New Ground in Assessment Order Without Issuing Proper SCN Violates Principles of Natural Justice: HC Quashes GST Order

The petitioner, Indian Railway Finance Corporation Ltd. (IRFC), challenged an assessment order dated 04.12.2024 under the CGST Act for the FY 2020–21.

• The petitioner provides financial leasing services to Indian Railways and has filed its returns and paid appropriate taxes.
• A show cause notice (SCN) dated 26.10.2023 was issued covering one issue.
• However, the final order introduced an additional issue relating to ITC reversal, which was not part of the SCN.
• The petitioner contended this constituted a violation of natural justice, as no opportunity was given to respond to the new issue.

Issues Framed

• Whether the impugned assessment order is invalid for incorporating grounds not mentioned in the show cause notice.
• Whether the respondent violated the principles of natural justice by passing an order without granting an opportunity to respond to new grounds.

Petitioner’s Arguments:

• The assessment order covered two issues, but only one was mentioned in the SCN.
• The additional issue regarding the reversal of ITC was not disclosed earlier.
• This constitutes a procedural irregularity and a denial of a fair hearing.
• Requested that the impugned order be treated as an SCN and that they be allowed to submit a response.

Respondent’s Arguments:

• Conceded that the SCN covered only one issue.
• The assessment order went beyond it, raising a new ground regarding RCM liability.
• Suggested treating the impugned order as an SCN and remanding the matter.

Court’s Decision & Rationale

• The High Court held that introducing a new ground in the assessment order without issuing a proper SCN or giving the petitioner a chance to reply violates principles of natural justice.
• The impugned order was found to be beyond the scope of the SCN and passed without application of mind.

The Court accepted the respondent’s concession and ordered that the impugned order be treated as a show cause notice.