Tax demand beyond show cause notice violates GST Act ss.73 and 75(7); enhanced adjudication order quashed entirely

HC held that the tax and penalty demand under s.73 of the GST Act could not lawfully exceed the quantum specified in the show cause notice, in view of the clear mandate of s.75(7). The SCN proposed demand of about Rs. 5.11 lakh, whereas the adjudication order enhanced it to about Rs. 38.60 lakh without due notice, rendering the order ultra vires. Relying on its earlier Division Bench precedent on identical facts, the HC quashed the impugned orders in entirety and allowed the writ petition.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the demand of tax and penalty in the order under section 73 of the GST Act, in excess of the amount specified in the show cause notice, is contrary to section 75(7) of the GST Act.

1.2 Consequentially, whether the appellate and original orders founded on such enhanced demand are liable to be quashed and the matter remanded for fresh adjudication after affording opportunity of hearing.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Excess demand over show cause notice under section 73 vis-à-vis section 75(7) of the GST Act

Legal framework

2.1 The Court considered section 75(7) of the GST Act, as noticed and applied in a prior Division Bench judgment. Section 75(7) 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 that no demand shall be confirmed on grounds other than those specified in the notice.

Interpretation and reasoning

2.2 It was undisputed that the show cause notice issued under section 73 of the GST Act raised a total demand of Rs. 5,11,145.80, whereas the impugned order determined and demanded a substantially enhanced amount of Rs. 38,60,604/- (tax and penalty under CGST and SGST).

2.3 The Court held that such enhancement of demand beyond the figure indicated in the show cause notice is, prima facie, against the express mandate of section 75(7) of the GST Act.

2.4 The Court relied upon the Division Bench decision which had held that where the demand in the order exceeds the amount indicated in the show cause notice, the order is ex facie contrary to section 75(7) and cannot be sustained.

2.5 Applying the ratio of the Division Bench decision to the facts, the Court found that the issue stood squarely covered and that the demand raised in excess of the show cause notice in the present case was invalid.

Conclusions

2.6 The Court concluded that the impugned order under section 73, having raised demand in excess of the amount specified in the show cause notice, is contrary to section 75(7) of the GST Act and cannot be sustained.

Issue 2: Validity of appellate and original orders and direction for remand

Interpretation and reasoning

2.7 Since the original assessment order was found to be vitiated by violation of section 75(7), the appellate order, which affirmed such assessment without curing the illegality or properly considering the material on record, could not stand independently.

2.8 The Court therefore held that both the assessment order and the appellate order, being founded on a legally unsustainable demand, are liable to be quashed.

Conclusions

2.9 The impugned orders were quashed.

2.10 The matter was remanded to the adjudicating authority (respondent no. 2) with a direction to provide an opportunity to the petitioner to file a response to the show cause notice and, after affording an opportunity of hearing, to pass a fresh order in accordance with law.

---