The Delhi High Court in the case of M/S. RAHUL PACKAGING VERSUS UNION OF INDIA & ORS. vide W. P. (C) 5373/2024 & CM. APPL. 22121/2024 dated 16.04.2024, has held that once it was established that the SCN was issued by an incompetent authority and the competent authority failed to apply independent judgment, the Appellate Authority should not have assumed original jurisdiction and proceeded with the matter. Instead, it should have nullified the SCN and associated proceedings, allowing the Proper Officer to initiate appropriate proceedings in accordance with the law.
Facts of the Case:- In this case, the appellant challenged an order passed by the Appellate Authority under the Central Goods and Service Tax Act, 2017, dismissing their appeal against the order-in-original which rejected their refund application.
The Show Cause Notice, which preceded the adjudication order rejecting the refund application, was issued by a Range Superintendent, who was not competent to do so under the law. Additionally, the reply to this notice was considered and examined by the same incompetent authority. Although the adjudication order was passed by an Assistant Commissioner, the basis of the order was the flawed Show Cause Notice.
The Appellate Authority, in its decision, recognized the invalidity of the Show Cause Notice and the lack of independent assessment by the competent authority. However, instead of quashing the notice and the subsequent proceedings, it proceeded to consider the case on its merits and upheld the rejection of the refund application.
Held that:- The Court held that the approach followed by the Appellant Authority was not legally sound. Further, once the Appellate Authority determined that the Show Cause Notice (SCN) was issued by an officer lacking competence, and the reply to the SCN was considered by an incompetent authority, and further, that the competent authority did not apply independent judgment in rejecting the refund, both the SCN and the adjudication order lacked legal validity.
In such circumstances, the Appellate Authority should not have proceeded to consider the case on its merits. Instead, it should have limited its decision to quashing the SCN and the subsequent proceedings, allowing the proper officer to initiate fresh proceedings in accordance with the law.
As a result, the court set aside the impugned order to the extent that it decided the petitioner's claim on merits. The finding that the Show Cause Notice was issued by an incompetent authority and the adjudication order lacked independent assessment were upheld. Therefore, both the Show Cause Notice and the adjudication order were deemed unsustainable and set aside.
