Demand Order Exceeding Show Cause Notice Violates Section 75(7) of the CGST Act and is liable to be quashed

The Hon’ble Allahabad High Court in the case of M/s Vrinda Automation Versus State of Uttar Pradesh and another - 2025 (5) TMI 1435 - ALLAHABAD HIGH COURT held that a demand order exceeding the amount specified in a show‑cause notice violates the mandatory bar in Section 75(7) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) and must be set aside.

Facts:

Vrinda Automation (“the Petitioner”) is a registered taxpayer that received a show‑cause notice dated November 25, 2023, in Form GST DRC‑01 under Section 74 of the CGST Act, proposing recovery of ₹66,13,874.78 inclusive of tax, penalty, and interest.

State of Uttar Pradesh (“the Respondent”) acting through the Deputy Commissioner, State Tax, Ghaziabad Sector‑4, uploaded the notice only under the “Additional Notice and Order” tab of the GST portal and served it by no other mode.

The Petitioner contended that it remained unaware of the notice, could not file any reply, and the Respondent thereafter passed an order dated December 30, 2024, raising a total demand of ₹1,34,94,294 (inclusive of penalty ₹45,79,228 and interest ₹43,35,838), far in excess of the amount provided in the Show Cause Notice, thus being completely contrary and in violation of Section 75(7) of the CGST Act.

The Respondent contended that the increase resulted from a prior mistake in calculating penalty on IGST and that interest at 18 % p.a. had already been indicated, hence the order was lawful.

Aggrieved, the Petitioner filed the present writ petition seeking quashing of the demand order and a fresh opportunity to reply to the notice.

Issue:

Whether the demand order issued under Section 74 can lawfully exceed the amount specified in the show‑cause notice, contrary to the express bar in Section 75(7) of the CGST Act?

Held:

The Hon’ble Allahabad High Court in M/s Vrinda Automation Versus State of Uttar Pradesh and another - 2025 (5) TMI 1435 - ALLAHABAD HIGH COURT held as under:

• Observed that, the show‑cause notice proposed recovery only of ₹66,13,874.78 towards tax, penalty and interest, whereas the impugned order demanded ₹1,34,94,294, thus increasing both penalty and interest beyond the scope of the notice.
• Noted that, Section 75(7) expressly mandates that the amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice.
• Held that, raising demand beyond the notice amount is ex facie contrary to Section 75(7); the provision is mandatory and safeguards the taxpayer from surprise demands.
• Further quashed the order dated December 30, 2024, and remanded the matter to the Deputy Commissioner, State Tax, Ghaziabad Sector‑4, with directions to give the Petitioner an opportunity to respond to the notice and to pass a fresh order in accordance with law.

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