HC Sets Aside GST Penalty Order for Failure to Pass Reasoned Order After SCN

HC Sets Aside GST Penalty Order for Failure to Pass Reasoned Order After SCN

The petitioner, Rajeev Kumar, engaged in the business of trading iron scrap under the firm M/s Sulodhia Steels, had his vehicle intercepted while transporting goods from Chennai to Mandi Gobindgarh. The vehicle was accompanied by an invoice, e-way bills, and transport documents. However, not being satisfied, the authorities initiated proceedings, conducted physical verification, and issued a detention order followed by a show cause notice proposing a tax and penalty of Rs. 358,614.

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To secure the release of the goods and vehicle, the petitioner paid the demanded amount under protest. Despite submitting a reply to the show cause notice via email, the authority did not consider the reply and proceeded to pass a penalty order dated 28.01.2026 confirming the demand without issuing a reasoned order or adjudicating the reply.

Issue Before HC: Whether GST authorities are required to pass a reasoned adjudication order on a show cause notice even when the taxpayer has paid the tax and penalty amount.

HC Held: The High Court allowed the writ petition and set aside the penalty order dated 28.01.2026. Relying on the Supreme Court’s decision in M/s ASP Traders v. State of Uttar Pradesh, the Court held that payment of tax and penalty does not absolve the proper officer from the statutory obligation to pass a reasoned and speaking order.

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The Court observed that the conclusion of proceedings under Section 129(5) of the CGST Act does not mean waiver of the taxpayer’s right to challenge the levy. A proper adjudication order is necessary to enable the taxpayer to avail themselves of the statutory remedy of appeal. Failure to pass such an order violates principles of natural justice and renders the demand unsustainable.

Therefore, the matter was remanded back to the authority with directions to pass a fresh reasoned order under Section 129(3) in Form GST MOV-09 after granting an opportunity of personal hearing and to upload the summary in Form GST DRC-07 within one month.

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