TaxTMI 
TaxTMI 
TaxTMI 
Show cause notice
In any tax law the tax is assessed (mostly by self assessment) and paid by the tax payer. If such person fails to pay the tax and also fails to file the required returns within the time prescribers, the proper officers of the Department are entitled to issue show cause notice with directions to file reply on the said show cause notice within the time stipulated. The tax payer is to file reply to the show cause notice along with the relevant documents within the time stipulated in the show cause notice.
The proper officer shall give a personal hearing to the tax payer after the receipt of reply to the show cause notice. On hearing the tax payer and also considering the reply filed by the tax payer the Proper Officer shall adjudicate and pass order.
Section 75 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides the procedure for determination of tax. Section 75(7) of the Act provides 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.
Case laws
In M/s Kisan Brick Field, Para Saray Itiyathok Gonda Thru. Proprietor Shaban Mohammad Versus State Of U.P. Thru. Prin. Secy. Tax And Registration Lko. And 3 Others - 2025 (11) TMI 837 - ALLAHABAD HIGH COURT, Kisan Brick Field was issued a show cause notice by the Department under Section 74 of the Central Goods and Services Tax Act, 2017 in DRC-01. The notice directed the assessee to file the reply to the notice on or before 11.11.2024. The Notice called upon the assessee as to why tax, penalty and interest to the tune of Rs.6,52,259.04 be not imposed on the assessee. The assessee was not aware of the same and therefore the reply to show cause notice could not be filed. The Department issued a reminder directing to file the reply on or before 27.01.2025. However, the assessee did not file reply or make appearance before the Departmental Authority. Therefore, the Assessing Officer passed an order on 16.02.2025 raised a demand for Rs.6,52,259.04.
Against the said order the assessee filed a writ petition before the High Court. The petitioner submitted the following before the High Court-
- The demand notice issued by the Department for Rs.6,52,259.04 is in violation of Section 75(7) of the Act and the same is beyond the scope of show cause notice.
- The department issued show cause notice to the petition and also a reminder. But in both the cases the date of personal hearing was not informed which is also in violation of the principles of Natural Justice.
- Since the entire procedure is adopted in violation of the principles of Natural Justice the impugned order ought to be set aside and remanded back to the original authority to provide an opportunity of hearing and pass appropriate order in accordance with the law.
The Revenue submitted the following before the High Court-
- The petitioner did not respond to the show cause notice and to the reminder.
- Therefore, the order passed by the Authority could not be challenged and contended that the order was passed in violation of the principles of Natural Justice.
- Charging interest and penalty is statutory. Therefore, irrespective of the fact that the interest and penalty are not indicated in the show cause notice would not take away the power of the authority in demanding the interest and penalty in accordance with law.
- Therefore, the petition is liable to be dismissed by the High Court.
The High Court considered the submissions of both parties. The High Court analysed the provisions of Section 75(7) of the Act. The High Court observed that Section 75 provides the procedure for determination of tax. Section 75(7) provides that the amount of tax, interest and penalty determined shall not be in excess of the amount specified in the show cause notice. No demand can be confirmed on the grounds other than the grounds specified in the show cause notice.
The High Court observed that in the present case the show cause notice indicates the amount of Rs.2,34,626.52 as tax, interest and penalty. But the demand notice required to pay Rs.6,52,259.04, the High Court held is contrary to the provisions of Section 75(7) of the Act. In regard to the allegation of non-providing a reasonable opportunity of being heard the High Court observed that the petitioner was not aware of the issuance of the show cause notice, the fact that in the show cause notice issued to the petitioner, the date of filing of reply was indicated, looses its significance and it cannot be said that on account of such indication, the notice, on its own, would stand vitiated.
The High Court allowed the writ petition on account of violation of the provisions of Section 75(7) of the Act and set aside the impugned order. The High Court remanded the mater to the original authority with directions to provide an opportunity to the petitioner to file reply to the show cause notice and pass a fresh order, after giving a reasonable opportunity to the petitioner and decide the case in accordance with the provisions of the law.
The Allahabad High Court in M/s Pavan Traders Versus State of U.P. and Another - 2025 (7) TMI 331 - ALLAHABAD HIGH COURT held that a demand order passed under Section 73 of the CGST/UPGST Act cannot exceed the amount proposed in the show cause notice, and any such order is unsustainable being in violation of Section 75(7) of the Act. In the present case, a show cause notice dated 30.01.2024 in Form GST DRC-01 was issued to the petitioner proposing recovery of Rs. 4,80,527 towards tax, interest, and penalty for the financial year 2018–19. Though the petitioner did not respond despite a reminder and hearing notice dated 16.04.2024, the final order dated 27.04.2024 raised a demand of Rs. 24,40,363.10—significantly higher than the proposed amount. The petitioner contended that this violated Section 75(7), which prohibits confirmation of tax, interest, and penalty in excess of what is specified in the notice. The department argued that penalty and interest are statutory and their inclusion in the order cannot invalidate it. However, the Court disagreed, emphasizing that Section 75(7) mandates that no demand shall exceed the amounts or grounds set out in the notice. Accordingly, the impugned order was quashed and the matter was remanded to the proper officer with directions to provide an opportunity to the petitioner to respond and then pass a fresh order in accordance with law.