2025 (4) TMI 308 - HC - GST

Tax Demand Order Invalidated for Exceeding Show-Cause Notice Limits Under GST Act Section 75(7)

M/s SR Construction Versus State of U.P. and another

HC ruled that the tax demand order violated Section 75(7) of GST Act by exceeding the amount specified in the show-cause notice. While procedural ... Scope of SCN - Demand of amount which exceeds the SCN - sufficient opportunity of hearing not provided - Violation of principles of natural jutsice - scheduling of the reply filing date and the personal hearing on the same day - HELD THAT:- A perusal of Section 75(7) would reveal that Section 75 deals with general provisions relating to determination of tax and sub-section (7) specifically 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. Admittedly, in the present case, the show-cause notice merely indicates the amount of Rs. 28,15,200/- as representing the tax, interest and penalty and the demand qua the three components has been raised at Rs. 59,27,500/-, which is ex facie contrary to the provisions of Section 75(7) of the Act. So far as the plea pertaining to not providing any opportunity of hearing is concerned, once it is the case of the petitioner that he was unaware of the issuance of the show-cause notice and the reminder, the fact that in the notices issued to the petitioner, the date of filing of reply and date of personal hearing were the same looses its significance and it cannot be said that on account of such indications, the notice, on its own, would stand vitiated. Conclusion - On account of violation of provisions of Section 75(7) of the Act, the order impugned cannot be sustained. The matter is remanded back to the respondent no. 2 to provide an opportunity to the petitioner to file response to the show-cause notice and after providing opportunity of hearing, pass a fresh order in accordance with law - Petition allowed by way of remand. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the demand raised in the order dated 20.04.2024, which exceeds the amount specified in the show-cause notice, violates Section 75(7) of the Goods and Services Tax Act, 2017.Whether the procedural conduct of the authorities, specifically the scheduling of the reply filing date and the personal hearing on the same day, constitutes a violation of the principles of natural justice.ISSUE-WISE DETAILED ANALYSIS1. Violation of Section 75(7) of the Goods and Services Tax Act, 2017Relevant legal framework and precedents: Section 75(7) of the Goods and Services Tax Act, 2017 mandates that the amount of tax, interest, and penalty demanded in the order must not exceed the amount specified in the show-cause notice. Furthermore, no demand should be confirmed on grounds other than those specified in the notice.Court's interpretation and reasoning: The Court noted that the show-cause notice issued to the petitioner specified a demand of Rs. 28,15,200/- for tax, interest, and penalty. However, the order dated 20.04.2024 raised a demand of Rs. 59,27,500/-, which clearly exceeded the specified amount in the notice.Application of law to facts: The Court found that the demand in the order was contrary to Section 75(7) as it exceeded the amount specified in the show-cause notice. This contravention of statutory provisions rendered the order unsustainable.Treatment of competing arguments: The respondent's counsel argued that the petitioner's failure to respond to the notice justified the demand. However, the Court emphasized adherence to statutory limits as per Section 75(7), which was not met in this case.Conclusions: The Court concluded that the order violated Section 75(7) and, therefore, could not be sustained.2. Violation of Principles of Natural JusticeRelevant legal framework and precedents: Principles of natural justice require that an individual be given a fair opportunity to respond to allegations against them. This includes adequate notice and a reasonable opportunity to be heard.Court's interpretation and reasoning: The petitioner argued that the scheduling of the reply filing date and the personal hearing on the same day was procedurally unfair. However, the Court found that since the petitioner claimed unawareness of the notice and reminder, the procedural issue of scheduling became insignificant.Application of law to facts: The Court determined that the procedural irregularity did not independently vitiate the notice, given the petitioner's non-response to the initial notice and reminder.Treatment of competing arguments: The respondent's counsel contended that the petitioner had ample opportunity to respond but failed to do so. The Court agreed that the procedural issue was not determinative in light of the petitioner's overall conduct.Conclusions: The Court held that the procedural issue did not invalidate the notice, but the order was still unsustainable due to the violation of Section 75(7).SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: The Court highlighted, '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.'Core principles established: The judgment reinforces the principle that statutory provisions, such as those in Section 75(7) of the Goods and Services Tax Act, must be strictly adhered to, and any demand exceeding the specified amount in a show-cause notice is unsustainable.Final determinations on each issue: The Court quashed the order dated 20.04.2024 due to the violation of Section 75(7) and remanded the matter back to the authority to provide the petitioner with an opportunity to respond to the show-cause notice and to pass a fresh order in accordance with the law.