GST Demand Cannot Exceed SCN Amount; HC Quashes Order Breaching Section 75(7).
Issue
Can an adjudicating authority pass a final order confirming a GST demand for an amount that is substantially higher than the amount proposed in the original Show Cause Notice (SCN), and can it introduce new grounds not mentioned in the SCN?
Facts
- The GST department issued a Show Cause Notice (SCN) to the assessee, proposing a total demand of ₹2.49 crore.
- The adjudicating authority, in the final Order-in-Original, confirmed a demand of ₹6.93 crore.
- This final order was not only higher in quantum but also went beyond the specific legal grounds that had been stated in the SCN.
- The assessee’s application to rectify this error was wrongly rejected by the authority.
Decision
- The Karnataka High Court quashed the impugned assessment order.
- It held that the order was in direct contravention of Section 75(7) of the CGST Act, which explicitly prohibits an authority from confirming a demand that is higher than the amount specified in the SCN.
- The matter was remanded back to the adjudicating authority with a clear direction to pass a fresh order that is strictly confined to the quantum and grounds mentioned in the original SCN.
Key Takeaways
- SCN Sets the Boundary: The Show Cause Notice is the foundational document that defines the complete scope and maximum limit of a tax proceeding. The final order can, at most, confirm the amount proposed in the SCN, but can never exceed it.
- Section 75(7) is an Absolute Bar: This provision is a critical, mandatory safeguard for taxpayers, ensuring there are no financial “surprises” in the final order.
- No New Grounds in Final Order: An authority cannot introduce new legal grounds for a demand in the final order that the taxpayer was not put on notice for, as this is a gross violation of the principles of natural justice.
- Jurisdictional Error, Not a Clerical Mistake: Exceeding the scope of an SCN is a fundamental jurisdictional error, not a simple mistake that can be ignored or rectified. It renders the order void to the extent it goes beyond the SCN.