The importance of procedural fairness in GST: Learnings from M/s ASP Traders v State of Uttar Pradesh

Partner: Dhruv Gupta, Senior Associate: Sourabh Kumar

Procedural fairness is the fundamental principle that provides a legal system with its strength and integrity. It ensures that justice is not merely delivered, but the process of delivering it also passes the triple-test of reason, transparency, and respect for individuals’ rights. The Supreme Court has recently reinforced this principle in the Goods and Services Tax (GST) regime. In its judgment in M/s ASP Traders v State of Uttar Pradesh & Ors.,¹ the Court clarified a key point: payment of tax, whether voluntarily or otherwise, does not automatically end the process. Tax authorities are still statutorily obligated to pass a reasoned order, since the lack of an order effectively ends the taxpayer’s right to appeal, which is non-derogable. The case focused on the procedural rights of taxpayers under GST law, and the judgment is likely to impact how tax authorities handle future cases, including under Sections 73 and 74 of the Central Goods and Services Tax Act, 2017 (CGST Act).

1. The requirement of a reasoned order: The Court reaffirmed a timeless legal principle – every show cause notice must end with a final, reasoned order. It clarified that the language of Section 129(3), “the proper officer detaining or seizing goods or conveyance….shall issue a notice… and thereafter, pass an order,” implies that the officer must pass an order after issuing a notice. The phrase “and thereafter” is a mandate and not a suggestion.
2. Payment is not acquiescence: The Court drew a clear distinction between payment made under commercial compulsion and a voluntary admission of guilt. It recognised that for a business, detained goods can result in commercial and financial hardship. Paying the demand to resume operations cannot be construed as a waiver of the right to challenge the legality of the demand itself. The Court reiterated that a legal waiver is an intentional abandonment of a known right, not a choice made under duress.
3. Meaning of ‘conclusion’: The Court clarified that the term “conclusion” in Section 129(5) applies only to end the coercive actions (such as seizure), not the officer’s duty to adjudicate and issue a proper order. This order, in Form GST MOV-09, is required to enable the appellate remedy provided under Section 107 of the CGST Act.
4. The right to appeal must remain meaningful: Without a formal order, the statutory right to appeal becomes ineffective. The Supreme Court opined that by refusing to direct the officer to pass an order, the High Court had inadvertently rendered this right a nullity. The Supreme Court upheld the sanctity of this right, holding that depriving a taxpayer of their appellate remedy undermines the foundational principles of fairness and due process.
5. Constitutional basis to the judgment: The Supreme Court’s judgment is grounded in Article 265 of the Constitution, which prohibits the levy or collection of tax except by authority of law. Any tax collection not backed by reasoned adjudication lacks the full authority of law, which can only be effected through a transparent and appealable order.

Impact on other provisions of the CGST Act

This judgment may impact how other GST provisions are interpreted, especially Sections 73 and 74 of the CGST Act, which allow a person to voluntarily pay tax, interest, and reduced penalty before or after a show cause notice is issued. Upon making such a payment, the proceedings are deemed to be concluded. A similar question regarding payments made under protest will arise in relation to these provisions as well.

Applying the reasoning of the Supreme Court in ASP Traders, the following arguments may be made in this regard:

1. The core principle that payment under compulsion does not extinguish the right to challenge the levy remains paramount. A taxpayer may pay the amount specified by an auditor or officer to avoid the issuance of a formal show cause notice and higher penalties, yet fundamentally disagree with the officer’s interpretation of the law and challenge such levy in a future proceeding.
2. If the tax department were to argue that such a payment made before or after issuance of a show cause notice acts as a bar to future challenge or litigation, it would effectively be creating a system where taxpayers are coerced into surrendering their right to appeal to mitigate financial risk. Such a system will be against the settled principles of law and directly against the Supreme Court’s ruling.
3. The future interpretation may well be that if a taxpayer makes a payment under Section 73(5) or 74(5) but lodges a written protest, they should be entitled to demand that the proper officer issue a formal show cause notice followed by a speaking order. This would crystallise the dispute and create an appealable instrument, preserving the taxpayer’s statutory rights.

Conclusion: fair process trumps administrative ease

The ASP Traders judgment negates the notion that administrative convenience can override the principles of natural justice. This judgment will shield taxpayers who feel pressured into paying first and questioning later, which has long been an accepted practice under the indirect taxation regime.

This judgment is also likely to encourage tax authorities to embrace their quasi-judicial role with greater diligence, understanding that the finality of their actions rests not on the receipt of payment, but on the strength of their reasoning. It will serve as a reminder that in the overall domain of taxation, the authority of law is not merely about collection, but about the fairness of the process by which it is collected. Access to justice cannot be denied or depend on payment, but should be based on reasoned decision-making.

[1] 2025 (7) TMI 1525

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