The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru has held that the amount demanded in an adjudication order cannot exceed the amount proposed in the show cause notice, even where the tax department attributes the difference to a clerical error.

The Bench of Srikanth Venkatraman (Judicial Member) and Sudha Koka (Technical Member) also found that the penalty order was passed before the scheduled personal hearing and without considering the taxpayer’s objections and observed that the records established that the transformer oil being transported formed part of supplies on which tax had already been charged, and no violation warranting a penalty under Section 129 of the CGST Act was established.

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The appellant/assessee manufactures and supplies transformers and related parts and components. The dispute arose from the transportation of 114 drums of transformer oil from Gujarat to Tamil Nadu under a delivery challan dated December 29, 2021, accompanied by an e-way bill.

The oil was dispatched as remaining material connected with transformers supplied earlier under seven tax invoices. The company maintained that the purchase order required the supply of transformers along with 10% spare transformer oil, whose price was included in the contractual price.

The vehicle was intercepted at Managuli on National Highway 50 in Vijayapur, Karnataka, on January 1, 2022. The enforcement officer alleged discrepancies between the goods physically carried and their description and quantity in the accompanying documents.

The company emailed the earlier tax invoices and corresponding e-way bills to explain the movement. However, the officer rejected these documents on the ground that they related to completed transactions.

A notice issued in Form GST MOV-07 on January 4, 2022, proposed a penalty of ₹2,87,595. Although the notice allowed seven days for objections and fixed a personal hearing for January 11, the officer passed the penalty order on January 4 itself, imposing ₹5,75,190.

The first appellate authority upheld the penalty, prompting the company to approach GSTAT.

The department argued that the lower amount mentioned in the notice resulted from a clerical mistake and that the correct statutory penalty was ₹5,75,190.

Rejecting this explanation, the Tribunal held that Section 75(7) expressly prohibits an adjudication order from demanding tax, interest or penalty exceeding the amount specified in the notice.

The Bench observed that the provision makes no exception for clerical errors. The officer could have issued an erratum specifying the correct proposed penalty, particularly when time had already been granted for objections and a hearing had been scheduled.

Consequently, the order imposing twice the penalty proposed in the notice exceeded its scope and violated Section 75(7).

The Tribunal noted that the company filed its objections on January 5, 2022, whereas the adjudication order had already been passed on January 4.

The order neither referred to the subsequent objections nor demonstrated an application of mind to the taxpayer’s explanation. Its reasons substantially repeated those contained in the show cause notice.

The Bench held that the officer had a statutory duty to consider the taxpayer’s explanation and provide a personal hearing before imposing the penalty. No reason had been furnished for passing the order on the same day as the notice.

The Tribunal rejected the appellate authority’s reasoning that separately described items in tax invoices could not be transported in batches.

It held that a commercial transaction containing separately described items does not require every item to be physically transported in the same consignment.

The delivery challan expressly referred to the seven earlier invoices and stated that the pending material comprised 114 drums, whose price was already included in those invoices. The invoices reflected the charging of integrated tax, while the purchase order supported the company’s explanation regarding spare transformer oil.

Although the challan could have been worded more clearly, the Tribunal found that the documents did not establish an intention to evade tax.

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