The Allahabad High Court has held that GST department cannot confirm a demand exceeding the amount proposed in the show cause notice and quashed a GST demand of ₹59.20 crore raised observing that it violated the express mandate of Section 75(7) of the Central Goods and Services Tax Act, 2017, which prohibits confirmation of tax, interest, and penalty beyond the amount specified in the show cause notice.
The Bench of Justice Shekhar B. Saraf and Justice Abdhesh Kumar Chaudhary has examined Section 75(7) of the CGST Act, which clearly stipulates that “The amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice and no demand shall be confirmed on the grounds other than the grounds specified in the notice.”
The dispute arose from GST proceedings relating to the period July 2017 to March 2018. The petitioner was issued a show cause notice dated May 7, 2022 under Section 74 of the CGST Act in Form GST DRC-01, proposing recovery of ₹57.60 crore towards tax, interest, and penalty.
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Subsequently, the adjudicating authority passed an order dated February 5, 2025, raising a total demand of ₹59.20 crore, including a penalty of ₹29.60 crore. The petitioner challenged this order before the High Court, contending that the adjudicating authority had travelled beyond the scope of the show cause notice.
The petitioner argued that the adjudication order was contrary to Section 75(7) of the GST Act, which expressly provides that the amount of tax, interest, and penalty demanded in the final order cannot exceed the amount specified in the show cause notice; and no demand can be confirmed on grounds other than those mentioned in the notice.
According to the petitioner, since the show cause notice proposed recovery of ₹57.60 crore, the authorities had no jurisdiction to enhance the total liability to ₹59.20 crore in the final order.
The State opposed the writ petition and contended that levy of interest and penalty is statutory in nature. It argued that even if the exact figures were not specified in the show cause notice, the adjudicating authority retained the power to impose statutory interest and penalty in accordance with law. On this basis, the Revenue sought dismissal of the petition.
The Bench observed that the statutory language is unambiguous and imposes a clear limitation on the adjudicating authority.
The Court noted that the show cause notice merely proposed a consolidated demand of ₹57.60 crore towards tax, interest, and penalty, whereas the final adjudication order increased the liability to ₹59.20 crore. Such enhancement was held to be ex facie contrary to the express provisions of Section 75(7).
Rejecting the Revenue’s justification, the Court held that statutory powers relating to interest and penalty cannot override the procedural safeguards expressly enacted by Parliament under Section 75(7).
Holding that the adjudication order violated the mandatory provisions of the GST Act, the High Court quashed the order dated February 5, 2025.
The matter was remanded to the adjudicating authority with directions to provide the petitioner an opportunity to file a reply to the show cause notice; grant a proper hearing; and pass a fresh order strictly in accordance with law.
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