The Delhi High Court has declined to interfere with an ex parte GST adjudication order, holding that disputed questions concerning service of a personal hearing notice and the imposition of a 100% penalty should be examined by the statutory appellate authority.

The Bench of Justice Anil Kshetarpal and Justice Bharat Parashar observed that the department’s dispatch register was insufficient to establish service of the hearing notice. It also identified gaps in the adjudicating authority’s reasoning for imposing a penalty equivalent to the tax despite recording payment of tax, a 15% penalty and certain interest before the show cause notice. 

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Nevertheless, the Court held that resolving these issues required examination of the underlying records. 

The business underwent a departmental audit under Section 65 of the Central Goods and Services Tax Act, 2017, covering July 1, 2017, to March 31, 2023. The audit objections principally concerned input tax credit relating to suppliers whose registrations were subsequently cancelled retrospectively and alleged delays in payments to suppliers beyond 180 days.

A revised audit memo proposed tax liability of ₹69,44,262, besides interest and penalty, with interest computed at ₹46,42,274.

Before issuance of the formal show cause notice, the taxpayer deposited ₹66,14,525 towards tax, ₹1,77,226 towards interest and ₹9,92,179 towards penalty through Forms DRC-03. The proceedings subsequently culminated in an ex parte adjudication order dated January 31, 2025, followed by Form DRC-07 dated February 2, 2025.

The taxpayer challenged the order primarily on the ground that no effective opportunity of personal hearing had been provided, contrary to Section 75(4) of the CGST Act.

The department maintained that hearings had been fixed for January 13, 14 and 15, 2025, and that the notices were communicated to the taxpayer’s registered postal and email addresses.

However, the taxpayer disputed the email address relied upon by the department and produced earlier GST communications showing that updates had been received at a different address.

The Court noted that, although the department asserted that the show cause notice was uploaded on the GST portal, it advanced no corresponding argument concerning uploading of the personal hearing notice.

Further, the material produced to substantiate service contained neither the email communication nor a postal dispatch receipt. Only the department’s dispatch register was placed on record, which the Bench considered insufficient to establish service.

The Court held that determining the dispute would require examination of registration particulars and any history of changes to the taxpayer’s email address on the portal. That factual inquiry should be undertaken by the appellate authority.

The Bench also examined the taxpayer’s objection to the imposition of a penalty equivalent to 100% of the tax.

It noted that the adjudication order recorded, verified and appropriated the pre-notice payments, including the 15% penalty. Yet, the order confirmed a penalty equivalent to the tax on the sole observation that proof of payment of the entire interest amount was unavailable.

The Court observed that the order did not consider Sections 74(5) to 74(7), quantify the interest payable on the deposited tax, or record findings on the interest actually paid. It also failed to reconcile the appropriation of the 15% penalty with the imposition of a 100% penalty on the same tax.

Additionally, the order recorded no specific finding of fraud, wilful misstatement or suppression of facts.

However, the Bench held that these issues required examination of the audit memos and Forms ADT-02, DRC-01A and DRC-03. The appellate authority could undertake that exercise.

The Court distinguished between the maintainability of a writ petition and the decision to exercise writ jurisdiction.

It recognised that an allegation of denial of natural justice could make the petition maintainable despite the availability of a statutory appeal. However, that exception should be invoked sparingly where the grievance involves disputed facts capable of examination in appeal.

The taxpayer’s other objections—including interest under Rule 37, an alleged overstatement of the DRC-07 demand by ₹76,06,706, and generation of the Document Identification Number under the Customs stream—were also left for appellate examination.

The Court directed the taxpayer to pursue the remedy under Section 107 of the CGST Act.

It granted liberty to seek exclusion of the time spent pursuing the writ petition through an application under Section 14 of the Limitation Act, 1963. The appellate authority must consider that application in accordance with law.

The Bench expressly clarified that its observations did not constitute a decision on the merits. All objections, including the disputed service of the personal hearing notice, remain open for independent examination by the appellate authority.

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