Shri Sanjay Sherawat And Another vs. Join Commissioner And Another

Held

The Court held that the fact of the petitioners' resignation as Directors of M/s Daurli Ispat Pvt. Ltd. was indisputable, as evidenced by their resignations on 18.09.2018 and 08.02.2022, and the recognition granted to these resignations under the Companies Act. Consequently, the service of the show cause notice dated 05.06.2023, issued after their resignations, may not amount to valid service or knowledge of the proceedings on the petitioners. The Court also found it true that individual notices were not served on the petitioners before the impugned order was passed. Based on these findings and the concession made by the revenue, the Court set aside the impugned Adjudication Order dated 25.03.2026. The Court directed that the respondent may serve the show cause notice dated 05.06.2023 afresh upon the petitioners within fifteen days, and the petitioners would file their written reply within three weeks. Upon filing the reply, a hearing would be fixed with at least fifteen days' notice, and a fresh order would be passed expeditiously, on or before 31.12.2026. The ratio decidendi is that proceedings under Section 122(2)(b) of the CGST Act, 2017, require proper service of notice on the individuals concerned, and if such service is not effected, especially after their cessation of directorship, the consequent adjudication order is liable to be set aside and the matter remanded.

Facts

The petitioners, Shri Sanjay Kumar and Smt. Vinita, filed a writ petition challenging an Adjudication Order dated 25.03.2026 passed by Respondent No. 3, which imposed a penalty under Section 122(2)(b) of the CGST Act, 2017. The petitioners had resigned as Directors of M/s Daurli Ispat Private Limited on 18.09.2018 and 08.02.2022, respectively. A show cause notice dated 05.06.2023 was issued after their resignations. The petitioners contended that the show cause notice and the impugned order were not served on them individually, and they had no knowledge of the proceedings. The revenue conceded that the impugned order might be set aside qua the petitioners and the proceedings remanded for fresh adjudication.

Key Issues

1. Whether the service of a show cause notice dated 05.06.2023, issued after the petitioners' resignation as Directors of M/s Daurli Ispat Private Limited, constitutes valid service or knowledge of the proceedings on the petitioners, particularly in light of their resignations on 18.09.2018 and 08.02.2022 respectively, and whether individual notices were served on the petitioners before the impugned order was passed, as contemplated under Section 122(2)(b) of the CGST Act, 2017. Petitioner's Contention: The petitioners argued that since they had resigned as Directors prior to the issuance of the show cause notice, and no individual notices were served on them, the proceedings and the consequent Adjudication Order dated 25.03.2026 were vitiated by lack of proper service and knowledge. Revenue's Contention: Confronted with the facts regarding the petitioners' resignation and the apparent lack of service, the learned counsel for the revenue conceded that the impugned order may be set aside qua the petitioners and the proceedings remanded to the respondent no. 3 for fresh adjudication.