Tax demand beyond show-cause notice quashed; reassessment ordered under Section 75(7) KGST Act for natural justice breach

HC held that the tax authority could not confirm a demand exceeding the amount proposed in the show-cause notice under Section 75(7) of the KGST Act. While the SCN sought Rs. 2,49,63,816/-, the Order-in-Original confirmed Rs. 6,93,77,821/-, which the HC found contrary to statute and violative of principles of natural justice. The impugned orders (Annexures-A and A1) were set aside. The matter was remanded to the assessing authority (respondent No. 3) for fresh reconsideration in accordance with law. The petition was allowed by way of remand.

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1. ISSUES PRESENTED AND CONSIDERED

(1) Whether confirmation of tax demand in excess of the amount proposed in the show cause notice is contrary to Section 75(7) of the KGST Act and without jurisdiction.

(2) Whether the original demand order and the rectification rejection order are liable to be set aside and the matter remitted for fresh consideration.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of confirming demand in excess of show cause notice under Section 75(7) of the KGST Act

Legal framework: The Court extracted Section 75(7) of the KGST Act, which 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 and that no demand shall be confirmed on grounds other than those specified in the notice.

Interpretation and reasoning: The Court noted that the show cause notice dated 28.05.2024 demanded a sum of Rs. 2,49,63,816/-, to which the petitioner had submitted a reply. Despite this, the Order-in-Original dated 20.09.2024 confirmed a demand of Rs. 6,93,77,821/-. The Court held that confirmation of a demand higher than the amount specified in the show cause notice was contrary to the express stipulation in Section 75(7) of the KGST Act.

Conclusions: The Court concluded that the demand confirmed in excess of the amount proposed in the show cause notice was in violation of Section 75(7) of the KGST Act, rendering the impugned Order-in-Original unsustainable in law.

Issue 2: Validity of impugned orders and remand for fresh consideration

Interpretation and reasoning: Having found that the impugned Order-in-Original was contrary to Section 75(7) of the KGST Act, the Court further noted that the petitioner's rectification application dated 30.09.2024 had been rejected. In view of the illegality affecting the demand order itself, the rejection of rectification could not stand independently.

Conclusions: The Court set aside both the Order-in-Original dated 20.09.2024 and the Rectification Rejection Order dated 19.03.2025, and remitted the matter to the adjudicating authority for reconsideration afresh in accordance with law. The petitioner was directed to appear before the authority on the specified date and was given liberty to file additional replies, pleadings and documents, which the authority must consider after providing sufficient and reasonable opportunity, while bearing in mind the mandate of Section 75(7) of the KGST Act.

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