2025 (5) TMI 42 - HC - GST

Tax Demand Order Invalidated for Procedural Flaws, Excessive Claim, and Insufficient Reasoning Under GST Act Section 74

The HC examined a GST Act case involving procedural irregularities in a tax demand order. The Court found multiple statutory violations: (1) the demand ... Challenge to impugned order - demand raised exceeds the amount specified in the SCN - HELD THAT:- In the case of M/s Hari Shanker Transport Vs. Commissioner of Commercial Tax U.P. Lucknow and another [2025 (4) TMI 619 - ALLAHABAD HIGH COURT], this Court, after hearing the parties, held that 'The manner of passing of order dated 27.04.2024 falls foul of the requirements of Section 75(6) of the Act, which requires that 'the proper officer, in his order shall set out the relevant facts and the basis of his decision', the statutory requirements for passing an order by setting out relevant facts and basis for the decision are totally missing from the order dated 27.04.2024. Even if no response was filed to the notices issued under Sections 61 and 73 of the Act, it was incumbent on respondent no.2 to pass an order in compliance of the provisions of Section 75(6) of the Act, as a final order should be self contained and merely making reference to the previous notices while passing the said order does not suffice for making it a self contained order.' The orders dated 08.08.2024 and 30.05.2024 (Annexure- 1 & 2 to the writ petition) are quashed and set aside. The matter is remanded back to respondent no.2/Deputy Commissioner, Commercial Tax Department, Sector-1, Auraiya to provide an opportunity of filing response to the show cause notice issued under Section 73 of the Act to the petitioner, which response shall be filed within a period of four weeks from today and thereafter, after providing opportunity of hearing, a fresh order in accordance with law be passed. Petition allowed. The core legal questions considered by the Court in this matter are:1. Whether the impugned order passed under Section 73 of the Goods and Services Tax Act, 2017 (the Act) is valid when the demand raised exceeds the amount specified in the show cause notice, in light of the provisions of Section 75(7) of the Act.2. Whether the order under Section 73(9) of the Act complies with the statutory requirement under Section 75(6) of the Act to set out relevant facts and the basis of the decision, especially when no response was filed to the notices issued.3. Whether the petitioner was accorded a fair opportunity of hearing, considering the petitioner's claim of unawareness of the issuance of notices uploaded on the departmental portal.Issue 1: Validity of the Order in Light of Section 75(7) of the Act Regarding Demand Exceeding Show Cause NoticeThe legal framework relevant to this issue is Section 75(7) of the Goods and Services Tax Act, 2017, which explicitly states:'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.'This provision mandates that any order imposing tax, interest, or penalty must be confined to the amounts and grounds specified in the preceding show cause notice.The Court analyzed the facts wherein the show cause notice issued to the petitioner indicated a demand of Rs. 28,15,200/- representing tax, interest, and penalty. However, the final order passed under Section 73 raised the demand to Rs. 59,27,500/-, which was substantially higher.The Court found this to be a clear violation of Section 75(7), as the demand in the order exceeded the amount specified in the notice. The Court relied on the precedent established in the case of S R Construction, wherein it was held that such excess demand is impermissible and renders the order unsustainable.In applying the law to the facts, the Court concluded that the impugned order could not be sustained due to this statutory breach. The Court emphasized the importance of adherence to the limits prescribed in the show cause notice to protect the principles of natural justice and procedural fairness.Issue 2: Compliance with Section 75(6) of the Act Regarding the Requirement to Set Out Relevant Facts and Basis of DecisionSection 75(6) of the Act requires that the order passed by the proper officer must be self-contained, setting out relevant facts and the basis for the decision. This ensures transparency and allows the aggrieved party to understand the reasoning behind the order.The Court examined the order dated 27.04.2024 passed under Section 73(9) of the Act, which merely referenced the issuance of two notices and the absence of any response, followed by a demand. The order failed to elucidate the facts or the rationale underpinning the demand.The Court referred to the decision in M/s Hari Shanker Transport, where it was held that such an order is deficient and does not comply with the statutory mandate. The Court observed that even if the petitioner did not respond to the notices, the officer was obligated to pass a reasoned order.The Court reasoned that an order that merely refers to prior notices without independent findings or explanation cannot be regarded as a valid final order. This deficiency violates the procedural safeguards embedded in Section 75(6) and undermines the principles of fair adjudication.Consequently, the Court quashed the order and remanded the matter for a fresh decision after affording the petitioner an opportunity to respond and be heard.Issue 3: Opportunity of Hearing and Awareness of NoticesThe petitioner contended that they were unaware of the issuance of the show cause notice and the subsequent reminder, as these were uploaded on the department's portal without direct communication.The Court acknowledged that the notices indicated the deadline for filing a reply and the date of personal hearing. However, the Court held that mere indication of these dates in the notice does not cure the defect arising from the petitioner's unawareness of the notice itself.The Court reasoned that if the petitioner was genuinely unaware of the notices, the opportunity of hearing effectively did not materialize. Therefore, the procedural requirement of affording a fair hearing was not satisfied.Nonetheless, the Court clarified that the absence of a reply or appearance cannot be solely attributed to the petitioner if they were not properly informed. The Court thus emphasized the necessity of ensuring actual communication and opportunity before passing adverse orders.Significant HoldingsThe Court held 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.'This principle was reaffirmed as a core safeguard against arbitrary or excessive demands beyond the scope of the show cause notice.Further, the Court emphasized that:'The proper officer, in his order shall set out the relevant facts and the basis of his decision,'and failure to comply with this requirement renders the order invalid.On the issue of opportunity of hearing, the Court underscored that actual awareness of the notice is essential for the opportunity to be meaningful.Accordingly, the Court quashed and set aside the impugned orders dated 08.08.2024 and 30.05.2024, remanding the matter to the Deputy Commissioner, Commercial Tax Department, Sector-1, Auraiya, directing that the petitioner be given an opportunity to file a response within four weeks and be heard before a fresh order is passed in accordance with law.