Demand Order issued before expiry of period of filing reply not valid; violates principles of natural justice

The Hon’ble Andhra Pradesh High Court in the case of Avexa Corporation (P.) Ltd. v. State of Andhra Pradesh [W.P. 10094/2024 dated August 19, 2024] set aside the demand order passed before the expiry of period of filing of reply as the said order passed is in violation of the principles of natural justice, especially when the Assessee could not access the GST portal due to registration cancellation which was subsequently revoked later. 

Facts:

Avexa Corporation (P.) Ltd (“the Petitioner”) was registered under CGST and APGST and was carrying business in Andhra Pradesh. The registration of the Petitioner was cancelled by proceeding dated October 28, 2023 w.e.f. August 31, 2023, appeal of which was subsequently filed and vide appellate order dated January 22, 2024, the cancelled registration was restored.

While the appeal was pending an intimation was issued under Section 61 of A.P. Goods & Services Tax Act, 2017 (“APGST Act”) dated October 10, 2023 which called for the petitioner to either pay a certain amount or file a reply stating why the petitioner is not liable to pay the demanded amount. Further, a fresh intimation dated December 19, 2023, under Section 74 of the APGST Act was issued. Thereafter a Show cause notice dated December 26, 2023 (“the SCN”) was issued based on the discrepancies in the return filed by the petitioner and the Petitioner was asked to reply explaining why they are not liable to pay the demanded amount within 30 days.

The Petitioner submitted a letter dated January 22, 2024, in which they demanded restoration of registration based on the order filled by the appellant authority and requested an extension of time for furnishing a proper reply.  However, vide orders dated January 24, 2024 (“the Impugned Orders”), the petitioner was called for payment of the demanded tax and penalty.

Issue:

Whether demand order passed before the expiry of period of filing reply is valid especially when the Assessee could not access GST Portal due to GST registration cancellation?

Held:

The Hon’ble Andhra Pradesh High Court in W.P. 10094/2024 held as under

• Observed that, “the requirement of administrative authorities to follow the principles of natural justice is founded on the simple principle that the person on whom action is proposed, should be given the opportunity to set out his case against such proposed action. This would require that, the person against whom action is proposed is informed of the entire case against him and the material that is proposed to be used against him is also furnished to him. Thereafter, the affected person should be given adequate opportunity to make out his case against the proposed action. This would mean that the affected person should be given an opportunity to gather all the material that he proposes to use against the proposed action. Any variation or violation of this requirement would amount to violation of principles of natural justice, which would render the proposed proceedings invalid.”
• Noted that, the SCN issued on December 26, 2023 granted 30 days’ time to file the reply. The Impugned Order has been passed before such period of filing reply has been elapsed. The said fact further becomes relevant as the Petitioner was to be granted means to access the website of the department, after restoration of registration, with adequate time being given to the petitioner to gather all the details such as e-way bills, e-invoices, etc.
• Further Noted that, in the present case, such an opportunity was not given to the petitioner as the appellate authority’s order, restoring Petitioner registration, was passed on January 22, 2024 and the Impugned Order was passed on January 24, 2024.
• Opined that, the Department by not granting such opportunity has violated the principles of natural justice.
• Held that, the Impugned Orders are liable to be set aside.

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