The Goods and Services Tax Appellate Tribunal (GSTAT), Ernakulam Bench, has allowed an appeal against denial of input tax credit (ITC), holding that merely reproducing a statutory provision in a show cause notice does not inform a taxpayer of an alleged violation unless the notice explains whether and how that provision was breached.

The Division Bench comprising Subramanya Rayaprol (Vice-President) and Ramamoorthi Sriram (Technical Member) has observed that the change in the grounds of demand violated Section 75(7) of the CGST Act.

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The bench found that the department had issued the notice alleging non-compliance with Section 16(2)(aa) of the Central Goods and Services Tax Act, 2017, but subsequently confirmed the demand under Section 16(2)(c), introducing a charge that had never been specifically put to the taxpayer.

The dispute concerned challenged IGST credit of ₹6,93,806 for the financial year 2018–19. 

The appellant/assessee was issued a show cause notice dated November 20, 2023, following scrutiny of its GST returns for 2018–19. The notice questioned ITC on invoices issued by suppliers who had allegedly not filed their GSTR-3B returns for the relevant tax periods.

According to the appellant’s submissions recorded in the order, the notice identified six invoices involving two suppliers and challenged IGST credit totalling ₹6,93,806. The operative allegation relied on Section 16(2)(aa) to contend that credit on those invoices could not be availed.

The taxpayer replied that Section 16(2)(aa) came into force only on January 1, 2022, and therefore could not govern the disputed supplies made in September 2018 and March 2019. It also submitted invoices, ledger accounts, bank records and an explanation concerning stock records.

Nevertheless, the adjudicating authority confirmed the demand through an order dated April 3, 2024, along with interest and penalty. In doing so, it relied on Section 16(2)(c), finding that the tax charged by the suppliers had not been credited to the government account.

The Joint Commissioner (Appeals), CGST Kochi, upheld the disputed demand on August 19, 2025, leading to the appeal before the Tribunal.

The central question was whether the mere recital of a legal provision in a show cause notice, without explaining whether or how the taxpayer had contravened it, could constitute a charge sufficient to put the taxpayer on notice.

The Tribunal answered this question in the negative.

The appellant argued that the show cause notice and the adjudication order presented materially different cases.

While the notice alleged supplier non-filing of GSTR-3B and invoked Section 16(2)(aa), the adjudication order proceeded on actual non-payment of tax to the government under Section 16(2)(c).

The taxpayer maintained that this was more than an incorrect subsection number. It involved substituting the factual and legal basis for denying credit.

It further submitted that the notice did not identify supplier records establishing that tax attributable to the disputed invoices remained unpaid. According to the appellant, it also did not address whether suppliers had made voluntary payments through DRC-03 or whether demand and recovery proceedings had been initiated against them.

Despite the taxpayer’s reply, the department neither amended the notice nor issued a supplementary notice setting out the allegation of non-payment of tax.

The Revenue defended the proceedings on the ground that the incorrect reference to the subsection did not invalidate the notice. It argued that Section 16(2)(c) had been reproduced elsewhere in the notice and that the underlying allegation concerning suppliers’ failure to file returns had been sufficiently explained.

The department also relied on judicial decisions concerning the incorrect citation of statutory powers and invoked Section 160(1) of the CGST Act, which protects proceedings against certain mistakes, defects or omissions when they otherwise conform in substance and effect to the law.

After examining the notice, the Tribunal found that its operative allegation was confined to supplier non-filing of GSTR-3B, linked to Section 16(2)(aa). There was no other charge against the appellant.

The Bench noted that once the taxpayer pointed out that Section 16(2)(aa) was introduced only from January 1, 2022, it could not support the allegation for the disputed 2018–19 period.

However, the adjudication order proceeded to deny credit under Section 16(2)(c), based on a finding that the suppliers had not paid the tax to the government. The Tribunal held that the taxpayer had never been put on notice regarding this alleged contravention.

It also found no indication in the adjudication order that the new charge had been raised during the personal hearing. Consequently, the taxpayer had been confronted with an adverse finding on an allegation it had not been called upon to answer.

The Tribunal rejected the Revenue’s argument that reproducing Section 16 in the notice, including Section 16(2)(c), adequately notified the taxpayer of the charge.

It distinguished between setting out statutory text and identifying a specific breach. A notice must connect the provision relied upon with the taxpayer’s alleged conduct.

The Bench held that a bare recital of Section 16(2)(c), without explaining whether and how the appellant had violated it, could not amount to putting the appellant on notice of that contravention.

The Tribunal emphasised that Section 75(7) prohibits confirmation of a demand on grounds different from those specified in the show cause notice.

Here, the notice alleged contravention of Section 16(2)(aa), while the adjudication order confirmed the demand for contravention of Section 16(2)(c). The Bench found these grounds materially different and held that the proceedings were liable to fail on this basis alone.

It relied on the Supreme Court’s decision in Armour Security (India) Ltd. v. Commissioner, CGST, Delhi East Commissionerate, as discussed in the order, for the principle that the show cause notice defines the scope of proceedings and that grounds absent from it cannot subsequently be used to adversely affect the noticee.

The Tribunal distinguished the authorities cited by the Revenue concerning the exercise of an existing statutory power despite an incorrect reference to its source.

The issue before it concerned the more fundamental question of whether a taxpayer could be held responsible for an alleged violation that was outside the show cause notice.

It also distinguished Commissioner of Service Tax v. ITC Ltd., relied upon by the first appellate authority. The Bench explained that a notice containing the relevant factual allegations but omitting a precise statutory sub-clause stood on a different footing from a notice that failed to communicate the charge ultimately confirmed.

The Tribunal further rejected reliance on Section 160(1), observing that its protection requires proceedings to conform to the purposes and requirements of the Act. It could not save the proceedings in light of the substantive breach identified by the Bench.

The Tribunal held that merely mentioning a legal provision in a show cause notice, without specifying whether and how the taxpayer contravened it, does not constitute a valid charge.

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