The Punjab and Haryana High Court has held that affixation of notice without resorting to other modes of Goods and Service Tax (GST) demand is unsustainable.
The bench of Justice Deepak Sibal and Justice Rohit Kapoor quashed a GST demand order and the consequential recovery proceedings initiated against a taxpayer after finding that the authorities failed to validly serve the statutory show cause notice and illegally recovered the tax amount on the very day the demand order was passed.
The petitioner/assessee challenged an order passed under Section 74A(1) read with Section 74A(5)(ii) of the CGST Act for the financial year 2025-26 covering the tax period from June 2025 to August 2025. The order had raised a GST demand against the petitioner on allegations attracting the fraud-related provisions under Section 74A.
Apart from challenging the demand itself, the petitioner also questioned the legality of the recovery process adopted by the tax authorities. According to the petitioner, no valid show cause notice had been served before the demand was confirmed and the authorities proceeded to recover the amount immediately by debiting the amount lying in the taxpayer’s electronic ledger.
The principal controversy before the Court revolved around the manner in which the show cause notice was served.
The State contended that the notice preceding the demand order had been served through affixation and that such service was permissible under Section 169 of the CGST Act. However, during the hearing, it was not disputed that the authorities had not attempted or exhausted the other prescribed modes of service before resorting to affixation.
The Court examined Section 169, which provides a hierarchy of methods for service of notices, including direct delivery, registered post, courier, email, uploading on the GST portal, and publication in newspapers. Service by affixation is contemplated only when the other prescribed methods are found impracticable.
After considering the statutory framework, the Bench observed that the department had directly resorted to affixation without first establishing that the other statutory modes of service were impracticable. Consequently, the Court held that the show cause notice dated December 10, 2025 had not been validly served upon the petitioner.
Since issuance and service of a valid notice is a mandatory requirement under Section 74A and an integral component of natural justice, the Court concluded that the demand order itself could not survive.
The High Court also found serious fault with the department’s recovery action.
Under Section 78 of the CGST Act, a taxpayer is ordinarily entitled to three months from the date of service of a demand order to make payment before coercive recovery proceedings can be initiated. The proviso permits recovery before the expiry of three months only if the proper officer records reasons in writing demonstrating that such immediate action is necessary in the interest of revenue.
In the present case, the authorities recovered the amount on January 14, 2026 itself—the very day on which the demand order was passed. During the proceedings, the State fairly conceded that no reasons had been recorded by the proper officer for invoking the proviso to Section 78.
The Bench held that such recovery was clearly contrary to the statutory protection granted to taxpayers and therefore could not be sustained in law.
Having found both the demand proceedings and recovery action illegal, the Court set aside the demand order dated January 14, 2026 and directed the State authorities to refund the amount recovered from the petitioner within two weeks from receipt of the judgment.
At the same time, the Bench clarified that the ruling would not prevent the tax authorities from initiating fresh proceedings in accordance with law, provided the statutory requirements relating to issuance and service of notice are properly followed.
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