Demand Order quashed for exceeding SCN amount; Violation of Section 75(7)

Issue

Whether an Adjudicating Authority can pass an order confirming a demand (Tax + Penalty) of Rs. 38.61 Lakhs when the Show Cause Notice (SCN) issued under Section 73 only proposed a demand of Rs. 5.11 Lakhs, effectively violating the statutory cap under Section 75(7) of the CGST Act.

Facts

Period: April–March 2019.
The SCN: A notice was issued under Section 73 alleging discrepancies in returns filed under CGST and SGST. The notice specified a combined demand of approximately Rs. 5.11 Lakhs.
The Order: The Adjudicating Authority passed a final order imposing tax and penalty aggregating to approximately Rs. 38.61 Lakhs.
The Jump: The final demand was nearly 7.5 times higher than the amount proposed in the notice.
Appeal: The Appellate Authority dismissed the taxpayer’s appeal, sustaining the enhanced demand.
Challenge: The petitioner filed a Writ Petition arguing that the order traveled beyond the scope of the notice.

Decision

Statutory Mandate (Section 75(7)): The High Court referred to Section 75(7) of the CGST Act, which explicitly states that:
- The amount of tax, interest, and penalty demanded in the order shall not exceed the amount specified in the notice.
- The order shall not be passed on grounds other than those specified in the notice.
Violation of Law: The Court held that enhancing the demand from Rs. 5.11 Lakhs (in SCN) to Rs. 38.61 Lakhs (in Order) was a clear violation of the statute and principles of natural justice. A taxpayer cannot be condemned to pay an amount they were never asked to show cause against.
Ruling: The impugned orders (Adjudication and Appellate) were quashed as unsustainable in law. The matter was remanded to the Proper Officer to pass a fresh order strictly in accordance with the law (limiting liability to the SCN scope) after granting a fresh hearing.

Key Takeaways

The SCN is the Ceiling: The Show Cause Notice (Form DRC-01) sets the maximum limit for the demand. The Officer can reduce the demand based on your reply, but cannot increase it in the final order (Form DRC-07).

New Grounds/Amounts require New Notice: If the Officer discovers new liabilities or wants to increase the amount during proceedings, they must issue a fresh SCN (statement) under Section 73/74, provided the limitation period permits. They cannot simply add it to the final order of the existing proceedings.

HIGH COURT OF ALLAHABAD

R.A.A. Builders and Developers

Commissioner of Commercial Tax^*

Piyush Agrawal, J.

WRIT TAX No. 1919 of 2025

NOVEMBER 11, 2025

Puneet Arun for the Petitioner.

ORDER

1. Heard Shri Puneet Arun, learned counsel for the petitioner and learned ACSC for the State – respondents.

2. The instant writ petition has been filed against the impugned order dated 13.02.2025 passed by the respondent no. 3 as well as the impugned order dated 30.04.2024 passed by the respondent no. 2.

3. Learned counsel for the petitioner submits that a notice under section 73 of the GST Act was issued to the petitioner on 31.01.2024 alleging difference in the returns filled by the petitioner for the period from April -March, 2019 under CGST & SGST, in which tax amounting to Rs. 2,32,339.00 and penalty amounting to Rs. 23,233.90 (Total Rs. 2,55,572.90) under CGST was imposed and equal amount of tax & penalty was imposed under SGST (both totalling Rs. 5,11,145.80), but while passing the impugned order under section 73 of the GST Act, the determination of tax has been made beyond the show cause notice, which cannot be permitted. He further submits that the assessment order was passed on 30.04.2024 without going through the record and submissions of the petitioner imposing tax amounting to Rs. 17,54,820/- and penalty amounting to Rs. 1,75,482/-(total Rs. 19,30,302/-) under CGST and equal amount of tax & penalty under the SGST (both totalling Rs. 38,60,604/-), against which the petitioner preferred an appeal, which has been dismissed by the impugned order dated 13.02.2025 without considering the material available on record.

4. Learned counsel for the petitioner further submits that the action of the respondents in raising the demand as above is contrary to the show cause notice issued to the petitioner. The said notice is in violation of section 75(7) of the GST Act; wherein, it has been provided that no demand can be made beyond the show cause notice. In support of his submissions, he has placed reliance on the judgement of the Division Bench of this Court in Unique Computer & Communication Shop v. State of U.P. GST 245/100 GSTL 38 (Allahabad)/[Writ Tax No. 2398/2025, decided on 27.05.2025].

5. Per contra, learned ACSC supports the impugned orders.

6. After hearing learned counsel for the parties, the Court has perused the record.

7. It is not in dispute that the notice under section 73 of the GST Act was issued where the total demand was raised amounting to Rs. 5,11,145.80; whereas, while passing the impugned order, the demand has been enhanced to Rs. 38,60,604/-, which is, prima facie, against the provisions of section 75(7) of the GST Act.

8. Identical issue has been decided by the Division Bench of this Court in Unique Computer & Communication Shop (supra); wherein, it has been held as under:-

“7. Provisions of Section 75(7), inter alia, read as under:

“(7) 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.”

8. A perusal of the above would reveal that Section 75 deals with general provisions relating to determination of tax and sub-section (7) specifically stipulates 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.

9. Admittedly, in the present case, the show-cause notice merely indicates the amount of Rs. 45,66,398/- as representing the tax, interest and penalty and the demand qua the three components has been raised at Rs. 68,07,953/-, which is ex facie contrary to the provisions of Section 75(7) of the Act.

10. So far as the plea pertaining to not providing any opportunity of personal hearing is concerned, once it is the case of the petitioner that it was unaware of the issuance of the show-cause notice, the fact that in the notice issued to the petitioner, the date of filing of reply was indicated, looses its significance and it cannot be said that on account of such indication, the notice, on its own, would stand vitiated.

11. In view of the above discussion, on account of violation of provisions of Section 75(7) of the Act, the order impugned cannot be sustained. “

9. The issue in hand is squarely covered by the above-noted judgement as relied upon by the petitioner.

10. In view of the aforesaid facts & circumstances of the case, the impugned orders cannot be sustained in the eyes of law. The same are hereby quashed.

11. The writ petition succeeds and is allowed.

12. The matter is remanded back to the respondent no. 2 to provide an opportunity to the petitioner to file response to the show cause notice and after providing opportunity of hearing, pass a fresh order in accordance with law.