GST Demand Beyond Show-Cause Notice is a Violation of Law and Must Be Quashed.

Issue

Can a tax authority raise a final demand for tax, interest, and penalty in an assessment order that is higher than the amount originally proposed in the show-cause notice (SCN), without violating the principles of natural justice and the specific provisions of Section 75(7) of the CGST Act?

Facts

For the tax periods July 2017 to March 2018 and 2019-20, the assessee was issued a show-cause notice.
The SCN proposed a total demand (tax, interest, and penalty) of ₹20.9 thousand.
The assessee filed a response to this notice.
However, the final order passed by the authority raised a significantly higher demand of ₹1.55 lakh.
The assessee challenged this order, arguing that it was contrary to the SCN and a direct violation of Section 75(7).

Decision

The High Court quashed and set aside the final demand order.
It held that the order was ex facie (on the face of it) contrary to the mandatory provisions of Section 75(7) of the CGST Act.
The matter was remanded back to the assessing authority to pass a fresh order after providing a proper opportunity of hearing to the assessee, and strictly within the confines of the original SCN.

Key Takeaways

SCN Sets the Boundary: The show-cause notice is the foundational document in any tax proceeding. It sets the maximum limit for both the amount that can be demanded and the legal grounds on which the demand can be based.
Section 75(7) is a Critical Safeguard: This provision explicitly prohibits tax authorities from demanding an amount greater than what was specified in the notice. This ensures that the taxpayer knows the full extent of the case they have to defend against.
No Surprises in the Final Order: A final order cannot introduce new grounds or a higher demand that the taxpayer was not put on notice for. Doing so is a gross violation of the principles of natural justice.
Invalidity of the Order: An order that contravenes Section 75(7) is legally unsustainable and liable to be quashed by the courts.

HIGH COURT OF ALLAHABAD

Sai Computers

State of U.P.

Shekhar B. Saraf and Praveen Kumar Giri, JJ.

WRIT TAX No. 4370 of 2025

SEPTEMBER 11, 2025

Ajay Kumar Kashyap, Ravindra Kumar Rastogi and Vishakha Dubey for the Petitioner.

ORDER

1. This petition is directed against the order dated 28.08.2024 passed by respondent no. 2 for the period July 2017 to March 2018 (F.Y. 2019-20) whereby a demand to the tune of Rs. 155878.26/- has been raised against the petitioner.

2. The petitioner was issued a show-cause notice dated 17.12.2024 under Section 74 of Goods and Services Tax Act, 2017 (hereinafter referred to as ‘the Act’) in GST DRC-01. The notice, inter alia, called upon the petitioner as to why tax, penalty and interest to the tune of Rs.20,916.90/-be not imposed. Apparently, petitioner filed response to the said showcause notice on 27.05.2024. After nine days, the order dated 28.08.2024 raising the demand as indicated herein-above has been passed.

3. Learned counsel for the petitioner made submissions that action of the respondents in raising demand to the tune of Rs.155878.26/- which includes penalty to the tune of Rs.20000/- and interest to the tune of Rs.63737/- is contrary to the show-cause notice issued to the petitioner and in violation of Section 75(7) of the Act inasmuch the same is beyond the show-cause notice wherein a demand to the tune of Rs.20,916.90/-against tax, interest and penalty was sought to be recovered.

4. Learned Standing Counsel opposed the submissions made. Submissions were made that charging interest and penalty is statutory and, therefore, irrespective of the fact that the same has not been indicated in the show-cause notice, would not take away the power of the authority in demanding the interest and penalty in accordance with law and on that count, the petition deserves dismissal.

5. We have considered the submissions made by counsel for the parties and have perused the material available on record.

6. 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.”

7. 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.

8. Admittedly, in the present case, the show-cause notice merely indicates the amount of Rs.20,916.90/- as representing the tax, interest and penalty and the demand qua the three components has been raised at Rs.155878.26/-, which is ex facie contrary to the provisions of Section 75(7) of the Act.

9. 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.

10. Consequently, the writ petition is allowed. Order dated 28.08.2024 (Annexure-4) is quashed and set aside and 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.