GST demand set aside as cryptic adjudication was held unsustainable for non-consideration of detailed taxpayer reply

Chemrow India Private Limited v. Commissioner of Delhi Goods and Service Tax and Others
Delhi High Court
W.P.(C) 6503/2024
Category of Dispute – Input Tax Credit | Demand under Section 73
Date of Judgment – 07 May 2024
Relevant Provisions – Sections 73, 75(3) of the CGST Act, 2017; Rule 142 of the CGST Rules, 2017

Facts of the Case

The petitioner, Chemrow India Private Limited, was issued a Show Cause Notice dated 27.09.2023 proposing a demand of ₹1,84,49,974 under Section 73 of the CGST Act on multiple grounds including under-declaration of output tax, excess and ineligible ITC, ITC from cancelled dealers, return defaulters, and non-tax payers. In response, the petitioner filed a comprehensive reply dated 10.10.2023 addressing each allegation head-wise with supporting documentation. Despite the same, the Proper Officer passed an adjudication order dated 30.12.2023 confirming tax, interest, and penalty, followed by a rectification order dated 30.03.2024 partially reducing the demand to ₹1,01,28,145 while otherwise maintaining the original order

Questions for Consideration

Whether an adjudication order under Section 73 can be sustained when the Proper Officer fails to consider a detailed reply submitted by the taxpayer and merely records a bald conclusion that the reply is incomplete and unsatisfactory without any reasoned analysis or opportunity to cure alleged deficiencies

Observations of the Court

The Court noted that the Show Cause Notice itself was structured under distinct heads and that the petitioner had furnished a detailed, point-wise reply supported by documents. However, the adjudication order contained only a generic observation that the reply was incomplete and unsupported, without discussing any specific contention raised by the petitioner. The Court found this to be ex facie indicative of non-application of mind. It further observed that if the Proper Officer was of the view that additional clarification or documentation was required, the principles of natural justice mandated that the same be specifically sought from the taxpayer. The Court also took note of the petitioner’s plea regarding duplication of ITC in TRAN-1 amounting to ₹91,96,278 and its subsequent reversal with interest, which was neither examined in the original order nor properly dealt with in rectification, except by way of mechanical adjustment

Judgment

The Delhi High Court held that the adjudication order dated 30.12.2023 was legally unsustainable and liable to be set aside for failure to consider the taxpayer’s reply on merits. Consequently, both the original order and the rectification order were quashed. The Show Cause Notice was remanded to the Proper Officer for fresh adjudication with a direction to grant an opportunity of personal hearing and to pass a reasoned speaking order in accordance with law within the timeline prescribed under Section 75(3) of the CGST Act. The Court expressly clarified that it had not examined the merits of the tax demand and left all rights and contentions of the parties open, including the challenge to Notification No. 9/2023 on limitation aspects

Between the Fine Lines – Practical Takeaway for Trade and Industry

This judgment reinforces that GST adjudication is not a mere formality. Proper Officers are legally obligated to deal with taxpayer replies head-wise and pass reasoned orders reflecting independent application of mind. Mechanical confirmations of DRC-01 proposals or cryptic observations branding replies as “unsatisfactory” expose the demand to judicial invalidation. For businesses, this ruling strengthens the enforceability of procedural safeguards in Section 73 proceedings and underscores the importance of filing structured, documented replies to protect against arbitrary confirmations.

Summary of Cases Referred

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