Writ under Article 226 quashes GST Section 74(9) assessment for breaching Section 75(7) and natural justice

HC, exercising writ jurisdiction under Article 226, quashed the impugned assessment and demand orders issued under Section 74(9) of the GST Act, 2017. It held that Section 75(7) mandates that the tax, interest and penalty determined in the final order cannot exceed the quantum specified in the SCN nor be founded on grounds beyond those stated therein, as a safeguard of natural justice. In this case, Respondent No. 4 determined liability far in excess of the amount indicated in the SCN, rendering the order ultra vires Section 75(7) and violative of audi alteram partem. Consequently, the impugned orders were set aside and the writ petition was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a demand order passed under Section 74(9) of the GST Act, 2017 can lawfully determine tax, interest, and penalty in excess of the amount specified in the show cause notice issued under Section 74(1), in view of Section 75(7) and the principles of natural justice.

1.2 Whether, despite the availability of an appellate remedy under Section 107 of the GST Act, 2017, the writ jurisdiction under Article 226 can be exercised where the impugned order is ex facie contrary to Section 75(7) and violative of natural justice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Scope of demand under Section 74(9) vis-à-vis show cause notice under Section 74(1) and Section 75(7)

Legal framework

2.1 The Court referred to Section 74(1) of the GST Act, 2017, emphasizing that where tax has not been paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilized by reason of fraud, wilful misstatement or suppression of facts, the proper officer shall serve a notice requiring the person chargeable with tax "to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice."

2.2 The Court also relied on Section 75(7) of the GST Act, 2017, 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 no demand shall be confirmed on the grounds other than the grounds specified in the notice."

Interpretation and reasoning

2.3 The Court held that an essential requirement of a notice under Section 74(1) is the clear specification of the amount of tax, interest payable thereon, and penalty equivalent to the tax specified in the notice, so as to afford the assessee a clear and adequate opportunity to respond and make representation.

2.4 It was observed that, although under Section 74(9) the proper officer determines the amount of tax, interest and penalty after considering the assessee's representation, Section 75(7) operates as a limitation: the final order cannot (i) demand an amount in excess of that specified in the show cause notice, nor (ii) confirm demand on grounds other than those specified in the notice.

2.5 The Court characterized Section 75(7) as a statutory embodiment of the principles of natural justice, in particular the rule that nobody should be condemned unheard. It ensures that the assessee is not saddled with a higher or different demand than that for which opportunity to show cause was given.

2.6 On facts, the Court noted that the impugned final order determined a demand of Rs. 7,61,80,000/-, whereas the show cause notice had specified a much lower amount of Rs. 4,59,50,000/-. This excess demand beyond the quantified amount in the show cause notice was undisputed.

2.7 In view of the clear statutory prohibition in Section 75(7), the Court held that the impugned demand order, being for an amount far exceeding that specified in the show cause notice, was contrary to Section 75(7) and violative of principles of natural justice.

Conclusions

2.8 The Court concluded that the impugned order passed under Section 74(9) was not sustainable in law as it demanded tax, interest and penalty in excess of the amount specified in the show cause notice, in breach of Section 75(7) of the GST Act, 2017 and the principles of natural justice.

2.9 The impugned show cause notice dated 6th February 2021 and the consequential demand order dated 26th August 2021 were set aside, with a direction that the assessing authority reconsider the matter and pass a fresh order in accordance with law. If the authority intends to confirm an amount exceeding that in the original show cause notice, it may issue a fresh notice for the excess amount, subject to limitation.

Issue 2: Maintainability of writ petition despite availability of alternate statutory remedy

Legal framework

2.10 The respondents invoked Section 107 of the GST Act, 2017, contending that the impugned order being appealable, the petitioner should be relegated to the statutory appellate remedy.

Interpretation and reasoning

2.11 The Court acknowledged that ordinarily it would have relegated the petitioner to the statutory remedy of appeal under Section 107, as the order impugned is appealable.

2.12 However, the Court declined to do so in the present case because the illegality was apparent on the face of the record: the impugned order demanded an amount significantly higher than that specified in the show cause notice, in clear contravention of Section 75(7).

2.13 This patent violation of the statutory mandate and principles of natural justice justified the exercise of writ jurisdiction under Article 226 notwithstanding the availability of an alternate remedy.

Conclusions

2.14 The Court held the writ petition to be maintainable despite the existence of an appellate remedy under Section 107 of the GST Act, 2017, on the ground that the impugned order was ex facie in breach of Section 75(7) and principles of natural justice.

2.15 Relief was granted in writ by setting aside the impugned notice and demand order and remitting the matter to the assessing authority for fresh consideration in accordance with law and limitation.

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