I found the following discussion on page number 1232 of Background Material on GST Volume II published by The Institute of Chartered Accountants of India. Sharing the same as I feel this also could be illuminating on the discussion we had.
Notice by Appellate Authority - Provisos to Section 107(11)
While it is uncommon for Appellate Authority to issue a ‘show cause notice’, the express language in the two provisos to section 107(11) make it clear that Appellate Authority is permitted to issue a ‘supplementary’ show cause notice. And the order of Appellate Authority in respect of such supplementary notice is subject to statutory limitation and the consequent safeguard in section 75(10). Further, reference to rule 109C reiterates that show cause notice can be issued under section 107(11).
Analysis
First proviso – contains authority to ‘enhance’ any fee, fine or penalty that was imposed in adjudication. Now it is important to note that section 107(11) itself permits Appellate Authority only to “pass such orders confirming, modifying or annulling” and there is no express authority for Appellate Authority for “enhancing” which exists in section 108(1). However, the unequivocal language in this proviso cannot be rendered otiose.
Instance when such enhancement may be harmonized would be where Proper Officer has confirmed penalty less than that the statutory minimum prescribed, say, in section 73(9) or in 75(8). And when, for other reasons, taxpayer carries the order of Proper Officer in appeal, Appellate Authority is empowered to “enhance” the penalty.
However, such harmonization is hardly possible in case of fee – which is levied under section 47 – as no notice under section 73 or 74 could possibly be issued to demand such fee. There would not be any occasion when an appeal involving such fee would come for consideration by Appellate Authority.
And fine must only refer to redemption fine under section 130(2) which, when carried in appeal, having already been examined and imposed by Proper Officer based on facts of the case, taxpayer cannot be worse-off at the end of appeal than at the start. And appeal is not an exercise to re-appreciate material on record when once such material have been appreciated by a competent officer and a conclusion reached based on the facts and the law. Appeal is not yet another opportunity to re-do adjudication by an officer of higher rank. Not even when the quantum of redemption fine is suspiciously liberal and yet somehow the matter is carried in appeal by taxpayer, no such enhancement would be possible. For these instances, revisionary proceedings under section 108(1) are available to Revenue. But when the appeal is carried by Revenue seeking enhancement of redemption fine imposed, this proviso is not pressed into service.
Second proviso – is capable of correcting computational errors and not substitute with a fresh notice. Where tax is demanded but applicable cess is omitted in adjudication. For e.g., where tax is demanded under one classification, it cannot be replaced with a different classification, for the vice that this would be a fresh notice. Appellate Authority is excluded from definition of Adjudicating Authority in section 2(4).
Interestingly, the expression in this proviso is not “enhance” but apparently unhindered when it refers to “any tax or credit”. Care must taken not to read this proviso as authorizing Appellate Authority to issue an altogether new notice. Safeguard is found in the fact that such liability must be based on “opinion” formed by Appellate Authority. No such opinion can be formed by calling for new records and material but formed from the material already available on record being the ‘relied upon documents’ in notice and additional material introduced during adjudication. If no such “opinion” can be formed without calling for new records and material, then Appellate Authority must limit the scope of fact-finding during appeal to the grounds agitated against order of adjudication
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