Jindal Trading Co. v. Union of India: Delhi HC on Section 73 GST Demand Orders Set Aside for Non-Application of Mind

This case examines a writ petition before the Delhi High Court in which M/S. Jindal Trading Co. successfully challenged two demand orders passed under Section 73 of the Central Goods and Services Tax Act, 2017. The court found that the Proper Officer had failed to meaningfully engage with the petitioner's detailed reply and supporting documents before confirming a combined GST demand of approximately ₹1.95 crore, making the ruling a significant reference point on the minimum standard of adjudication required of Proper Officers acting under Section 73.

This page is a research summary of one specific Indian tax judgment, NOT legal advice. Always verify against the full judgment and consult a professional for case-specific guidance.

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The case at a glance

• Parties: M/S. Jindal Trading Co. Through Its vs Union Of India And Ors.
• Bench: Delhi High Court
• Date: 27 May 2024
• Court level: High Court
• Sections engaged: 73
• Outcome: Remanded for fresh consideration — both impugned demand orders dated 24.12.2023 and 28.12.2023 were set aside, and the Show Cause Notices dated 22.09.2023 and 29.09.2023 were remitted to the Proper Officer for re-adjudication.

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Facts of the case

M/S. Jindal Trading Co., a proprietorship firm run by Sh. Suresh Jindal, was served with two Show Cause Notices (SCNs) — dated 22.09.2023 and 29.09.2023 — by the GST department, proposing demands of ₹5,35,393 and ₹1,89,65,230 respectively under Section 73 of the CGST/DGST Act, 2017. The SCN dated 22.09.2023 was issued on the ground that the taxpayer had shown less liability in GSTR-3B as compared to GSTR-1, or had claimed excess ITC in GSTR-3B as compared to ITC accrued in GSTR-2A/2B. The SCN dated 29.09.2023 raised more granular grounds: excess ITC claims, and ITC availed from suppliers whose GST registrations had been cancelled suo moto — including several suppliers flagged for being non-functional, non-existent at their principal place of business, or having suspicious purchase chains.

In respect of the first SCN (22.09.2023), the petitioner acknowledged being unable to file a reply within the stipulated period. In respect of the second SCN (29.09.2023), the petitioner filed a detailed reply dated 29.10.2023 responding to each ground raised, accompanied by supporting documents including invoices, ledger accounts, weighing-bridge invoices, and bank statements evidencing payment to suppliers.

The Proper Officer, however, passed demand order dated 24.12.2023 on the first SCN on an ex-parte basis, recording that no reply had been filed. The order dated 28.12.2023 on the second SCN acknowledged the reply but dismissed it as a "plain reply" not supported by proper calculations, reconciliation, or relevant documents, ultimately confirming the demand without substantively engaging with the materials furnished.

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Issues raised

• Whether the impugned order dated 24.12.2023, passed ex-parte on the ground that no reply had been filed to the SCN dated 22.09.2023, was sustainable, given that the petitioner had not had an opportunity to respond.
• Whether the impugned order dated 28.12.2023, which summarily dismissed the petitioner's detailed reply dated 29.10.2023 as a "plain reply" unsupported by documents, reflected application of mind by the Proper Officer to the materials on record.
• Whether the Proper Officer was required, before confirming the demand, to call for further documents or clarifications if the reply was considered inadequate, and whether the failure to do so vitiated the order.

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What the court held

The Delhi High Court, constituted by Hon'ble Mr. Justice Sanjeev Sachdeva and Hon'ble Mr. Justice Ravinder Dudeja, set aside both impugned orders and remitted the Show Cause Notices to the Proper Officer for re-adjudication. The operative disposition is recorded at paragraph 11 of the order: "In view of the above, the impugned orders dated 24.12.2023 and 28.12.2023 cannot be sustained and are set aside. The Show Cause Notices dated 22.09.2023 and 29.09.2023 are remitted to the Proper Officer for re-adjudication."

On the order dated 24.12.2023, the court held that since the sole reason for confirmation of demand was the petitioner's failure to file a reply, one opportunity ought to have been granted before passing the order, and the matter was therefore liable to be remitted. On the order dated 28.12.2023, the court held that the Proper Officer's characterisation of the detailed reply as a mere "plain reply" was plainly unsustainable. The petitioner's reply dated 29.10.2023 was, on the court's analysis, a detailed reply supported by invoices, ledger accounts, weighing-bridge invoices, and bank statements — materials that the Proper Officer was obliged to at least consider on merits before forming an opinion. The court found ex-facie that the Proper Officer had not applied his mind to the reply actually submitted.

The court additionally held that if the Proper Officer considered the reply insufficient, the proper course was to specifically seek further details or clarifications from the petitioner. The record disclosed that no such opportunity had been afforded. The court directed the petitioner to file a further reply to the SCNs within 30 days, following which the Proper Officer was directed to re-adjudicate the SCNs after granting an opportunity of personal hearing.

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Strategy observations

1. Writ jurisdiction invoked against Section 73 demand orders: The petitioner approached the Delhi High Court under Article 226 by way of a writ petition (W.P.(C) 5966/2024) rather than pursuing a statutory appellate remedy, and the court entertained the petition — notably because the challenge was directed at the procedural validity of the adjudication itself, specifically the Proper Officer's failure to apply mind to the reply.

2. Detailed documentary record presented to the court: The petitioner placed before the court the full text of both SCNs, the reply dated 29.10.2023, and the impugned orders, enabling the court to compare, on the face of the record, what was submitted by the petitioner against what the Proper Officer recorded. This direct textual comparison underpinned the finding of non-application of mind.

3. SCN dated 22.09.2023 found vague and unreasoned: The court independently observed that the first SCN was a vague and unreasoned notice that merely reproduced a template allegation of less liability in GSTR-3B compared to GSTR-1, without particularising the grounds. This observation, while forming part of the court's fact-finding, did not independently dispose of that limb — the remand was ordered to allow the petitioner a fresh opportunity to respond.

4. ITC-from-cancelled-dealers ground put to re-adjudication: The department's demand under the second SCN rested substantially on ITC availed from five named suppliers whose registrations had been cancelled suo moto for various reasons. The court did not adjudicate on the merits of those allegations; instead, by setting aside the order and remitting the SCN, those grounds remain open for fresh consideration by the Proper Officer — who is now directed to afford personal hearing before confirming any demand.

5. Court placed an affirmative obligation on the Proper Officer to seek clarifications: The judgment records that if the Proper Officer considered the documents insufficient, the appropriate step was to specifically ask for further particulars — a procedural obligation derived from the principles of natural justice applied in the GST adjudication context under Section 73.

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Why this case matters

This judgment contributes to a discernible line of Delhi High Court decisions that impose a minimum standard of substantive engagement on Proper Officers adjudicating Section 73 show cause notices. The court's holding that a detailed reply accompanied by primary documents — invoices, ledger accounts, weighing-bridge records, and bank statements — cannot be dismissed as a "plain reply" without application of mind sets a concrete evidentiary threshold: the adjudicating officer must actually engage with the materials on record before recording a finding of inadequacy. The case is particularly useful for researchers tracking the interface between natural justice and the Section 73 adjudication process, because the court's intervention was grounded not in any substantive GST law point about ITC eligibility or GSTR reconciliation methodology, but squarely in the procedural failure of the Proper Officer.

For in-house teams and practitioners, this ruling is also a reference point on the court's willingness to entertain writ petitions against Section 73 demand orders where the challenge is to the adjudication process rather than to the underlying tax liability — and on the affirmative duty the court has recognised on the Proper Officer to specifically identify what further documents are needed and to solicit them before confirming demand.

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Source

This case is drawn from the TaxNoticeAI structured legal corpus (16,101 Indian tax judgments, CBIC circulars, ITAT rulings, AAR rulings, GSTAT rulings), sourced from indiankanoon.org and official court portals. Original document: https://indiankanoon.org/doc/7451028/