Issuing SCN Before Reply Deadline Violates Natural Justice, Warrants Quashing: Delhi High Court on GST Act - 2025-11-17

Delhi High Court Quashes GST Notice Issued Prematurely, Cites Violation of Natural Justice

New Delhi: In a significant ruling on procedural fairness under the GST regime, the Delhi High Court has set aside a Show Cause Notice (SCN) issued to Varian Medical Systems International India Pvt. Ltd., holding that its issuance before the expiry of the reply period granted in a pre-show cause notice is a clear violation of the principles of natural justice.

The division bench, comprising Justice Prathiba M. Singh and Justice Shail Jain , while quashing the SCN dated 27th November 2024, relegated the matter back to the pre-SCN stage, allowing the company to file a comprehensive reply. However, the court dismissed the petitioner's challenge to the validity of the final audit report, finding it was not barred by the limitation period prescribed under the Central Goods and Services Tax (CGST) Act, 2017.

Background of the Case

The case stemmed from a GST audit initiated against Varian Medical Systems for the period from July 2017 to March 2023. After a series of communications and submissions from the company, the tax department issued a pre-Show Cause Notice on 25th November 2024, advising the petitioner to pay the ascertained tax or file submissions against it by 28th November 2024.

However, the department proceeded to issue the final Show Cause Notice on 27th November 2024, a day before the deadline for the petitioner's reply had expired. This prompted Varian Medical Systems to file a writ petition (W.P.(C) 1064/2025) challenging the SCN. Subsequently, when the final audit report was communicated on 13th February 2025, the company filed another petition (W.P.(C) 13605/2025) challenging the report itself.

Key Arguments

Petitioner's Submissions: Mr. Gajendra Maheshwari, counsel for the petitioner, advanced two primary arguments: 1. Audit Report Barred by Limitation: The final audit report was issued beyond the three-month period stipulated under Section 65(4) of the CGST Act, making it invalid. 2. Premature SCN: The SCN was issued before the time granted to file a reply to the pre-SCN had lapsed, thus violating the principles of natural justice and rendering the notice void.

Department's Submissions: Mr. Ramachandran, Senior Standing Counsel for the GST department, countered that: 1. The audit was concluded within the statutory timeframe, and the three-month period is extendable. He argued that the period from the conclusion of the audit to the communication of the report (within 30 days as per Section 65(6)) was duly followed.

Court's Analysis and Ruling

The High Court meticulously examined the timeline of events and the relevant statutory provisions.

On the Validity of the Audit Report: The court sided with the department on the issue of limitation. It noted that under Section 65 of the CGST Act, the audit must be completed within three months from the "commencement of audit," which begins when the taxpayer submits the required documents. Further, the proviso to Section 65(4) allows for an extension of up to six months. Given that the final audit report was prepared on 11th February 2025 and communicated two days later, the court was "not inclined to hold that the same is beyond limitation."

On the Premature Show Cause Notice: The court took a stern view of the department's haste in issuing the SCN. It highlighted the specific text of the pre-SCN which explicitly gave the petitioner time until 28th November 2024 to file its submissions.

Quoting the pre-SCN, the bench observed: > "As is clear from the above, the Petitioner was given time to file submissions till 28th November, 2024... However, surprisingly, the authority has decided to issue the SCN itself one day before the said day expires i.e. on 27th November, 2024 itself. Thus, this would be completely in violation of the principles of natural justice in terms of the pre- SCN itself."

Final Decision and Implications

Based on this clear procedural lapse, the High Court set aside the Show Cause Notice dated 27th November 2024. The proceedings were rolled back to the pre-SCN stage. The court granted Varian Medical Systems time until 10th November 2025 to file any further reply to the pre-SCN. The concerned authority was directed to reconsider the matter after receiving the reply before deciding whether to issue a fresh SCN.

The court also directed that the time during which the writ petitions were pending shall be excluded for the purpose of calculating the limitation period for both parties. This judgment underscores the judiciary's commitment to upholding procedural fairness and natural justice, emphasizing that tax authorities must adhere strictly to the timelines and opportunities for representation provided under the law.