GST Demand Exceeding SCN Amount Upheld When Discrepancies Not Explained and Documents Not Produced

Issue: Whether an Assistant Commissioner can raise a demand significantly higher than the amount initially quantified in a show cause notice (SCN) issued under Section 73 of the CGST Act, if the SCN specifically pointed out discrepancies requiring explanation and document production, and the assessee failed to provide the necessary information. Also, whether an officer can demand documents/information under Section 73 proceedings.

Facts:

A show cause notice (SCN) was issued to the assessee under Section 73, highlighting 13 points of discrepancy between declared data and an audit report.
The SCN initially quantified a demand for Rs. 12,10,940.
The assessee filed a response to the SCN.
After providing an opportunity of hearing, the Assistant Commissioner accepted the assessee’s pleas on 11 out of 13 points.
However, on the remaining 2 points (pertaining to sundry creditors and “Bill to Ship to” transactions), the Assistant Commissioner raised a demand of Rs. 52,48,621.
The assessee challenged this higher demand, arguing it was contrary to Section 75(7) (which states that the amount of tax, interest, and penalty should not exceed the amount specified in the SCN).
The assessee also contended that the officer’s demand for documents/information under Section 73 was ultra vires the provision and that no demand could be raised on those aspects.
The court noted that for the sundry creditors and “Bill to Ship to” transactions, no proper response was given, and the assessee merely objected to the power to seek documents. Despite specific demands for documents, nothing was produced by the assessee.

Decision: The court held that both pleas raised by the assessee (regarding the scope of Section 73 and violation of Section 75(7)) could not be countenanced. It found that the non-quantification of the demand in the SCN and the ultimate higher demand in the order was not a violation of Section 75(7), as the SCN was specific about discrepancies and provided an opportunity to produce documents. The court also rejected the argument that documents could not be demanded under Section 73, stating it was “ex-facie baseless.” Since the assessee chose not to supply requisite material, it essentially amounted to an admission of the discrepancy. The assessee was left open to agitate the issue on merits before the appellate forum.

Key Takeaways:

Section 75(7) Interpretation for Discrepancies: While Section 75(7) generally limits the final demand to the amount specified in the SCN, this ruling clarifies that when an SCN specifically points out discrepancies (rather than a fixed quantified amount) and gives the assessee an opportunity to reconcile them with documents, the final demand determined based on the assessee’s failure to explain those discrepancies can exceed the initial illustrative quantification. The discrepancies themselves, when properly articulated, form the “subject matter” of the notice.
Power to Seek Documents/Information Under Section 73: The court explicitly confirmed that an officer has the power to demand documents and information as part of proceedings under Section 73. This power is inherent in the process of determining tax not paid or short-paid.
Consequence of Non-Production of Documents: Failure by the assessee to produce requisite documents or provide satisfactory explanations when discrepancies are pointed out in an SCN can lead to the authorities drawing adverse inferences and confirming demands. The court treated such non-production as an “admission regarding discrepancy.”
Natural Justice and Opportunity: The court noted that the SCN was specific and provided an opportunity to produce documents. Therefore, the principles of natural justice were deemed to have been complied with.
Factual Dispute for Appellate Forum: The court, by stating that the assessee was “to be left open to agitate issue on merits before appellate forum,” indicated that the ultimate correctness of the demand (the calculation for sundry creditors and “Bill to Ship to” transactions) was a factual matter to be decided by the appellate authority, not the High Court in writ jurisdiction.
Specificity of SCN: Even without precise quantification, a specific SCN detailing the nature of discrepancies can be sufficient to raise a final demand, provided the assessee is given a fair chance to respond.

HIGH COURT OF ALLAHABAD

Mayank Mineral

State of U.P.

Arun Bhansali, CJ.
and Kshitij Shailendra, J.

WRIT TAX No. 1559 of 2025

MAY 7, 2025

Pooja Talwar for the Petitioner. Ankur Agarwal for the Respondent.

ORDER

1. This petition is directed against order dated 27.02.2025 passed by Assistant Commissioner, Jhansi under Section 73 of Uttar Pradesh Goods and Services Tax Act, 2017 (for short, ‘the Act’) inter alia raising demand pertaining to tax, interest and penalty to the tune of Rs. 52,48,621/-.

2. Petitioner was issued a show cause notice dated 29.11.2024 under Section 73 of the Act inter alia drawing attention of the petitioner towards the discrepancy between the declared data and the audit report on 13 points and the summary of show cause notice indicated a demand to the tune of Rs. 12,10,940.82/-.

3. The petitioner filed response to the said show cause notice, inter alia filing response to most of the issues as raised on merits and pointing out that as per Section 75(7) of the Act, the amount of tax, interest and penalty demanded in the order should not be in excess of the amount specified in the notice issued in Form DRC-01. Further plea was raised in respect of 2 issues wherein certain information was sought on which demand was likely to be created, that Section 73 of the Act does not deal with the submission or furnishing of documents by the tax payer to the officer and, therefore, on the said issues, it was required of the officer to drop the proceedings.

4. The Assistant Commissioner, after providing opportunity of hearing and dealing with all the aspects sought to be raised, accepted the plea on merits on 11 points out of 13 wherein under few points, the petitioner deposited the tax due along with interest/agreed to deposit the same and on point nos. 4 & 10, raised a demand of Rs. 52,48,621/-.

5. Submissions have been made by learned counsel for the petitioner that action of the respondents in raising the demand to the tune of Rs. 52,48,621/- whereas the notice issued was only for a sum of Rs. 12,10,940.82/-, is ex-facie contrary to the provisions of Section 75(7) of the Act and on the said count, the order impugned deserves to be quashed and set aside.

6. Further submissions were made that while issuing notice under Section 73 of the Act, on point nos. 4 & 10, the petitioner was required to produce documents, which demand/requirement by the officer is ex-facie contrary to the provisions of Section 73 of the Act and, therefore, as no demand could have been raised on the said aspects, the order impugned deserves to be quashed and set aside.

7. Learned Standing Counsel vehemently opposed the submissions. It was submitted that the plea sought to be raised pertaining to restricted power under Section 73 of the Act and purported inability of the officer in seeking production of documents is totally baseless. It was emphasized that in case a clarification is required based on the material available with the authority, the documents can always be demanded and determination can be made on the said basis.

8. Further submissions have been made that as the amount pertaining to point nos. 4 & 10 was yet to be determined, based on the documents to be produced, it cannot be said that in absence of quantifying the said amount in the show cause notice, the demand raised is in violation of provisions of Section 75(7) of the Act.

9. Further submissions were made that the Commissioner has passed a reasoned order in relation to point nos. 4 & 10 and in case the petitioner has any grievance qua the said determination, the remedy available is to file appeal under Section 107 of the Act and for not availing the said alternative remedy, no reason has been indicated in the writ petition and, therefore, the petition deserves dismissal.

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

11. A look at the notice issued under Section 73 of the Act would reveal that on point no. 4, the indications were made that as per the balance sheet, there were sundry creditors to the tune of Rs. 4,15,36,270/-, based on which the petitioner was required to produce the ledger account else, it was indicated that action in accordance with law would be taken.

12. Similarly, on point no. 10, based on the material available on portal, for Bill to Ship to transactions, the petitioner was required to produce details of invoices/Eway bills and further produce Eway bills in relation to tax invoices pertaining to the inward supply else, it was indicated that action accordance with law would be taken.

13. As noticed herein before, on the said aspects pertaining to point no. 4 and point no. 10, no response was given and objection was raised pertaining to the power to seek documents/information. The Assistant Commissioner by his determination made under Section 73(9) of the Act, dealt with the said aspects and raised demand.

14. Admittedly, despite specific demand raised pertaining to the documents/information as noticed herein before, nothing was produced and the same resulted in passing of the order impugned.

15. As the show cause notice was specific pertaining to the discrepancies noticed and had provided opportunity to produce documents, non quantification of the demand in the show cause notice and ultimately raising the demand while passing the order, cannot be said to be in violation of provisions of Section 75(7) of the Act inasmuch as once the discrepancy pertaining to the amount was pointed out, subject to production of documents, the determination made would always be treated as forming part of the notice.

16. The plea sought to be raised that under Section 73 of the Act, no documents can be determined, is ex-facie baseless. If the plea as sought is accepted, the indication made in point no. 4 pertaining to sundry creditors to the tune of Rs. 4,15,36,270/- without seeking further opportunities if the demand was raised, the same would have been in violation of principles of nature justice and the very fact that the petitioner choose not to supply the requisite material, essentially is an admission regarding the discrepancy as pointed out in the notice and, therefore, it cannot be said that either the documents cannot be demanded or on failure to produce documents, demand cannot be raised.

17. In view of above, both the pleas sought to be raised based on scope of Section 73 of the Act and violation of provisions of Section 75(7) of the Act, cannot be countenanced.

18. Learned counsel for the petitioner attempted to make submissions on the merit of the determination made on point no. 4 and 10 in the order impugned, for the said purpose the petitioner has to avail the remedy of appeal under Section 107 of the Act as pointed out by learned counsel for the respondent. Not a word has been indicated in the petition as to how the available remedy under Section 107 of the Act is not efficacious.

19. In view of above discussion, we do not find any reason to exercise our jurisdiction under Article 226 of the Constitution of India. The petition is, therefore, dismissed leaving it open for the petitioner to agitate the issue on merits before the appellate forum.

20. We make it clear that we have not examined the merits of the demand made and the submissions sought to be made by the petitioner on merits.