Calcutta High Court Quashes Unreasoned GST Orders and Orders
Re-credit of ITC
(Pharma Trading Corporation & Anr. vs. State of West Bengal
& Ors. - WPA 21671 of 2025 |
Judgment dated 25 February 2026 )
Introduction
In an important judgment
reinforcing procedural safeguards under GST law, the Calcutta High Court has
set aside multiple adjudication orders passed under Section 73 of the
CGST/WBGST Act on the ground that they were unreasoned, passed without granting
opportunity of hearing, and uploaded in a careless and contradictory manner.
The Court further directed the GST authorities to re-credit the amount debited
from the petitioner’s electronic credit ledger, holding that such debit had no
legal basis once the adjudication orders themselves were invalid.
This ruling serves as a
strong reminder that GST adjudication is a quasi-judicial exercise and must
strictly comply with the principles of natural justice as well as the statutory
requirements under Section 75 of the GST Act.
Facts of
the Case
The petitioners, Pharma
Trading Corporation and another, were subjected to proceedings under Section 73
of the CGST/WBGST Act, 2017 for the tax period July 2017 to March 2018. The
allegation against them was excess availment of Input Tax Credit (ITC).
The proceedings began
with issuance of a show cause notice dated 21 February 2023. However, the
notice merely contained a chart indicating the amount of tax allegedly payable.
It did not set out the factual basis of the demand, the transactions in question,
or the reasoning behind the allegation of excess ITC.
The petitioners submitted
their reply to the show cause notice on 09 March 2023. Thereafter, on 29 May
2023, an adjudication order was passed under Section 73 confirming the demand.
Surprisingly, this order also did not contain any discussion of facts, analysis
of the reply, or reasoning for arriving at the conclusion. It was essentially a
repetition of the tax demand in tabular form.
The situation became more
complicated when another adjudication order dated 05 June 2023 was uploaded on
the GST portal, reflecting the same demand amount as the earlier order. Even
more startling was the fact that on 09 June 2023, yet another order was uploaded
stating that the petitioner’s reply had been found satisfactory and that no
further action was required in the matter.
Despite this apparent
acceptance of the reply, on 29 January 2024, a sum of Rs. 2,51,858/- was
debited from the petitioner’s electronic credit ledger based on the
adjudication order dated 05 June 2023. Aggrieved by this series of actions, the
petitioners approached the High Court by way of a writ petition.
Arguments
on Behalf of the Petitioners
The petitioners contended
that the entire proceedings were vitiated due to gross procedural
irregularities.
Firstly, it was argued
that the show cause notice was completely devoid of necessary particulars. A
notice which merely mentions the amount payable without disclosing the basis of
computation deprives the taxpayer of an effective opportunity to defend himself.
Such a notice violates the fundamental principles of natural justice.
Secondly, it was
submitted that the adjudication order dated 29 May 2023 was in clear violation
of Section 75(6) of the GST Act, which mandates that the order must set out the
relevant facts and the basis of the decision. The impugned order contained no reasoning
whatsoever and was therefore unsustainable in law.
Thirdly, the petitioners
argued that no opportunity of personal hearing was granted before passing the
adverse order, which is mandatory under Section 75(4) of the Act. Passing an
order with civil consequences without hearing the affected party renders the
order void.
Lastly, it was emphasized
that once the proper officer had passed the adjudication order, he became
functus officio. Therefore, the subsequent orders dated 05 June 2023 and 09
June 2023 were without jurisdiction. In any event, if the reply had been accepted
on 09 June 2023, there was no basis for debiting the electronic credit ledger
thereafter.
Stand of
the GST Authorities
On behalf of the GST
authorities, it was submitted that the multiple orders were uploaded
inadvertently due to errors and that the matter could be remitted back to the
adjudicating authority for fresh consideration.
An affidavit was also
filed stating that the orders dated 05 June 2023 and 09 June 2023 had been
uploaded inadvertently.
Observations
and Findings of the Court
The Court took a serious
view of the manner in which the proceedings had been conducted.
At the outset, the Court
observed that the show cause notice was clearly bereft of particulars. It
reiterated the settled principle that a notice must contain all relevant
details so that the noticee can effectively respond. Failure to provide
necessary facts amounts to violation of natural justice.
The Court further held
that the adjudication order dated 29 May 2023 was wholly unreasoned and in
complete violation of Section 75(6) of the Act. An order which merely
reproduces a demand without discussing facts or reasons cannot be sustained.
The requirement of a reasoned order is not an empty formality; it is an
essential component of fair adjudication.
On the issue of
opportunity of hearing, the Court found that no personal hearing had been
granted before passing the adverse order. This was a direct violation of
Section 75(4) of the Act and independently sufficient to invalidate the order.
With regard to the
subsequent orders dated 05 June 2023 and 09 June 2023, the Court held that once
the adjudication order was passed on 29 May 2023, the proper officer became
functus officio. Therefore, issuing further orders on the same subject was without
jurisdiction. The explanation of “inadvertent uploading” was found to be wholly
unacceptable. The Court remarked that there had been a series of laches on the
part of the GST authorities and expressed strong disapproval of such casual
functioning.
Direction
for Re-credit of Amount
Since the adjudication
orders themselves were set aside, the Court held that the debit of ₹2,51,858/-
from the petitioner’s electronic credit ledger had no legal foundation.
Accordingly, it directed the GST authorities to reverse the debit and re-credit
the amount within two weeks from the date of communication of the order.
This aspect of the
judgment is particularly significant because it reinforces that recovery
actions cannot survive independently when the foundational adjudication order
is invalid.
Final Order
The High Court set aside:
- The adjudication order dated 29 May
2023
- The subsequent order dated 05 June
2023
- The order dated 09 June 2023
The Court further
directed the authorities to provide all relevant particulars in support of the
original show cause notice dated 21 February 2023 and granted liberty to the
petitioners to file a fresh reply in accordance with law.
The writ petition was
accordingly disposed of without costs.
Significance
of the Judgment
This judgment has
far-reaching implications for GST adjudication proceedings. It reiterates that:
- A show cause notice must contain
complete and clear particulars.
- Adjudication orders must be reasoned
and must comply with Section 75(6).
- Personal hearing under Section 75(4)
is mandatory before passing adverse orders.
- Authorities cannot casually upload
multiple contradictory orders on the GST portal.
- Ledger debit without a legally
sustainable order is invalid.
In recent times, many
taxpayers have faced mechanical orders that merely reproduce figures without
analysis. This decision strengthens the position that such orders cannot
withstand judicial scrutiny.
Conclusion
The ruling of the Calcutta
High Court in Pharma Trading Corporation is a reaffirmation that
procedural safeguards under GST law are not ornamental but mandatory. The Court
has clearly emphasized that tax administration must function within the bounds
of legality, reasoned decision-making, and fairness.
For taxpayers facing
vague show cause notices or non-speaking adjudication orders, this judgment
provides strong judicial support to challenge such actions. It underscores that
even in tax matters, adherence to natural justice and statutory discipline is
paramount.
Disclaimer: All the Information is based on the notification, circular advisory and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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