Demand quashed for traveling beyond SCN; Interest and Penalty cannot be imposed if not proposed

Issue

Whether an adjudicating authority can impose interest and penalty in the final assessment order when the Show Cause Notice (SCN) issued under Section 74/73 proposed only the recovery of tax.

Facts

Period Involved: 2019-20.
The SCN: The Revenue authorities issued an SCN proposing the recovery of tax only. The notice specifically showed the total outstanding amount confined to the tax demand and contained no proposal or calculation for the levy of interest or penalty.
The Adjudication: Despite the limited scope of the SCN, the Adjudicating Authority passed an assessment-cum-demand order that imposed interest and penalty under the CGST and SGST Acts, thereby seeking recovery of an enhanced demand.
Defense: The assessee challenged the order in a writ petition. The Revenue could not dispute the factual position that the SCN was silent on interest and penalty.

Decision

Foundation of Order: The Court held that the Show Cause Notice constitutes the foundation of the proceeding. A demand order cannot travel beyond the scope of the SCN.
Statutory Violation: Imposing a liability (interest/penalty) that was never proposed in the notice is a violation of the principles of natural justice and the statutory mandate under Section 75 (which states the demand cannot exceed the amount specified in the notice).
Arbitrary Action: The impugned assessment and demand order was termed arbitrary and legally unsustainable.
Ruling: The High Court quashed the assessment order and the consequential attachment of the assessee’s assets. The matter was remitted to the authority to pass fresh orders strictly in accordance with the law (i.e., limiting the demand to the scope of the SCN).

Key Takeaways

SCN Limits the Demand: The final order can confirm a lower amount than the SCN but never a higher amount. It cannot introduce new heads of liability (like penalty) that were not specifically proposed in the notice.

Check Your Notice: Always compare the “Table of Demand” in the SCN (usually DRC-01) with the final order (DRC-07). If the SCN column for penalty was zero or blank, the final order cannot levy it.

HIGH COURT OF ALLAHABAD

Chaurasiya Zarda Bhandar

State of U.P.

Manish Kumar, J.

WRIT TAX No. 1336 of 2025

NOVEMBER 19, 2025

Rajesh Chandra Mishra and Shashwat Anand Dixit for the Petitioner. Sanjay Sarin, Learned Addl. Chief Standing counsel for the Respondent.

ORDER

1. Heard Sri R.C Mishra learned counsel for the petitioners and Sri Sanjay Sarin learned Additional Chief Standing counsel for the State revenue.

2. Under challenge is the order dated 29.09.2025 whereby the petitioner’s appeal was dismissed on the ground of delay. As a consequence, the assessment and demand order dated 29.08.2024 passed by the respondent no.3 has been affirmed.

3. Submission of learned counsel for the petitioner precisely is that a show cause notice was issued to the petitioner, a copy of which has been brought on record as Annexure-5 wherein for the financial year 2019-20, a tax liability of Rs. 2907002/- was shown against the petitioner and he was required to show cause as to why the same may not be recovered.

4. It is further urged that in the said show cause notice, there was no propose for imposition of any interest or penalty and the total outstanding was Rs.2907002/-.

5. Learned counsel for the petitioner has referred to Section 75(7) to indicate that the amount of tax, interest and penalty demanded in the order shall not be in excess of the tax determined by the proper officer and no demand shall be confirmed on the ground other than the grounds specified in the notice.

6. Relying heavily on the aforesaid provisions, it is urged that that once there was no demand or even proposal to impose any penalty or interest then the order dated 11.02.2025 is patently against the provisions as a sum of Rs.5,12,453/- towards interest under the CGST and SGST (each) and penalty of Rs. 5,12,453/- CGST and SGST (each) totaling a sum of Rs.55,71,191/- is sought to be recovered and pressed against the petitioner.

7. Sri Sareen learned Additional Chief Standing counsel for the revenue could not dispute the fact that in the show cause notice issued to the petitioner, there was no reference for any imposition of interest of penalty, however, the same has been imposed in the impugned order dated 29.08.2024 which apparently is against the provision of Section 75(7).

8. This Court is satisfied that the impugned order dated 29.08.2024 cannot be sustained being arbitrary and against the specific provisions, accordingly, it is quashed and set aside. Since the impugned orders have been set aside, the attachment order dated 11.09.2025 also stands quashed. The matter shall stand remitted to the adjudicating authority who shall pass fresh orders.

9. With the aforesaid, the petition is allowed.