The Punjab and Haryana High Court has quashed an order rejecting a taxpayer’s GST refund claim after finding that the adjudicating authority failed to consider the taxpayer’s reply to the show cause notice and merely rejected the claim by stating “as per show cause notice.”
The Bench of Acting Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor has observed that the very purpose of issuing a show cause notice is to inform the taxpayer of the deficiencies perceived by the department and provide an opportunity to explain them. Once such an explanation is furnished, the adjudicating authority must objectively examine the reply before arriving at a conclusion.
The petitioner had filed a claim seeking refund under the GST law. During the processing of the refund application, the department issued a show cause notice dated August 25, 2025, highlighting certain deficiencies in the refund claim.
In response, the taxpayer submitted a detailed reply on September 5, 2025, addressing each of the objections raised in the notice and explaining why the refund ought to be granted.
However, despite receiving the reply, the competent authority passed an order dated February 13, 2026, rejecting the refund claim. The order merely stated that the refund was rejected “as per show cause notice” without discussing or dealing with the explanations furnished by the taxpayer.
Aggrieved by the refund rejection, the petitioner approached the High Court, contending that the adjudicating authority had violated the principles of natural justice by failing to consider the reply submitted to the show cause notice.
The petitioner argued that once a detailed response had been filed, the authority was legally obligated to examine the explanations and record reasons before rejecting the refund claim. A cryptic order that ignored the reply was arbitrary and unsustainable.
On behalf of the State, it was not disputed that the taxpayer’s reply had not been examined on merits. Instead, the State argued that the petitioner had an alternative statutory remedy of appeal under the GST law.
The Division Bench declined to relegate the petitioner to the appellate remedy.
The Court observed that although an appeal was available under the statute, it would not be an effective or efficacious remedy in the peculiar facts of the case because the adjudicating authority had failed to consider the taxpayer’s explanation altogether.
According to the Court, when the foundational adjudication itself suffers from complete non-application of mind, requiring the taxpayer to pursue an appeal would serve no useful purpose.
The High Court emphasized that issuing a show cause notice is not a mere procedural ritual.
The Court observed that mechanically rejecting the claim without considering the taxpayer’s response demonstrates lack of application of mind and violates the principles of natural justice. Such an order, therefore, cannot be sustained in law.
Allowing the writ petition, the High Court set aside the refund rejection order dated February 13, 2026. Remitted the matter back to the competent authority for fresh adjudication.
The court directed the authority to pass a reasoned and speaking order after duly considering the taxpayer’s reply to the show cause notice and ordered that the petitioner must also be granted an opportunity of personal hearing before a fresh decision is taken.
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