must be refunded.

This judgment is also in consonance with the Delhi High Court’s decision in Lovelesh Singhal v. Commissioner, DGST [2023] 157 taxmann.com 611 / [2024] 102 GST 463 / [2024] 82 GSTL 278, where it was held that amounts deposited during search operations under duress must be refunded, as recovery without determination and consent violates both Article 265 of the Constitution and the statutory safeguards of the CGST Act.

4. Whether denial of cross-examination vitiates the order passed under Section 74(9) of the CGST Act?

Yes, the Hon’ble Kerala High Court in The Joint Commissioner vs. Nishad K.U. (WA No. 303 of 2025 | Decision Date: 17 February 2025 | Citation – 2025:KER:13589) dismissed the department’s writ appeal and upheld the Single Judge’s order setting aside the adjudication order passed under Section 74(9), holding that denial of cross-examination violated principles of natural justice and rendered the proceedings void. The Hon’ble Court noted that the department had passed an order under Section 74(9) imposing tax and penalty of over ₹9.40 crores on the taxpayer, relying on third-party statements recorded during investigation. The assessee sought cross-examination of the deponents, which was denied by the proper officer. The Single Judge allowed the writ petition despite the availability of appellate remedy, on the ground that there was a clear violation of principles of natural justice.

In appeal, the department argued that:

• The CGST Act does not expressly mandate cross-examination.

Reliance on the Andaman Timber Industries vs. Commissioner of Central Excise, Kolkata-II [(2016) 15 SCC 785] case was misplaced as it did not consider earlier binding Supreme Court rulings such as Kanungo & Co. v. Collector of Customs, Calcutta and Others [1983 (13) ELT 1486 (SC)] and Surjeet Singh Chhabra v. Union of India [1997 (89) ELT 646 (SC)].

The Division Bench rejected these contentions, holding:

• Even in the absence of an express provision, principles of natural justice must be read into quasi-judicial proceedings under the CGST Act.
• Cross-examination is essential where statements of third parties form the sole basis for forming an adverse conclusion.
• Denial of cross-examination erodes the procedural fairness and violates Article 14 of the Constitution, as reiterated in Aureliano Fernandes v. State of Goa [(2024) 1 SCC 632].

The Court also relied on:

• Krishnadatt Awasthy v. State of M.P. [2025 SCC Online 179], where the Supreme Court held that denial of natural justice vitiates the proceedings at the root.
• Ayaaubkhan Noorkhan Pathan v. State of Maharashtra [(2013) 4 SCC 465], affirming that cross-examination is part of natural justice when adverse material is relied upon.

The Hon’ble Court concluded that while the right to cross-examine does not extend to all witnesses (e.g., co-noticees), where statements of third parties form the basis of the adjudication, cross-examination must be granted, failing which the order is unsustainable. Accordingly, the writ appeal was dismissed and the original adjudication order was held to be void for breach of natural justice.

Author’s Comments

A cardinal principle of adjudication under GST: when an order is based on third-party material, denial of cross-examination amounts to a fatal procedural lapse, vitiating the entire proceedings. The Hon’ble Kerala High Court has rightly emphasized that the right to cross-examination, though not expressly codified in the CGST Act, is an indispensable component of natural justice, especially where liability is founded on contested evidence.

In the context of Section 74 proceedings, taxpayers must be vigilant when the show cause notice relies on:

• Statements recorded on oath from third-party witnesses or experts,
• Investigating Officer’s conclusions,
• Alleged “special circumstances” to justify invocation of extended limitation,
• Factual claims regarding essential ingredients of tax liability, or
• Third-party reports and financial records obtained during search or investigation.

In such cases, the taxpayer must demand cross-examination, not merely to test the truth of the witness, but to impeach the reliability of the entire evidentiary foundation of the proceedings.

Cross-examination is not confined to criminal proceedings, nor to “in-person” confrontation alone. It may also include interrogatories, written questions answered under oath, or remote examination, especially in the case of legal persons. This procedural tool is crucial for:

• Uncovering contradictions in testimony,
• Clarifying scope and limits of expert opinion, and
• Testing the factual basis of conclusions drawn by the Revenue.

The law is equally clear:

• If a party demands cross-examination and it is denied, the underlying material and any conclusions derived from it must be excluded from the decision-making process.
• If the person relied upon is unavailable for cross-examination, the material attributed to them is inadmissible.
• Conversely, if the taxpayer fails to demand cross-examination, they cannot later object to the use of such material.

Ultimately, cross-examination is not a procedural formality—it is a strategic tool and, more importantly, a constitutional guarantee under Article 14, ensuring fairness in quasi-judicial proceedings.

5. Whether issuance of only a Summary of SCN (form GST DRC-01) without a proper notice under Section 73(1) vitiates the proceedings?

Yes, the Hon’ble Gauhati High Court in the case of Udit Tibrewal vs. State of Assam and Others (WP(C) No. 5233 of 2024 | Order dated: 25.10.2024 | Citation – 2024 (11) TMI 108 – GAUHATI HIGH COURT) held that a Summary of Show Cause Notice in Form GST DRC-01 is not a substitute for the requirement of a Show Cause Notice under Section 73(1) of the CGST Act. The Hon’ble Court noted that the petitioner contended that no proper and prior Show Cause Notice as prescribed under Section 73(1) was ever issued; instead, only a Summary of Show Cause Notice in Form GST DRC-01 and an Attachment to Determination of Tax were served. The Hon’ble Court held that issuance of only a summary without a formal SCN does not satisfy the statutory mandate of Section 73(1) read with Rule 142(1)(a). The Court reaffirmed that the Summary of Show Cause Notice (GST DRC-01) is merely an electronic intimation and cannot substitute the requirement of a detailed, reasoned Show Cause Notice to initiate proceedings under Section 73. Relying upon a common judgment rendered earlier in case of Construction Catalysers (P.) Ltd. v State of Assam [WP(C) No. 3912 of 2024, dated 26.09.2024, [2024] 168 taxmann.com 183 (Gauhati)] the Hon’ble Court observed that a valid SCN is a condition precedent for invoking Section 73(9) and passing a final adjudication order. Non-compliance with this mandatory procedure amounts to a violation of natural justice and renders the entire proceedings unsustainable. Accordingly, the Hon’ble Court quashed and set aside the impugned order dated 30.12.2023. However, liberty was granted to the department to initiate fresh proceedings de novo strictly in compliance with the legal requirements under Section 73 of the AGST Act, 2017.

Author’s Comments

Under the GST framework, when initiating proceedings under Section 73(1) or 74(1), it is mandatory for the Proper Officer to issue two distinct documents:

(i) a detailed Show Cause Notice outlining the allegations and grounds, and

(ii) a summary of the SCN in Form GST DRC-01, as required under Rule 142(1)(a).

This dual requirement is not a mere procedural formality but is fundamental to preserving the taxpayer’s right to due process. As per settled jurisprudence, particularly the Privy Council’s principle in Nazir Ahmed vs. King Emperor [AIR 1936 PC 253], where a statute prescribes a manner for performing an act, it must be performed in that manner or not at all. Ignoring the necessity of a formal SCN and proceeding solely based on a DRC-01 Summary vitiates the entire adjudication, rendering the resultant demand unsustainable in law.

Without a valid Show Cause Notice under Section 73(1)/74(1), no valid demand for tax, interest, or penalty can arise. The denial of a proper SCN deprives the noticee of an opportunity to respond, violating the principles of natural justice at the threshold itself.

This principle finds further reinforcement in landmark rulings such as:

• Menaka Gandhi v. Union of India [AIR 1978 SC 597], and
• State of Orissa v. Dr. (Mrs.) Binapani Dey [AIR 1967 SC 1269],where the Hon’ble Supreme Court emphasized that adherence to natural justice is a condition precedent before any civil consequences can ensue.

 6. Whether penalty under Section 129(1)(b) of CGST Act can be imposed despite ownership being established?

No, the Hon’ble Allahabad High Court in case of SL Yadav Cranes Pvt. Ltd. vs. State of U.P. and Another (WRIT TAX No. 607 of 2025 | Order dated: 07.03.2025 | Citation-2025 (3) TMI 613 – ALLAHABAD HIGH COURT) quashed the penalty order of ₹59 lakhs imposed under Section 129(3) of the CGST Act. The Hon’ble Court noted that the penalty was based solely on a minor typographical error in the e-way bill, where the vehicle number was incorrectly entered as HR-46C-4623 instead of HR-58C-4623. Despite this minor discrepancy, the goods were accompanied by valid delivery challan and e-way bill, and ownership of the goods was duly claimed by the petitioner with documentary proof. The Hon’ble court observed that the interception and detention were unwarranted under Section 129(1)(b), which applies where the owner does not come forward, and instead held that Section 129(1)(a) should have been invoked in light of the owner’s clear identification and submission of required documents. The Hon’ble Bench relied on the precedent set in M/s. Halder Enterprises v. State of U.P. (Writ Tax No. 1297 of 2023 | citation – 2023 (12) TMI 514 – ALLAHABAD HIGH COURT), which clarified that if valid documents are produced and ownership is admitted, proceedings should be under Section 129(1)(a), not 129(1)(b). Accordingly, the Hon’ble court set aside the impugned order dated 22.01.2025 and directed the department to reassess the matter under Section 129(1)(a) and take appropriate steps for the release of goods.

Author’s Comments

Intercepting officers, drawing on their experience from earlier tax regimes, have a keen ability to “sense” tax evasion and sometimes attempt to broaden the scope of their powers beyond what is specifically granted by the Legislature. It is well-established that a “delegate”—someone entrusted with authority—cannot extend the boundaries of that authority while exercising it. To do so would be akin to legislating, a power reserved solely for the legislature. A delegate must operate strictly within the limits of the authority conferred, and no emergency justifies the expansion of that authority.

This case highlights a clear misuse of authority by the adjudicating officer in imposing a penalty under Section 129(1)(b) despite the presence of the rightful owner. The CBIC Circular dated December 31, 2018, further clarifies that when goods are accompanied by proper invoices, the consignor should be deemed the owner. Thus, the imposition of a penalty under Section 129(1)(b) in this case was not legally justified and constituted a violation of statutory safeguards.

The concept of “moulding relief” refers to the power vested in Courts of Equity, like the Supreme Court or High Court, to go beyond the statute and create solutions to redress grievances. However, under the law, there is no authority to alter the cause of action from Section 129(1)(b) to Section 129(1)(a), especially in light of the explicit safeguard provided in Section 75(7) of the CGST Act, 2017.

A similar stance was taken by the Allahabad High Court in M/s. Margo Brush India & Ors. v. State of U.P [Writ Tax No. 1580 of 2022 dated January 16, 2023 | citation – 2023 (1) TMI 1237 – ALLAHABAD HIGH COURT] wherein penalty order passed u/s 129(1)(b) was set aside.

7. Whether the delay beyond 30 days in filing returns after best judgment assessment under Section 62(1) can be condoned by the authority?

Yes, the Hon’ble Madras High Court in case of Tvl. Solutions Online vs. Assistant Commissioner (ST), Velandiyapalayam Assessment Circle (W.P. Nos. 10766, 10816, 10831 & 10834 of 2025 | Order dated: 27.03.2025 | Citation – 2025 (4) TMI 236 – MADRAS HIGH COURT) held that the taxpayer cannot be permanently deprived of the right to file returns merely because of procedural delay, especially when reasons beyond control are demonstrated. The Hon’ble Court noted that the petitioner has challenged the assessment orders issued under Section 62 of the GST Act for non-filing of monthly returns for October 2023 to January 2024. Although the petitioner subsequently filed the returns, the delay exceeded the 30-day time limit prescribed under Section 62(2). The department rejected the belated returns on the ground of limitation.

The petitioner argued that Section 62(2), while prescribing a 30-day period for withdrawal of the best judgment order, is directory and not absolute. Since the assessment proceedings can continue up to five years from the end of the relevant financial year, the right to file valid returns must correspondingly survive within that period, subject to payment of applicable interest and late fee.

The Hon’ble Court agreed, relying on its earlier judgment in Comfort Shoe Components Versus Assistant Commissioner, (W.P. No. 34770 of 2023 dated 14.12.2023 | citation – 2024 (1) TMI 281 – MADRAS HIGH COURT). It held that the 30-day period in Section 62(2) is directory in nature. The taxpayer cannot be permanently deprived of the right to file returns merely because of procedural delay, especially when reasons beyond control are demonstrated. The Court condoned the delay and directed the petitioner to file an application for condonation within 15 days. Upon acceptance, the petitioner was permitted to file revised returns, subject to payment of applicable late fee, interest, and other statutory charges. The impugned assessment orders were directed to be withdrawn thereafter, and fresh assessments were to be made based on the revised returns.

Author’s Comments

Non-compliance with a notice issued under Section 46 of the CGST Act acts as a statutory trigger for initiating best judgment assessment proceedings under Section 62. Issuance of a notice under Section 46 is, therefore, a mandatory and inescapable precondition for invoking Section 62.

Notably, Section 62(2) of the CGST Act underwent an amendment through the Finance Act, 2023, notified via Notification No. 28/2023–CT dated 31.07.2023, and made effective from 01.10.2023. Under the amended provision, a registered person is now permitted 60 days from the date of service of the best judgment assessment order to file the pending returns. Further, an additional 60 days period is available, albeit with the payment of an additional late fee, as provided in the Proviso to Section 62(2).

If the pending returns are not filed within the maximum prescribed window (i.e., 60 + 60 days), the best judgment assessment order attains finality. Subsequent filing of returns cannot invalidate or withdraw the assessment order. The only remedy available thereafter is to file the returns and challenge the order by way of appeal under Section 107 of the CGST Act.

Under Section 107, an appeal must be filed within 3 months from the date of the order, with a further 1-month period available for condonation of delay if sufficient cause is shown. Thus, practically speaking, if more than 8 months’ elapse after the date of the best judgment order (comprising: 60 days + 60 days + 3 months + 1 month), the tax demand becomes final, enforceable, and recoverable, even if no actual taxable supplies were made during the relevant tax periods.

It is important to note that non-filing of GSTR-3B (monthly return) and GSTR-10 (final return) triggers the applicability of Section 62. However, failure to file GSTR-1 (outward supply details) does not attract Section 62, as GSTR-1 is classified as a statement and not a return under GST law.

The Hon’ble Madras High Court in case of Comfort Shoe Components v. Assistant Commissioner (2023 (1) TMI 281 – MADRAS HIGH COURT) condoned the delay in filing returns beyond the statutory limit, emphasizing that the right to file returns and correct genuine lapses should not be rigidly curtailed where bona fide circumstances are demonstrated.

8. Whether tax demand can be determined against a deceased proprietor?

No, the Hon’ble Allahabad High Court in case of Amit Kumar Sethia (Deceased) vs. State of U.P. and Another (Writ Tax No. 917 of 2025 | Neutral Citation: 2025: AHC:45317-DB | Order dated: 02.04.2025 | Citation – 2025 (4) TMI 238 – ALLAHABAD HIGH COURT) allowed the writ petition and held that Section 93 of the GST Act does not authorize tax authorities to determine tax against a deceased person. The Hon’ble Court noted that the petitioner, wife of deceased Amit Kumar Sethia, challenged the order dated 17.11.2023 whereby a tax demand of ₹21,49,585.60 was raised against the deceased proprietor under Section 73(9) of the CGST Act, 2017. It was contended that the GST registration of the deceased’s proprietorship firm had already been cancelled on 02.06.2021 after his death on 20.04.2021. Despite this, a show cause notice was issued in the name of the deceased on 13.09.2023, followed by reminders, and a final demand order was passed. The Department argued that Section 93 of the CGST Act allowed for recovery of tax dues from legal representatives even after the death of the taxable person. However, the Hon’ble Court found that Section 93 merely addresses liability of legal representatives after determination of dues, but it does not authorize initiation or continuation of proceedings against a deceased person.

The Hon’ble Court categorically held that once the department was aware of the death of the registered person and the cancellation of the GST registration, any show cause notice and consequent determination must be made against the legal representative. Issuing a notice and passing an order against a dead person is void ab initio and cannot be cured by invoking Section 93. Accordingly, the Hon’ble High Court quashed the demand order dated 17.11.2023, leaving the revenue department free to initiate fresh proceedings in accordance with law, after issuing a valid notice to the legal heir/legal representative.

Author’s Comments

All proceedings initiated against a deceased person are non-est in the eyes of the law and hold no legal validity. Order XXII Rule 1 of the Code of Civil Procedure, 1908, explicitly states:

“The death of a plaintiff or defendant shall not cause the suit to abate if the right to sue survives.”

However, in the absence of a surviving right to sue, any pending legal proceedings abate upon the death of the concerned individual.

Similarly, under Section 169 of the CGST Act, 2017, any notice, order, or communication issued to a deceased person is not validly served, nor can it be enforced against any other person on behalf of the deceased.

The Apex Court in CIT v Scindia Steam Navigation Co. Ltd. [1961 AIR SC 1633] reinforced the principle that:

“…it is well settled that no mandamus will be issued unless the applicant had made a distinct demand on the appropriate authorities for the very reliefs which he seeks to enforce by mandamus and that had been refused.”

From a GST perspective, no proceedings can be initiated against the legal heirs of a deceased taxpayer, as the GST law does not contain any specific provision allowing such proceedings. This stands in contrast to Section 159(2)(b) of the Income-tax Act, 1961, which expressly empowers the Revenue to initiate

proceedings against the legal heirs of a deceased taxpayer. Under Section 93 of the CGST Act, 2017, liability can be recovered from the estate of a deceased taxpayer only if such liability has already been determined while the person was alive. However, if liability was never determined following the due process of law, no fresh proceedings can be initiated against the legal heirs.

Similar decision was given by the Hon’ble Kerala High Court in the case of Benoy Abraham v State Tax Officer, Nedumangadu [2024] 165 taxmann.com 533 (Kerala)[09-07-2024].

9. Whether refund of statutory pre-deposit can be denied on grounds of limitation under section 54?

No, the Hon’ble Jharkhand High Court in case of BLA Infrastructure Private Limited vs. State of Jharkhand & Others (W.P. (T) No. 6527 of 2024 | Order dated: 30.01.2025 | Citation – 2025 (2) TMI 352 – JHARKHAND HIGH COURT) allowed the petition and held that refunds cannot be denied merely on technical limitations. The Hon’ble Court noted that the petitioner filed for a refund of ₹1,13,454/- being the statutory 10% pre-deposit made under Section 107(6)(b) of the CGST Act to maintain an appeal. The appeal had been allowed in favour of the assessee on 09.02.2022, but the refund application filed in September 2024 was rejected through a Deficiency Memo, treating it as time-barred under Section 54(1) of the CGST Act. The department argued that refund applications must be filed within 2 years from the “relevant date” as prescribed under Section 54, and that the jurisdictional officer had no discretion to condone the delay. Reliance was placed on Circular No. 125/44/2019-GST dated 18.11.2019. The Hon’ble Court rejected this hyper-technical interpretation. It held that the word “may” in Section 54(1)—”may make an application before the expiry of two years”—is directory and not mandatory, particularly when the refund arises from statutory pre-deposit, which is made as a precondition to maintain the appeal, and not as part of any assessed liability. The Hon’ble Court relied on the decisions in Lenovo India Pvt. Ltd. vs. Joint Commissioner of GST (Madras High Court, 2023 |  citation- 2023 (11) TMI 774 – MADRAS HIGH COURT) and the Supreme Court’s ruling in Muskan Enterprises (2024 SCC OnLine SC 4107), to emphasize that procedural time limits must not defeat substantive statutory rights. It also held that Article 265 of the Constitution of India, which prohibits the retention of tax without the authority of law, would be violated if refunds are denied merely on technical limitations. Accordingly, the Hon’ble High Court quashed the deficiency memo dated 06.11.2024, directed the Revenue to process the refund along with applicable interest under Section 54, and complete the entire exercise within six weeks.

Author’s Comments

This decision marks a significant judicial affirmation of substantive taxpayer rights over procedural rigidity under the GST regime. The Hon’ble Jharkhand High Court rightly held that Section 54(1) of the CGST Act, which uses the expression “may make an application before the expiry of two years”, is directory and not mandatory—particularly when the refund pertains to a statutory pre-deposit made under Section 107(6) to maintain an appeal.

The judgment clarifies that the pre-deposit is not a tax liability, but a procedural obligation to access the appellate mechanism. Once the appeal is allowed in favour of the assessee, retention of the pre-deposit by the State without valid authority of law violates Article 265 of the Constitution, which prohibits collection of taxes without legal sanction. Also, Article 137 of the Limitation Act, 1963—providing a 3-year limitation period for recovery of money—would prevail in such cases where no express exclusion exists under the GST Act.

The ruling cautions the Revenue against mechanical rejection of refund applications using the two-year limitation bar, especially when it leads to arbitrary deprivation of property. Further, by following precedents like Lenovo India Pvt. Ltd. (Madras HC) and Muskan Enterprises (SC), the Court emphasized that the interpretation of “may” as “shall” in fiscal statutes must be contextually justified, else it risks being declared arbitrary and unconstitutional.

10. Whether the sale of partly constructed immovable property constitutes a ‘supply’ liable to GST?

No, the Hon’ble Karnataka High Court in case of Rohan Corporation India Pvt. Ltd. vs. Union of India & Others (W.P. No. 12700 of 2023 | Order dated: 10.09.2024 | Citation – 2025 (4) TMI 549 – KARNATAKA HIGH COURT) quashed the refund rejection order and allowed the refund, holding that the transaction was a pure sale of immovable property, and not a supply of construction service. The Hon’ble Court noted that the petitioner, a real estate company, purchased a mall from the liquidator of a corporate debtor under the Insolvency and Bankruptcy Code, 2016. The sale was of an immovable property (partly constructed mall) through public auction, and the petitioner was compelled to pay GST under protest, subsequently filing a refund claim. The GST authorities rejected the refund, classifying the transaction as a taxable “supply” under Paragraph 5(b) of Schedule II of the CGST Act. The Hon’ble Court ruled that:

• Schedule II must be read in light of Section 7(1) and 7(1)(a), meaning classification under Schedule II is only relevant after it is first established that a transaction is a “supply” under Section 7.
• In the absence of a construction agreement between the buyer and seller (liquidator), no supply of construction service can be said to have occurred.
• The mere fact that the building was incomplete or had not received a completion certificate does not automatically bring the transaction under GST, unless construction activity continues post-agreement at the instance of the buyer.

The Hon’ble Court relied upon the landmark decisions in Larsen & Toubro Ltd. (2014) 1 SCC 708, and Munjaal Manishbhai Bhat Vs. Union of India – 2022 (62) GSTL 262 (Guj) (2022), reiterating that tax can be levied only on the value addition post-agreement, not on the entire property sold under liquidation without contractual construction obligations. Accordingly, the Hon’ble High Court held that the transaction was outside the scope of “supply” and thus exempt under Entry 5 of Schedule III, which treats sale of land and completed building (except as covered under Schedule II) as neither supply of goods nor supply of services. The impugned order was set aside and the Revenue was directed to process the refund with applicable interest.

Author’s Comments

This judgment is a landmark reiteration of a long-standing legal position that sale of land or building, without an agreement for construction, is not exigible to indirect tax, and under GST, such transactions are excluded from the scope of ‘supply’.

To fully appreciate this, a brief history is instructive:

• Under the pre-GST regime, sale of immovable property was outside the scope of service tax and VAT, unless it involved works contracts or construction agreements prior to completion. The Supreme Court in L&T (2014) 1 SCC 708 laid down that construction of a building is taxable only when the agreement with the buyer precedes completion; post-completion sales are pure immovable property transfers, not works contracts.
• The GST regime, though intending to be more unified, retained this distinction. Entry 5 of Schedule III to the CGST Act specifically classifies sale of land and fully constructed buildings (after completion certificate or first occupation) as neither supply of goods nor services, i.e., non-taxable. Conversely, Schedule II, Paragraph 5(b) deems construction of a complex/building intended for sale, where consideration is received before completion, as supply of service—but only if a construction agreement exists.

In this case, the Hon’ble Court correctly held that a mere auction sale of an incomplete property by a liquidator, without any contractual nexus between buyer and builder for further construction, does not attract GST. The transaction was rightly held to be a transfer of immovable property—not a service.

11. Whether the adjudication order is valid when personal hearing was fixed before filing of reply?

No, the Hon’ble Madras High Court in case of Tvl. Sri Vinayaga Tiles & Granites vs. Deputy State Tax Officer (W.P. No. 3588 of 2025 | Decision Date: 04 February 2025) allowed the writ petition and set aside the adjudication order, holding that fixing a personal hearing prior to the filing of reply amounts to procedural impropriety and violates Section 75(4) of the TNGST/CGST Act. The Hon’ble Court noted that the personal hearing was fixed on 01.12.2023—well before the petitioner submitted their reply to the show cause notice on 27.12.2023—rendering the opportunity of hearing illusory and ineffective. The sequence of events clearly demonstrated that the hearing was scheduled mechanically, without consideration of the reply or the petitioner’s right to be heard meaningfully. The Hon’ble Court observed that the statutory scheme under Section 75(4) contemplates that a personal hearing must be granted where an adverse decision is proposed, but this hearing must be afforded after the reply is filed, so that the taxpayer can make oral submissions in support of their case. Denying such an opportunity constitutes a violation of natural justice. The Hon’ble Court also found that the notices (DRC-01A and DRC-01) were merely uploaded under the “Additional Notices” tab on the GST portal and were not effectively communicated. Holding that the entire proceedings were contrary to the spirit of fair adjudication, the Hon’ble Court quashed the impugned order and remanded the matter to the adjudicating authority for fresh consideration after giving a 14-day notice of hearing and ensuring full compliance with procedural requirements.

Author’s Comments

This decision is a welcome affirmation of procedural due process in GST adjudication, particularly in relation to the taxpayer’s right to be heard under Section 75(4) of the CGST Act, 2017. The Hon’ble Madras High Court rightly held that personal hearing must follow—not precede—the filing of a reply. A hearing fixed mechanically before the taxpayer’s response is considered a mere formality, violating both the letter and spirit of the law.

Further, the judgment brings attention to the critical role of proper service under Section 169 of the CGST Act. While the provision offers fourteen permissible modes of service, authorities cannot arbitrarily choose any mode. The test is not formal compliance, but actual communication—a notice is validly served only when it effectively reaches the taxpayer. Uploading notices to a portal without ensuring taxpayer awareness cannot be treated as a valid mode of service.

Importantly, an ex-parte adjudication order does not necessarily lead to irreversible consequences. When an order is passed without considering the taxpayer’s reply, it often suffers from infirmities in law or factual misappreciation, making it vulnerable to judicial scrutiny. However, approaching the High Court must be a strategic decision—not every adverse order warrants constitutional intervention. Whether such an order should be viewed as a tactical victory or a procedural setback depends entirely on the litigation strategy and desired outcome. In the author’s considered view, remand orders that merely reopen adjudication without granting substantive relief often result in prolonged litigation with limited practical benefit. Therefore, taxpayers must carefully evaluate whether such outcomes truly serve their interests or merely defer the inevitable.

12. Whether a writ petition can be admitted if the remedy of appeal is not availed?

No, the Hon’ble Madras High Court in case of Tvl. R.M.K. Enterprises vs. State Tax Officer & Another (W.P. Nos. 10966, 10968 & 10973 of 2021 | Order dated: 02.01.2025 |  Citation 2025 (2) TMI 1152 – MADRAS HIGH COURT) dismissed the writ petitions with the liberty to file fresh statutory appeal before the Appellate Commissioner. The Hon’ble Court noted that the petitioner, a registered scrap dealer, challenged the assessment orders for three financial years (2017–2020) which denied Input Tax Credit on the ground that the suppliers were non-existent and engaged in circular trading. The department’s position was that the petitioner had availed ITC entirely through credits passed on by these allegedly bogus entities, without any tax paid in cash. The petitioner, however, produced tax invoices, bank payment details (through cheque), e-way bills, and GSTR-2A reflecting the transactions. It argued that denial of ITC without appreciating these documents violated principles of natural justice. It was further contended that the suppliers had also filed returns and were proceeded against under Section 122 of the CGST Act—implying their traceability and existence. Rejecting the petitions, the Hon’ble Court noted that the petitioner had discharged its entire tax liability through availed ITC without any cash payment and found prima facie evidence of complicity in passing on ineligible credits. It held that mere reflection of invoices in GSTR-2A or bank payments does not ipso facto validate ITC where the suppliers are found to be non-existent. Relying on Sahyadri Industries Ltd. v. State of Tamil Nadu [2023] 115 GSTR 320 (Mad.), the Court observed that there was no statutory or constitutional violation warranting writ relief, and advised the petitioner to avail the statutory remedy by filing an appeal under Section 107 of the CGST Act. Accordingly, the writ petitions were dismissed, but liberty was granted to the petitioner to approach the appellate authority.

Author’s Comments

To invoke the writ jurisdiction of the Hon’ble High Court, the petitioner must demonstrate two key elements: first, that the impugned notice or order results in a manifest injustice warranting immediate judicial intervention; and second, that the statutory remedies—such as adjudication or appeal—are not efficacious enough to redress the grievance.

High Courts, as Courts of Equity, exercise discretion to entertain writ petitions only when the injustice is evident on the face of the record and cannot be adequately cured through routine statutory channels. In such cases, the Hon’ble  Court’s role is to prevent procedural or substantive injustice from being perpetuated under the guise of compliance.

Crucially, when self-assessment is disputed by the Revenue, the burden of proof rests solely on the department. A mere assertion of fraud or fictitious credit does not suffice; robust, proportionate evidence must accompany such allegations. Reliance merely on entries in books of accounts or statements recorded during investigation is inadequate. The law demands credible and conclusive proof—particularly when the consequences are severe.

Strategically, the petitioner in this case could have adopted a stronger line of defense. A compelling argument would have been that if the outward supplies are accepted by the department, it is logically untenable to discredit the corresponding inward supplies without deeper scrutiny. The Revenue cannot be permitted to approbate and reprobate—accepting one leg of the transaction while rejecting the other—without substantiating the inconsistency.

Ultimately, the taxpayer’s approach should have been to call upon the department to establish its case with substantive evidence. In the absence of such evidence, the allegations would not withstand judicial scrutiny and would fall flat under the weight of their own inadequacy.

13. Whether rejection of a rectification application under section 161 without granting personal hearing violates principles of natural justice?

Yes, the Hon’ble Delhi High Court in case of HVR Solar Private Limited vs. Sales Tax Officer Class II AVATO Ward 67 & Another (W.P.(C) No. 4506 of 2025 | Order dated: 8th April 2025 | Citation – 2025 (4) TMI 730 – DELHI HIGH COURT) set aside the rectification application rejection order and held an order rejecting a rectification application filed by the taxpayer cannot be passed without first hearing the taxpayer. The Hon’ble Court noted that the petitioner challenged the rejection of its rectification application filed under Section 161 of the DGST Act, 2017. The rectification was sought on the ground that a demand of ₹24,43,640/– had been wrongly included based on alleged ITC from a supplier (M/s Arun Sales), even though no such ITC was ever availed.

The Hon’ble Court observed that Proviso 3 to Section 161 mandates that if a rectification is to be decided adversely against the applicant, principles of natural justice must be followed, including granting an opportunity of personal hearing.

The Hon’ble Court noted that while dismissing the rectification application, the department had neither provided a hearing nor recorded any reasoning why the rectification was unsustainable. Instead, the application was mechanically rejected with a standard template language. The Hon’ble Court placed reliance on the decision of the Madras High Court in Suriya Cement Agency v. State Tax Officer [W.P.(MD) No. 7338 of 2024 | citation – 2024  (12) TMI 57 – MADRAS HIGH COURT], which emphasized that even at the stage of rejection of a rectification application, a hearing is mandatory if adverse consequences flow against the applicant.

Accordingly, the Hon’ble Delhi High Court set aside the rejection order dated 28th February 2025 and directed the department to afford a personal hearing to the petitioner and then decide the rectification application in accordance with law, keeping all rights and contentions open.

Author’s Comments

Section 161 of the CGST Act, 2017 empowers authorities to rectify any error apparent on the face of the record in any decision, order, notice, or document. Importantly, the concept of an “error apparent” is narrow and confined. The error must be self-evident and should not require a detailed process of reasoning or reappreciation of facts. If two views are reasonably possible on a point, it ceases to be an “apparent error” and cannot be rectified under Section 161.

Errors amenable to rectification may be:

(a) Factual,

(b) Legal, or

(c) Clerical,

provided they are immediately discernible without debate or investigation. Crucially, rectification cannot be used to alter the substantive findings or conclusions of the original document, nor can it involve bringing in new facts or reinterpreting existing facts through fresh reasoning.

Additionally, rectification proceedings that adversely affect the rights of any person must be preceded by an opportunity of hearing, as mandated by Proviso 3 to Section 161. This procedural safeguard ensures compliance with principles of natural justice. This principle was reiterated by the Hon’ble Madras High Court in M/s. Vadivel Pyro Works v. State Tax Officer [W.P. No. 11143 of 2023, decided on 26.07.2023| citation- 2023 (8) TMI 105 – MADRAS HIGH COURT], where the Court set aside a rectification order passed without affording a hearing to the taxpayer. The Hon’ble Court emphasized that even in rectification proceedings, natural justice must be upheld when the rectification results in adverse consequences to the taxpayer.

14. Whether the provisions of section 7(1)(aa), explanation thereto, and section 2(17)(e) of the CGST and KGST Acts are unconstitutional and ultra vires the constitution?

Yes, the Hon’ble Kerala High Court in Indian Medical Association, Kerala vs. Union of India & Ors. (W.A. No. 1659 of 2024 and connected appeals | Decision Date: 11 April 2025 | CITATION – 2025 (4) TMI 872 – KERALA HIGH COURT) declared that the provisions of Section 7(1)(aa), the Explanation thereto, and Section 2(17)(e) of the CGST Act, 2017, as well as their corresponding provisions under the KGST Act, are unconstitutional and void, being ultra vires the Constitution of India. The Court held that these provisions violated Articles 246A, 366(12A), and 265 of the Constitution and failed the test of legislative competence, as they attempted to levy GST on transactions governed by the principle of mutuality, which is beyond the scope of the GST law as authorized by the Constitution. The Hon’ble Court noted that the Indian Medical Association (IMA), Kerala Chapter, operates multiple welfare schemes for its member doctors, including Social Security Schemes, Professional Disability Support Schemes, Professional Protection Schemes, and Health and Pension Schemes. These schemes are entirely member-funded and are meant to provide financial aid in cases of death, disability, legal protection, or medical emergencies. The IMA challenged the retrospective levy of GST on contributions made under these schemes based on the Finance Act, 2021 amendments, which inserted Section 7(1)(aa), the Explanation thereto, and amended Section 2(17)(e) of the CGST and KGST Acts. These provisions deemed that transactions between members and associations constitute taxable supplies, even in mutual benefit scenarios. The IMA argued that these provisions violated the well-established principle of mutuality upheld by the Supreme Court in the case of State of W.B. & Ors. v. Calcutta Club Ltd. – [(2019) 19 SCC107] and others. The Single Judge had earlier upheld the constitutional validity of the provisions but struck down their retrospective operation. Aggrieved by this, the IMA and the Union/State governments filed cross-appeals. The Hon’ble Division Bench, after an in-depth analysis, held that the impugned provisions directly infringed upon the principle of mutuality, which continues to hold the field unless explicitly overridden by a constitutional amendment. The Court found that Parliament had no legislative competence under Article 246A, read with Article 366(12A), to artificially deem transactions between associations and their members as taxable supplies. Such deeming provisions attempted to override constitutional limitations and settled judicial doctrine through mere statutory amendments, which is impermissible. The Hon’ble Court observed that the concept of supply under GST necessarily implies a transaction between two distinct persons, which cannot exist in a mutuality-based arrangement where the supplier and recipient are essentially the same entity. By imposing GST on such transactions, the provisions sought to tax non-existent supplies, violating Article 265 of the Constitution, which prohibits the imposition of tax without authority of law. Accordingly, the Hon’ble Court declared the provisions of Section 7(1)(aa), the Explanation thereto, and Section 2(17)(e) under the CGST and KGST Acts as unconstitutional, ultra vires, and void, thereby granting full relief to the IMA.

Author’s Comments

This ruling is a significant reaffirmation of the enduring relevance of the principle of mutuality under India’s constitutional framework, even in the post-GST era. The decision not only strikes down the legislative overreach attempted through the Finance Act, 2021, but also reinforces the critical doctrine that tax cannot be imposed by mere statutory fiction when constitutional limitations are clear and settled. The insertion of Section 7(1)(aa), the Explanation thereto, and Section 2(17)(e) in the CGST Act sought to artificially create a taxable event where none existed, by deeming transactions between associations and their members as “supplies.” In the author’s considered view, this was an overt attempt to circumvent the binding precedents of the Supreme Court in the case of State of W.B. & Ors. v. Calcutta Club Ltd. – [(2019) 19 SCC107] and CTO v. Young Men’s India Association (Regd) – [(1970) 1 SCC 462], where it was conclusively held that mutuality-based transactions do not constitute a supply liable to tax. This judgment also sends a strong constitutional message regarding the limits of legislative competence under Article 246A read with Article 366(12A). Parliament’s authority to levy GST extends only to transactions that satisfy the essential elements of “supply” as understood in common law and jurisprudence. It cannot, through statutory amendments, create a tax liability where the fundamental requirement of two distinct persons and the element of consideration are inherently absent.

15. Whether goods accompanied by e-way bill and tax invoice can be treated as validly transported if supplier’s GST registration had been cancelled prior to the transaction?

No, the Hon’ble Allahabad High Court in case of M/s Raman Metal Works vs. Additional Commissioner and Another (Writ Tax No. 3 of 2022 | Order dated: 16.04.2025| Citation-2025 (4) TMI 1058 – ALLAHABAD HIGH COURT) dismissed the writ petition and held that an entity whose registration is cancelled cannot lawfully issue tax invoice, e-way bill and as such transportation is in breach of statutory obligation. The Hon’ble Court noted that the petitioner, engaged in the business of lead ingots, challenged the penalty and appellate orders passed under Section 129(1) of the CGST Act, 2017. The penalty was imposed on the ground that though the goods were accompanied by a tax invoice and e-way bill, the supplier’s GST registration had been cancelled prior to the date of the transaction. The petitioner argued that since the e-way bill was validly generated and accompanied the goods, it should be presumed that the supplier was a registered entity at the relevant time. However, the State contended that the supplier’s registration had been cancelled on 07.11.2020, while the tax invoice and e-way bill were dated 01.12.2020, rendering the transaction non-genuine and in violation of Rule 138 of the U.P. GST Rules, 2017. Upon analysis, the Hon’ble Court held that Rule 138 mandates that goods must be accompanied by a valid tax invoice and e-way bill, issued by a legally existing registered supplier. Since the supplier was not in existence as a registered person on the date of issuance of the invoice and e-way bill, the transaction was sham and invalid. Consequently, the Hon’ble High Court upheld the orders of the authorities below, observing that no interference was warranted, and dismissed the writ petition.

The Hon’ble Court emphasized that an entity whose registration is cancelled cannot lawfully issue tax invoices or e-way bills, and such transportation would be in breach of statutory obligations, justifying penalty under Section 129.

Author’s Comments

Under Rule 138A of the CGST/State GST Rules, goods in movement must be accompanied by valid documents issued by a duly registered supplier. When a supplier’s registration is already cancelled, any tax invoice or e-way bill subsequently generated is rendered void ab initio, and the transaction becomes non-genuine. The possession of such invalid documents cannot shield the consignee from penalty exposure under Section 129.

Moreover, under Section 129, once mens rea (guilty mind or deliberate negligence) is established through objective facts — such as knowingly transporting goods with a document issued by a non-existent entity — errors and omissions are treated as fatal, not curable. In such cases, penalty must necessarily follow.

Importantly, the facts of this case reveal an even graver infraction: absence of a valid tax invoice altogether. Supplying goods without a legally valid invoice constitutes a serious violation. In such circumstances, the Revenue could have, and arguably should have, proceeded under Section 130 to confiscate the goods and conveyance. Supplying goods without a valid invoice is sufficient to invoke confiscation proceedings under Section 130, since it evidences intent to evade tax — a ground expressly recognized by the statute.

16. Can penalty under section 129 be imposed for expired or mismatched e-way bills?

Yes, the Hon’ble Allahabad High Court in M/s Lalitpur Power Generation Company Ltd. vs. State of U.P. (Writ Tax No. 595 of 2023 | Date of Decision: 15 April 2025| Citation: 2025 (4) TMI 1057 – ALLAHABAD HIGH COURT) upheld the imposition of penalty under Section 129 of the UPGST Act, 2017, for transportation of goods with expired and mismatched e-way bills, and held that failure to comply with Rule 138 creates a rebuttable presumption of intent to evade tax. The Hon’ble Court noted that the petitioner, a registered power generation company, was transporting goods from its godown to its power plant when the consignment was intercepted by the mobile squad. Though the vehicle carried all necessary documents such as invoices, bilties, and e-way bills, it was found that (a) one of the e-way bills had expired four days prior to interception, and (b) the vehicle number did not match the one declared in the Part B of the e-way bill. The proper officer detained the goods under Section 129(1), issued a notice under Section 129(3), and imposed a penalty of ₹93,298, which was confirmed in appeal. Rejecting the petitioner’s contention that there was no intent to evade tax and that minor clerical errors should not attract penalty, the Hon’ble Court referred to its earlier rulings in Akhilesh Traders [2024 (2) TMI 1128 – ALLAHABAD HIGH COURT] and Jhansi Enterprises [2024 (3) TMI 219 – ALLAHABAD HIGH COURT] , and reiterated the following legal propositions:

• After the 14th Amendment to the U.P. GST Rules, with effect from 01.04.2018, it is mandatory that the movement of goods be supported by a valid and complete e-way bill.
• Non-compliance with Rule 138 leads to a presumption of intent to evade tax, which can only be rebutted by strong material evidence.
• Mere post-interception production of documents does not absolve the transporter, as the validity of documents must exist at the time of movement.

The Hon’ble Court emphasized that a minor procedural lapse in e-way bill details, such as a mismatched vehicle number or expiry of validity, may still justify penalty, unless the taxpayer can convincingly rebut the presumption of tax evasion. In the present case, the Court found no cogent explanation for the lapses and held that the petitioner had failed to discharge the rebuttal burden. Accordingly, the writ petition was dismissed, and the penalty order was upheld.

Author’s Comments

This decision reignites a contentious debate on the scope and application of penalty under Section 129 of the GST Act. While the Hon’ble Allahabad High Court upheld the penalty for expired and mismatched e-way bills, a more nuanced interpretation of the statutory scheme reveals that not every procedural lapse should automatically attract punitive consequences.

As per CBIC Circular No. 64/38/2018-GST dated 14.09.2018, minor breaches or discrepancies in documents during the movement of goods—such as clerical errors in vehicle number—are to be dealt with under Section 125, which prescribes a general penalty without invoking the harsh consequences under Section 129.

In the author’s considered view, Section 129 must be invoked only when mens rea (intent to evade tax) is clearly established. Mere procedural infractions like mismatch of vehicle numbers or expired e-way bills, without suppression or fraudulent intent, fall within the category of non-fatal errors. Penal actions in such cases offend the principles of proportionality and due process.

The Supreme Court in Assistant Commissioner ST v. Satyam Shivam Papers Pvt. Ltd. [SLP (C) No. 21132/2021, decided 12.01.2022] has cautioned against overzealous invocation of Section 129, especially in cases lacking clear tax evasion.

17. Whether passing an adverse order without granting personal hearing violates principles of natural justice?

Yes, the Allahabad High Court in the case of Merino Industries Ltd. v. State of Uttar Pradesh and another (WRIT TAX No. – 1406 of 2025 Neutral Citation: 2025: AHC:45204-DB | Order dated: 02.04.2025 | Citation – 2025 (4) TMI 1010 – ALLAHABAD HIGH COURT) allowed the writ petition and held that the denial of hearing amounts to gross violation of procedural law. The Hon’ble Court noted that the petitioner, engaged in the manufacture of potato flakes, challenged the order dated 04.02.2025 passed under Section 74 of the CGST Act, creating a demand of ₹5.82 crores. The grievance was that despite a specific request made in the reply to the show cause notice for a personal hearing, the adjudicating authority passed the order without affording any opportunity of hearing, contrary to Section 75(4) of the Act. The Hon’ble Court observed that Section 75(4) mandates that where a written request is made, or an adverse decision is contemplated, a personal hearing must be granted. It was noted that in the show cause notice, the columns for “date” and “time” of personal hearing were marked as “NA,” and despite the petitioner’s express prayer for a hearing, no opportunity was provided before finalizing the adverse order. The Hon’ble Court heavily criticized the mechanical manner in which the Revenue authorities were proceeding post-online migration, without respecting statutory mandates or principles of natural justice. The hon’ble Court referred to its previous decision in Laskin Engineering Pvt. Ltd. vs. State of U.P (Writ Tax No. 674 of 2024, decided on 16.05.2024 | citation-2024 (5) TMI 1555 – ALLAHABAD HIGH COURT ), emphasizing that denial of hearing amounts to gross violation of procedural law, warranting setting aside of orders irrespective of alternative remedy availability. Given the seriousness of the violation, the Court not only quashed the impugned order but also imposed costs of ₹20,000 on the Joint Commissioner SGST, responsible for the violation, payable to the High Court Legal Services Committee. It also directed the Commissioner, Commercial Tax, U.P., to impart proper training to officers and initiate disciplinary proceedings against erring officials, if necessary. Accordingly, the matter was remanded back to the adjudicating authority for passing a fresh order after granting a personal hearing to the petitioner.

Author’s Comments

This judgment is a significant reaffirmation of the Principles of Natural Justice, particularly the statutory right to a personal hearing under Section 75(4) of the CGST Act, 2017. The provision clearly stipulates that an opportunity of hearing must be granted when:

1. A written request is made by the taxpayer, or

2. An adverse decision is contemplated by the adjudicating authority.

In the author’s view, while the SCN need not mandatorily specify the date and time of personal hearing at the outset, a fair and meaningful opportunity of hearing must be granted before passing any adverse order. Failure to do so renders the proceedings procedurally defective and legally unsustainable.

Further, pre-scheduling a personal hearing at the SCN stage—before evaluating the taxpayer’s reply—may create an unintended presumption of prejudgment. Such a practice undermines the neutrality of the adjudicating authority and gives rise to the inference that the officer may have already predetermined the outcome, thereby diluting the integrity of the adjudication process.

It is also important to emphasize that taxpayers should approach writ remedies under Article 226 (or Article 32, where applicable) only strategically and judiciously. If a court merely remands the matter for fresh adjudication without quashing the underlying SCN, the relief obtained may be incomplete or illusory.

Lastly, taxpayers must not overreact to ex-parte orders. In most cases, where such orders are passed without considering the taxpayer’s reply or without granting a hearing, they suffer from procedural illegality, as they often lack a factual and legal foundation. Therefore, rather than perceiving every ex-parte order as disastrous, taxpayers should evaluate the best available legal remedy to challenge such orders effectively.

18. Can the first appellate authority dismiss an appeal solely for non-appearance without recording any findings on merits?

No, the Hon’ble Kerala High Court in case of St. Antony Trading and Transport Pvt. Ltd. vs. Joint Commissioner (Appeals), SGST Department, Kerala (W.P. (C) No. 14743 of 2025 | Order dated: 08.04.2025| Citation – 2025 (4) TMI 1153 – KERALA HIGH COURT) quashed the impugned orders and directed the First Appellate Authority to reconsider the appeals afresh. The Hon’ble Court noted that the petitioner challenged two appeal orders passed under Section 107 of the CGST Act, which were dismissed by the Appellate Authority due to the petitioner’s repeated non-appearance, despite being granted three adjournments. However, the appellate orders neither recorded any findings on the merits of the appeal nor framed points for determination, as required by Section 107(12). The Hon’ble Court held that dismissing an appeal solely for default in appearance, without a decision on merits, violates the statutory mandate of Section 107(11) and (12). These provisions require the Appellate Authority to consider the issues raised, frame points for determination, and pass a reasoned order, even in the absence of the appellant. The Hon’ble Court relied on the Patna High Court’s decision in Purushottam Stores vs. State of Bihar [(2023) 75 GSTL 276], which held that refusal to consider appeals on merits—merely due to non-appearance—is an abdication of statutory duty. Reference was also made to the Supreme Court ruling in CIT v. Chenniappa Mudaliar [(1969) 1 SCC 591], reaffirming that quasi-judicial appellate bodies must dispose of matters on merit, irrespective of procedural default. Accordingly, the High Court quashed the impugned orders (Exhibits P5 and P6) and directed the Appellate Authority to reconsider the appeals afresh, after granting the petitioner a reasonable opportunity of hearing.

Author’s Comments

This judgment delivers a firm reminder that appellate authorities under the CGST Act function as quasi-judicial bodies, and are bound by the statutory mandate under Section 107(11) and 107(12) of the CGST Act, 2017. Even in cases where the appellant fails to appear—despite being granted multiple adjournments—the authority cannot dispose of an appeal solely on the ground of default in appearance.

The law explicitly requires the appellate order to:

1. Frame points for determination,

2. Consider the grounds of appeal, and

3. Record a reasoned decision on merits.

The Hon’ble Kerala High Court rightly quashed the appellate orders, noting that the dismissal of appeals for mere non-appearance—without any findings on the issues raised—amounts to non-application of mind and is a clear abdication of statutory duty.

This position was previously echoed by the Patna High Court in Nav Nirman Construction v. Union of India [2023] 157 taxmann.com 343 / [2024] 81 GSTL 251 / [2024] 101 GST 760 (Patna), where it was held that even in ex parte circumstances, the Appellate Authority is obliged to examine the matter on merits and cannot mechanically affirm the lower authority’s order. A mere reference to the appellant’s non-cooperation is not a substitute for adjudication.

Furthermore, the Supreme Court in CIT v. Chenniappa Mudaliar [(1969) 1 SCC 591] laid down the enduring principle that appellate bodies cannot dismiss appeals without adjudicating on the issues, even in the event of non-prosecution.

19. Whether uploading notices only under the ‘Additional notices and orders’ tab of the portal without ensuring actual service violates principles of natural justice?

Yes, the Hon’ble Madras High Court in Tvl. Viswanathan Amarnath vs. Deputy State Tax Officer (W.P. No. 3617 of 2025 | Decision Date: 06 February 2025) held that merely uploading notices and orders under the “View Additional Notices and Orders” tab on the GST portal without ensuring actual service to the taxpayer violates Section 169 of the CGST Act and the principles of natural justice, and accordingly set aside the adjudication order. The Hon’ble Court noted that the petitioner challenged the adjudication order dated 28.08.2024 on the ground that neither the show cause notice nor the hearing notice was served effectively. It was contended that the notices were only uploaded under the “View Additional Notices and Orders” section of the GST portal, which went unnoticed by the petitioner’s part-time accountant, resulting in a failure to file a reply or appear for the hearing.

The Hon’ble Court held that such a mode of service, though technically permissible under Section 169(1)(d), cannot be relied upon exclusively when the taxpayer does not respond. In such cases, the department must resort to more effective modes of communication, such as registered post with acknowledgment or direct delivery, to ensure actual service. The Court emphasized that technology cannot be used to undermine procedural fairness, especially when the taxpayer is unaware of the notice and suffers prejudice. Further, the Hon’ble Court criticized the department’s mechanical approach of uploading reminders repeatedly on the portal without changing the mode of service, even when no response was received. It observed that Section 169 must be read purposively, and the goal must be to ensure that the notice actually reaches the taxpayer. Additionally, the Hon’ble Court pointed out that the personal hearing fixed for 26.06.2024—prior to the reply due date—was procedurally defective, as the opportunity of hearing under Section 75(4) must follow the reply and not precede it. Passing an order without such a meaningful hearing amounted to a clear violation of natural justice. Accordingly, the Court quashed the impugned order dated 28.08.2024, and directed the respondent to issue a fresh notice, allow the petitioner to file a reply within 15 days, and then provide a clear 14-day hearing opportunity before passing a fresh order in accordance with law.

Author’s Comments

Section 169 of the CGST Act, 2017 provides 14 different statutory modes for service of any notice, order, or communication. However, this multiplicity of options does not grant authorities unfettered discretion to arbitrarily choose any method. Rather, it imposes a duty on the Proper Officer to select the most suitable and effective mode, ensuring that the communication actually reaches the intended noticee. The very purpose of a notice is to set the legal process in motion—and that objective is defeated if the notice never comes to the taxpayer’s knowledge.

In the author’s considered opinion, while the use of the word “or” in clauses (a) to (f) under Section 169(1) gives the officer procedural liberty, that liberty is not absolute. The touchstone remains effective service, not mere technical compliance. If the notice is not received, service is incomplete—and the entire proceeding built upon such defective service becomes vulnerable. It is therefore the burden of the Revenue to prove that the notice was validly and effectively served, and until this burden is discharged, ‘due process’ under the law stands compromised.

This principle was similarly upheld in the decision of the Hon’bleMadras High Court in Udamalpet Sarvodaya Sangham v. The Authority & Ors [2025] 170 taxmann.com 655 (Madras)[06-01-2025], where it was held that notice must be served either in person, by registered post, or via the registered e-mail ID. Only upon failure or impracticability of these primary modes can the State resort to alternative forms like portal uploads or newspaper publications.

20. Can penalty be imposed under section 129 of the GST Act for route deviation or non-production of physical tax invoice when there is no intention to evade tax?

No, the Hon’ble Calcutta High Court in case of Shekhar Kumar @ Shekhar Bagaria vs. The State of West Bengal & Ors.(WPA No. 594 of 2025 | Decision Date: 03 April 2025| Citation- 2025 (4) TMI 1053 – CALCUTTA HIGH COURT) held that mere route deviation or non-production of physical invoice, without any indication of tax evasion, does not justify invocation of Section 129 of the CGST/WBGST Act. The Hon’ble Court accordingly quashed the penalty orders and allowed refund of penalty already paid. The Hon’ble Court noted that the petitioner’s consignment was intercepted by the tax authorities while in transit. Upon interception, the driver could not produce a hard copy of the tax invoice but displayed a digital copy of the same on his mobile phone. Additionally, it was noted that the vehicle was not following the route that was earlier declared in the e-way bill. Based on these procedural irregularities, the goods were detained and penalty proceedings under Section 129 were initiated. The adjudicating authority passed an order imposing a penalty, which was upheld by the appellate authority. Challenging these orders, the petitioner filed a writ petition before the High Court, arguing that the minor procedural lapse did not imply any intention to evade tax.

The Hon’ble Court held that while Rule 138A(1)(a) does require a person in charge of a conveyance to carry a physical invoice during transport, the display of the invoice digitally through a mobile phone—though technically non-compliant—was not indicative of suppression or fraud. There was no allegation of mismatch in quantity, description, or value of the goods, nor any evidence of tax underpayment. On the issue of route deviation, the Hon’ble Court categorically stated that GST law does not mandate a fixed route for movement of goods, unlike the previous VAT regime, and mere deviation from a declared route does not constitute a statutory offence. The Hon’ble Court relied on precedents from the Allahabad in case of M/S Vishal Steel Supplier-Vs-State of U.P. and 3 Others reported at 2024:AHC:113213  and Karnataka High Court in case of Joint Commissioner of Commercial Taxes (Appeals)-3, Bengaluru –Vs-Transways India Transport reported at [2024] 164 taxmann.com 673 (Karnataka) to reinforce this interpretation. It concluded that the invocation of Section 129 requires a foundational element of “intent to evade tax,” which was completely absent in the present case. As such, the penalty was held to be unsustainable in law. The Hon’ble Court set aside the orders passed by both the adjudicating and appellate authorities and directed the department to process the petitioner’s refund claim for the penalty amount within three weeks.

Author’s Comments

This ruling underscores a fundamental principle in GST jurisprudence: not every procedural lapse amounts to tax evasion, and not every error invites the penal consequences of Section 129. The Hon’ble Calcutta High Court has rightly reaffirmed that intent to evade tax is a necessary precondition for invoking the rigors of detention and penalty under this provision.

This case also highlights a chronic flaw in departmental adjudication—deficient and overreaching show cause notices. The drafting of an SCN is not a routine administrative task but an exercise in legal craftsmanship. It demands that the infraction of law—if alleged—must be clearly mapped to a specific statutory provision, with supporting facts to justify the invocation of a penal section. Without this, the adjudicatory foundation itself collapses.

In the author’s considered view, Section 129 must be invoked only when mens rea (intent to evade tax) is clearly established. Mere procedural infractions like mismatch in vehicle numbers, route deviation, or expired e-way bills—when unaccompanied by any element of fraud or suppression—fall within the category of non-fatal errors. Penal consequences in such cases offend the principles of proportionality and due process, particularly when statutory compliance has substantially been met.

Support for this view is also found in CBIC Circular No. 64/38/2018-GST dated 14.09.2018, which explicitly clarifies that minor breaches or discrepancies during transit—such as clerical errors in documentation—should be dealt with under Section 125, which provides for a general penalty.

21. Whether the impugned order is liable to be set aside when the reply to the SCN was submitted by the petitioner but not considered by the adjudicating authority?

Yes, the Hon’ble Karnataka High Court in case of Sait Nagjee Purushotham and Company Private Ltd. v. Commercial Tax Officer (WP(C) No. 11130 OF 2025 (T-RES)| Dated 29.04.2025 | Citation – 2025 (5) TMI 726 – KARNATAKA HIGH COURT) set aside the impugned order for not considering the reply furnished by the petitioner. The Hon’ble Court noted that the petitioner had challenged the order passed by the Commercial Tax Officer on the ground that although a detailed reply to the Show Cause Notice dated 26.11.2024 was duly submitted on 24.12.2024, the same was not considered while passing the final order dated 26.12.2024. The petitioner argued that the impugned order was passed in a mechanical manner without any reference to the specific contentions raised in its reply, particularly concerning Observation No. 2 in the SCN relating to discrepancies between the petitioner’s GSTR-3B returns and the auto-populated GSTR-2A. The petitioner submitted that various documents, including a credit note, were produced in support of its defense, but the adjudicating authority failed to consider or appreciate them in the proper perspective. The Hon’ble Karnataka High Court examined the material on record and found merit in the petitioner’s submissions, noting that neither the contentions raised nor the credit note submitted by the petitioner had been considered by the adjudicating authority. The Court placed reliance on the judgment of the Hon’ble Madras High Court in M/s. Oasys Cybernetics Private Limited v. State Tax Officer [2024 (4) TMI 770 – Madras High Court], where it was held that non-consideration of a credit note and failure to address the contentions raised by the assessee amounted to a violation of the principles of natural justice, warranting the setting aside of the order. Following the same reasoning, the Hon’ble Karnataka High Court held that the impugned order suffered from a similar infirmity and could not be sustained. Accordingly, the Court quashed the impugned order and rem  itted the matter back to the adjudicating authority for reconsideration afresh after duly examining the reply and documents submitted by the petitioner. The petitioner was directed to appear before the adjudicating authority on 19.05.2025 without awaiting any further notice, and liberty was granted to file additional pleadings and documents, which the authority was directed to consider before passing a fresh order in accordance with law.

Author’s Comments

In the author’s considered view, while the remand order may appear as a relief on the surface, it merely prolongs the litigation without offering any conclusive remedy to the taxpayer. The SCN remains intact, and the taxpayer is compelled to face another round of adjudication before the same officer, often leading to additional legal costs and uncertainty. The petitioner could have adopted alternate strategy by directly challenging the very foundation of the demand, i.e., the validity of using a GSTR-2A and GSTR-3B mismatch as the sole basis for initiating proceedings. It is well established that GSTR-2A is an auto-populated statement based on supplier uploads, which are not within the control of the recipient, whereas GSTR-3B reflects the taxpayer’s self-assessment. A mere mismatch between the two cannot, by itself, establish tax evasion or wrongful availment of Input Tax Credit without corroborative evidence. The Revenue was obligated to discharge its burden of proof by producing concrete material to substantiate that the credit availed was inadmissible. Furthermore, even in cases where an ex parte order is passed, it is not always necessary to immediately invoke the writ jurisdiction. Taxpayers must strategically assess whether the order suffers from jurisdictional defects or procedural infirmities that can be effectively challenged through appellate mechanisms or directly before constitutional courts when warranted.

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(The content and views stated in this article are solely for informational purposes. It does not constitute professional advice or recommendation in any manner whatsoever. For any feedback and queries write to me at caritesharora1628@gmail.com)