Payment of Tax/Penalty Doesn't Absolve GST Officer's Duty to Pass Final Order U/S 129(3) CGST Act: Supreme Court - 2025-07-25

Payment of GST Demand Doesn't End Proceedings; Officer Must Pass a Reasoned Final Order: Supreme Court

New Delhi: In a significant ruling clarifying procedural rights under the Goods and Services Tax (GST) regime, the Supreme Court has held that a GST officer is statutorily bound to pass a final, reasoned order even if the taxpayer has paid the demanded tax and penalty. A bench of Justice J.B. Pardiwala and Justice R. Mahadevan set aside an Allahabad High Court order, emphasizing that the taxpayer's right to appeal cannot be rendered illusory by the authorities' failure to conduct a formal adjudication.

The court declared that payment made under business compulsion to secure the release of detained goods cannot be treated as a waiver of the right to contest the demand, especially when objections have been filed.

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Case Overview

The case, M/S ASP TRADERS vs STATE OF U.P. , involved a Karnataka-based dealer whose consignment of Arecanut was detained in transit by the Mobile Squad in Uttar Pradesh. Authorities alleged discrepancies, including missing bags and an incorrect address for the consignor. A notice under Section 129(3) of the CGST Act was issued, proposing tax and penalty.

To avoid further business losses, the appellant, M/s ASP Traders, paid the demanded amount of ₹7,20,440. Consequently, the authorities released the goods but refused to pass a final adjudication order (in Form GST MOV-09), arguing that under Section 129(5) of the Act, the proceedings were "deemed to be concluded" upon payment. The Allahabad High Court upheld this view, leading to the appeal before the Supreme Court.

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Key Arguments

Appellant's Contentions (M/s ASP Traders): * Payment was made under protest due to business exigencies and not as an admission of liability.

* The authorities are statutorily required to pass a reasoned final order after issuing a show-cause notice, which is essential to enable the taxpayer to file a statutory appeal.

* Section 129(5) only signifies the conclusion of recovery proceedings but does not dispense with the need for adjudication.

* The refusal to pass an order violates principles of natural justice and Article 265 of the Constitution, which mandates that no tax can be levied or collected without the authority of law.

Respondents' Contentions (State of U.P.): * The taxpayer's representative orally withdrew objections and voluntarily paid the amount.

* Section 129(5) explicitly states that upon payment, all proceedings in respect of the notice are deemed to be concluded, making a final order unnecessary.

* The taxpayer could have furnished a security instead of paying the amount if they intended to contest the demand.

* Since the statute is clear, it must be interpreted literally, and the proceedings are closed.

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Court's Rationale and Precedents

The Supreme Court rejected the revenue's arguments, establishing that procedural safeguards are fundamental to the tax system.

Adjudication is Mandatory, Not Optional

The bench held that the phrase "and thereafter, pass an order" in Section 129(3) makes it mandatory for the officer to issue a reasoned order after a notice is issued, regardless of whether payment has been made. The court noted:

"It is a well settled principle that every show cause notice must culminate in a final, reasoned order. 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."

Protecting the Right to Appeal

The Court stressed that the right to appeal under Section 107 of the CGST Act is a cornerstone of due process. This right is contingent on the existence of a formal order. Depriving a taxpayer of a reasoned order effectively renders this statutory remedy "illusory or nugatory."

Payment Under Protest vs. Voluntary Payment

The Supreme Court recognized that the GST portal's design, which classifies all payments via Form GST DRC-03 as 'voluntary,' can be prejudicial. It held that payments made under commercial compulsion to secure the release of detained goods cannot be automatically considered voluntary, especially when written objections are on record.

"In the absence of such an option [to record protest], payments made under commercial compulsion or business necessity... may be erroneously construed as voluntary... We are, therefore, of the considered opinion that the payment made by the appellant in the present case cannot be treated as voluntary."

The Court also invoked the constitutional mandate of Article 265, stating, "there can be no acquiescence in tax," and that the legality of the tax collection must always be justifiable.

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Final Decision

The Supreme Court allowed the appeal and set aside the High Court's order. It directed the GST authorities to:

1. Pass a reasoned final order under Section 129(3) in Form GST MOV-09 within one month.

2. Provide the appellant with an opportunity of being heard as required by Section 129(4).

3. Upload the summary of the order in Form GST DRC-07.

This judgment reaffirms that administrative convenience cannot override the principles of natural justice and the statutory rights of taxpayers. It ensures that even in cases of detention and seizure, a fair and transparent adjudication process must be followed, preserving the taxpayer's right to challenge the authorities' actions through legal channels.