PROPER OFFICER MUST PASS REASONED ORDER UNDER SECTION 129(3) CGST ACT EVEN IF TAX AND PENALTY PAID—SUPREME COURT

PROPER OFFICER MUST PASS REASONED ORDER UNDER SECTION 129(3) CGST ACT EVEN IF TAX AND PENALTY PAID-SUPREME COURT

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION

M/s ASP TRADERS

Vs.

STATE OF UTTAR PRADESH & ORS.

CIVIL APPEAL NO. 9764 OF 2025

[Arising out of S.L.P. (C) No. 17995 of 2022]

Date of Judgment/ Order: 24th July 2025

HEADNOTE-

This appeal has been preferred by the appellant against the final judgment and order dated 18.07.2022 passed by the High Court of Judicature at Allahabad in Writ Tax No. 955 of 2022. HELD-The impugned order passed by the High Court is set aside. The appeal is allowed. 

IMPORTANT PARAS-

Para No. 8. The issue that arises for consideration in this appeal is whether, upon payment of tax and penalty by the appellant within the time stipulated in the notice under section 129(3), the proper officer is still mandatorily required to pass a final order under section 129(3), or whether the deeming fiction under section 129(5) dispenses with such requirement.

Para No. 14. 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 – a right that is protected by the very enactment itself. The term “conclusion” as used in Section 129(5) merely signifies that no further proceedings for prosecution will be initiated. It does not absolve the responsibility of the proper officer to pass an order concluding the proceedings. Therefore, the proper officer is duty-bound to pass a formal order in Form GST MOV-09 and upload a summary thereof in Form GST DRT 07 as mandated under Rule 142(5) and the Circular dated 13.04.2018, so as to enable the taxpayer to avail the appeal remedy as per law.

Para No. 15. In the present case, payment was made under protest, and objections had already been filed by the appellant. Once objections are filed, adjudication is not optional, it becomes imperative to pass a speaking order to justify the demand of tax and penalty, to safeguard the right of appeal under Section 107 of the CGST Act, 2017. The language of section 129(3) is categorical in stating that the officer “shall issue a notice… and thereafter, pass an order”. The use of the words “and thereafter” reinforces the mandatory nature of passing a reasoned order, regardless of payment, particularly where protest or dispute is raised.

Para No. 16. Although the respondents claim that the objections were orally withdrawn and that the payment was made voluntarily by the appellant, no written material has been placed on record to substantiate the same. As between a written reply and an oral submission contrary to such written submission/reply, the written reply would prevail, and the authorities are duty-bound to consider that reply and pass speaking orders addressing each and every contention. Significantly, the GST payment portal permits payments only through Form GST DRC-03, which is automatically classified as a voluntary payment, and does not provide any mechanism for an assessee to indicate that the payment is being made under protest. In the absence of such an option, payments made under commercial compulsion or business necessity – such as for securing release of detained goods – may be erroneously construed as voluntary, resulting in undue prejudice. Under such circumstances, the written objections become significant to understand the intention of the assessee/owner or transporter. Upon such payment, the system auto-generates Form GST DRC-05, thereby concluding the proceedings without any formal adjudication. Such procedural limitations cannot be allowed to defeat the rights of the taxpayer, particularly where the detention of goods is ultimately found to be unlawful. We are, therefore, of the considered opinion that the payment made by the appellant in the present case cannot be treated as voluntary, and the absence of a mechanism to record protest should not operate to the detriment of the assessee, especially when objections were already on record and the payment was clearly necessitated by business exigences. 

Para No. 16.1. Further, the payment by an assessee will not absolve the responsibility of the proper officer to pass an order justifying the demand of tax and penalty. The assessee, even by election, cannot be treated to have waived his right against the illegality committed by the proper officer or acquiesced to the demand, as by the constitutional mandate under Article 265 of the Constitution, no tax can be levied or collected except with the authority of law. There is not only a bar against levy but also against collection. Therefore, the action of the proper officer must always be justifiable and fall within the four corners of law, as it is well settled that there can be no acquiescence in tax.

Para No. 18. The principles of natural justice mandate that when a taxpayer submits a response to a show cause notice, the adjudicating authority is required to consider such response and render a reasoned, speaking order. This is not a mere procedural formality, but a substantive safeguard ensuring fairness in quasi judicial proceedings. The right to appeal under Section 107 of the CGST Act, 2017, is predicated upon the existence of a formal adjudication. An appeal can lie only against an ‘order’, and in the absence of a reasoned order passed under Section 129(3) of the Act, the taxpayer is effectively deprived of the statutory remedy of appeal. Such a deprivation undermines the foundational principles of fairness, due process, and access to justice, rendering the right of appeal illusory or nugatory. It is now settled law that failure to issue a speaking order in response to a show cause notice creates a legal vacuum. Any consequential action including imposition of tax or penalty, would then be unsupported by authority of law, thereby potentially violating Article 265 of the Constitution of India, which prohibits the levy or collection of tax except by authority of law. 

Para No. 19. Therefore, even assuming that the payment was made by the appellant, voluntarily or otherwise, the proper officer could not be absolved of the statutory obligation to pass a reasoned order in Form GST MOV-09 and upload the corresponding summary in Form GST DRC-07. Compliance with these procedural requirements is essential not only for ensuring transparency and accountability in tax administration, but also for safeguarding the taxpayer’s appellate rights under the CGST Act, 2017. Such adherence is in consonance with the constitutional mandate under Article 265 of the Constitution of India.

ORDER

Para no. 21. Accordingly, the impugned order passed by the High Court is set aside. Respondent No.3 is directed to pass a reasoned final order under section 129(3) of the CGST Act, 2017, in Form GST MOV-09, after granting an opportunity of being heard as mandated under Section 129(4), and upload the summary thereof in Form GST DRC-07 within a period of one month from the date of receipt of a copy of this judgment. Thereafter, it shall be open to the appellant to pursue appropriate legal remedies against such order, in accordance with law.