Supreme Court: Proper Officer Is Mandatorily Required To Pass Reasoned Order Under CGST Act Regardless Of Payment Of Tax & Penalty By Assessee

The Supreme Court held that the Proper Officer is mandatorily required to pass a reasoned Order under the Central Goods and Services Tax Act, 2017 (CGST Act), regardless of payment of tax and penalty by the assessee.

The Court held thus in a Civil Appeal filed by a dealer against the Judgment of the Allahabad High Court.

The two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan observed, “In the present case, payment was made under protest, and objections had already been filed by the appellant. Once objections are filed, adjudication is not optional, it becomes imperative to pass a speaking order to justify the demand of tax and penalty, to safeguard the right of appeal under Section 107 of the CGST Act, 2017. The language of section 129(3) is categorical in stating that the officer “shall issue a notice… and thereafter, pass an order”. The use of the words “and thereafter” reinforces the mandatory nature of passing a reasoned order, regardless of payment, particularly where protest or dispute is raised.”

The Bench reiterated that every show-cause notice (SCN) must culminate in a final, reasoned Order.

AOR Pawanshree Agrawal appeared on behalf of the Appellant while AOR Bhakti Vardhan Singh appeared on behalf of the Respondents.

Brief Facts

The Appellant was a registered dealer in Red Arecanut operating from Channagiri, Davangere, Karnataka. In 2022, it consigned 17,850 kg of dry Arecanut valued at Rs. 51,72,930/-, packed into 255 bags to one M/s. Diamond Trading Company, Delhi through a vehicle accompanied by E-Way Bill. During transit, the goods were transhipped and loaded onto another vehicle for onward journey to Delhi. However, only 248 bags were loaded onto the new vehicle, with 7 bags missing from the original consignment. The said vehicle was detained by the Mobile Squad and the driver’s statement was recorded in Form GST. Following physical inspection, a report was generated alleging certain deficiencies. A detention order was also issued and subsequently, a notice under Section 129(3) of the CGST Act was issued, highlighting the discrepancy of 7 missing bags and the resulting shortfall in quantity from 18220 kg to 17670 kg.

It was further alleged that the consignee was prima facie non-existent and that the address of the consignor was incorrect as per departmental records. The Appellant submitted a detailed reply to the authority, denying all allegations. However, in view of pressing business exigencies, it deposited Rs. 7,20,440/- towards IGST, as indicated in the SCN. Accordingly, the detained goods were released but despite that, no final order was passed by the Mobile Squad. Consequently, the Appellant submitted a representation seeking an order to enable it to pursue statutory remedies and the Mobile Squad Official stated that the Appellant’s representative orally requested withdrawal of earlier reply and sought release of goods, and hence, no further proceedings were deemed necessary. The Appellant denied having made any such request and sent further communications seeking a copy of the order, if any. Receiving no response, it approached the High Court, which dismissed its Writ Petition. Being aggrieved, the Appellant approached the Apex Court.

Reasoning

The Supreme Court in view of the above facts, noted, “While Section 129(5) of the CGST Act, 2017 provides that proceedings shall be deemed to be concluded upon payment of tax and penalty, this deeming fiction cannot be interpreted to imply that the assessee has agreed to waive or abandon the right to challenge the levy – a right that is protected by the very enactment itself. The term “conclusion” as used in Section 129(5) merely signifies that no further proceedings for prosecution will be initiated. It does not absolve the responsibility of the proper officer to pass an order concluding the proceedings.”

The Court said that the Proper Officer is duty-bound to pass a formal order and upload a summary thereof as mandated under Rule 142(5) and the Circular, so as to enable the taxpayer to avail the Appeal remedy as per law.

“Although the respondents claim that the objections were orally withdrawn and that the payment was made voluntarily by the appellant, no written material has been placed on record to substantiate the same. As between a written reply and an oral submission contrary to such written submission/reply, the written reply would prevail, and the authorities are duty-bound to consider that reply and pass speaking orders addressing each and every contention”, it remarked.

The Court was of the view that procedural limitations cannot be allowed to defeat the rights of the taxpayer, particularly where the detention of goods is ultimately found to be unlawful.

“We are, therefore, of the considered opinion that the payment made by the appellant in the present case cannot be treated as voluntary, and the absence of a mechanism to record protest should not operate to the detriment of the assessee, especially when objections were already on record and the payment was clearly necessitated by business exigences”, it further held.

The Court enunciated that the payment by an assessee will not absolve the responsibility of the proper officer to pass an order justifying the demand of tax and penalty and the assessee, even by election, cannot be treated to have waived his right against the illegality committed by the proper officer or acquiesced to the demand, as by the constitutional mandate under Article 265 of the Constitution, no tax can be levied or collected except with the authority of law.

“There is not only a bar against levy but also against collection. Therefore, the action of the proper officer must always be justifiable and fall within the four corners of law, as it is well settled that there can be no acquiescence in tax”, it added.

The Court also explained that a waiver, as settled, is an abandonment of a right by express terms or by implication which is an act by which a party elects to abandon his right to pursue a particular remedy with full knowledge of its existence, making the other party to alter his position or legal status and acquiescence, on the other hand, will imply the conduct of a party, who refrains from taking any action for a long period of time, despite the knowledge of the violation of his right, thereby precluding his future right to agitate the issue, as it would be hit by laches.

Conclusion

The Court clarified that there must be much more than an abandonment of a right to plead waiver or acquiescence and the payment, by itself, cannot be treated as a waiver or abandonment, especially when the Appellant has clearly objected to the demand and when there is a statutory mandate to pass an order and a corresponding right to Appeal.

“It is now settled law that failure to issue a speaking order in response to a show cause notice creates a legal vacuum. Any consequential action including imposition of tax or penalty, would then be unsupported by authority of law, thereby potentially violating Article 265 of the Constitution of India, which prohibits the levy or collection of tax except by authority of law”, it noted.

The Court, therefore, concluded that the Proper Officer was under a clear statutory obligation to pass a final order under Section 129(3) of CGST Act and the refusal by the High Court to direct the passing of such an Order, has the effect of frustrating the Appellant’s statutory right to Appeal and is contrary to well established legal principles governing tax adjudication and procedural fairness.

Accordingly, the Apex Court allowed the Appeal, set aside the High Court’s Judgment, and directed the Respondent to pass a reasoned final Order.

Cause Title- M/s ASP Traders v. State of Uttar Pradesh & Ors. (Neutral Citation: 2025 INSC 890)

Appearance:

Appellant: AOR Pawanshree Agrawal and Advocate Aakriti Goel.

Respondents: AOR Bhakti Vardhan Singh

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