In a significant ruling emphasizing principles of natural
justice and providing relief to taxpayers who missed their original hearing,
the Madras High Court has quashed a Goods and Services Tax (GST) demand
order and remanded the case back to the Tax Officer for fresh consideration.
This relief, however, was strictly conditioned upon the petitioner depositing 25%
of the disputed tax amount in cash.
The case, adjudicated by the Honourable Justice C. Saravanan,
highlights the power of the High Court under Article 226 of the Constitution to
intervene in circumstances where the statutory appeal remedy is time-barred and
the demand order was passed ex parte (without the taxpayer's
representation).
1. Background of the GST Demand and Missed Compliance
The case involved petitioner D. Saravana Kumar
challenging a tax demand order issued by the State Tax Officer.
|
Compliance Step |
Date / Detail |
Taxpayer's Action / Omission |
|
Show Cause Notice (SCN) |
July 4, 2024 (in DRC-01 format) |
Issued by the Tax Department outlining the proposed tax
demand and scheduling a personal hearing. |
|
Response & Hearing |
Scheduled Date |
The petitioner neither responded to the SCN nor
appeared for the personal hearing. |
|
Final Demand Order |
September 23, 2024 (in DRC-07 format) |
The Tax Officer proceeded to pass a final order, confirming
the tax demand under Section 74 of the GST Act (dealing with cases
involving fraud or willful misstatement). |
|
Appeal Challenge |
Statutory Deadline |
The petitioner missed the statutory deadline to file an
appeal under Section 107 of the GST Act. |
|
Court Petition |
October 6, 2025 |
The petitioner filed a Writ Petition under Article
226, seeking to quash the order and obtain a second chance to present their
case. |
The core issue before the High Court was whether the taxpayer
should be penalized for failing to respond to the SCN, especially when the
statutory appeal period had lapsed.
2. The High Court's Rationale and Final Order
The Madras High Court, noting similar precedents where
taxpayers were granted relief under the condition of pre-deposit, decided to
follow a balanced approach. While acknowledging the petitioner's lapse, the
Court stressed the importance of deciding cases on their merits rather
than merely on procedural default.
The Court quashed the demand order dated September 23, 2024,
and remanded the case with the following strict and non-negotiable directions:
A. Condition of Pre-Deposit
The petitioner was mandated to deposit 25% of the disputed
tax amount (exclusive of interest and penalty) in cash, utilizing their
Electronic Cash Ledger. This deposit must be completed within 30 days of
receiving the court order.
- Note
on Statutory Requirement: While Section 107 generally requires only a 10%
pre-deposit to challenge an appealable order, courts often impose a higher
pre-deposit in writ jurisdiction cases, especially where the appeal remedy
was not pursued timely, to demonstrate the petitioner's bona fide intent.
B. Compliance and Representation
The petitioner must file a comprehensive reply to the
original SCN (dated July 4, 2024), attaching all necessary supporting
documents, within 15 days of receiving the court order.
C. Fresh Hearing and Decision
Upon receipt of the reply and confirmation of the 25%
deposit, the Tax Officer is directed to grant a fresh personal hearing
to the petitioner and issue a fresh speaking order based on the merits
and the law. This entire process must preferably be completed within 3
months.
D. Consequence of Non-Compliance
The Court explicitly ruled that if the petitioner fails to
comply with any of the aforementioned directions (i.e., failing to
deposit the 25% or failing to file the reply), the Tax Officer is free to
proceed with recovery action based on the original demand order, as if
the writ petition had been dismissed.
3. Implications for Taxpayers and GST Litigation
This Madras High Court judgment provides a significant
lifeline for taxpayers who have had ex parte orders passed against them
due to genuine oversight or failure to attend a hearing, provided the statutory
appeal window has closed.
- Judicial
Intervention:
It underscores the judiciary’s role in ensuring that principles of natural
justice are upheld, allowing parties a fair opportunity to be heard
before a final demand is enforced.
- Cost
of Relief:
It reinforces the concept that relief sought through writ jurisdiction
after the exhaustion of statutory remedies often comes at a higher price
(a substantial pre-deposit), making it expensive but necessary for belated
relief.
- Mandatory
Compliance:
The directions make it clear that the second chance is entirely
conditional. Taxpayers receiving such relief must strictly adhere to the
timelines and deposit requirements set by the Court to avail the benefits
of the remand order.
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