GST Demand for Already-Paid Tax Quashed; Recovery Limited to Interest Proposed in SCN.

Issue

Can the GST department issue a final demand order (DRC-07) and initiate coercive recovery (bank attachment) for a principal tax amount, when the preceding Show Cause Notice (SCN) explicitly stated that the tax had already been paid and only proposed a demand for the applicable interest?

Facts

The GST department issued a Show Cause Notice (SCN) in FORM DRC-01 to the petitioner.
The SCN itself clearly recorded that the petitioner had already paid the principal CGST and SGST amounts.
Consequently, the SCN only proposed a demand for the interest due on the delayed tax payment.
However, the final demand notice (DRC-07) and the subsequent bank account attachment sought to recover the principal tax amount all over again, in addition to the interest.
The petitioner challenged this action, and the Government Advocate, in court, acknowledged the error.

Decision

The High Court ruled in favour of the assessee (with modification).
It held that the demand for the recovery of the already-paid tax was prima facie unsustainable as it was in direct contradiction to the proposal in the SCN.
The court confirmed that this action violated the principles of natural justice and statutory provisions (like Section 75) which prohibit a final order from going beyond the SCN.
The consequential bank attachment was held to be invalid.
The court, however, upheld the demand for the interest component, as this was correctly proposed in the SCN.
It directed the department to recover only the confirmed interest from the petitioner’s account and to lift the attachment.

Key Takeaways

SCN Sets the Maximum Limit: The final order cannot demand anything more than what was proposed in the SCN. If the SCN admits the tax is paid, the final order cannot demand that tax again.
Violation of Natural Justice: Demanding an amount not included in the SCN is a clear violation of the principles of natural justice, as the taxpayer was never given an opportunity to defend against that demand.
Invalid Order = Invalid Recovery: Since the demand for the principal tax was invalid, the consequential recovery action (bank attachment) was also held to be invalid.
Partial Relief: The court can quash the invalid portion of a demand (the tax) while upholding the valid portion (the interest) that was correctly proposed in the SCN.

HIGH COURT OF MADRAS

Tvl.Sri Balaji Sago Products

State Tax Officer^*

C.Saravanan, J.

W.P. No. 40615 of 2025
W.M.P. Nos. 45540, 45543 & 45545 of 2025

OCTOBER 28, 2025

K.A. Parthasarathy for the Petitioner. Ms. Amirtha Poonkodi Dinakaran, Government Advocate (For R1) for the Respondent.

ORDER

1. Ms.Amirtha Poonkodi Dinakaran, learned Government Advocate, takes notice for the 1^st respondent.

2. With the consent of the learned counsel for the Petitioner and learned Government Advocate for the 1^st respondent, this Writ Petition is being disposed of at the time of admission.

3. In this writ petition, the petitioner has challenged the impugned recovery proceedings of the first respondent dated 31.12.2023, pursuant to Show Cause Notice dated 12.04.2023.

4. A reading of the Show Causes Notice, indicates that the petitioner had already paid the tax due for a sum of Rs.4,99,223/- each towards CGST and SGST. The total interest due from the petitioner was calculated at Rs.14,786.24. However, in the impugned recovery notice, the tax paid by the petitioner, on which the aforesaid interest has been calculated, has also been demanded.

5. This case was heard and thereafter adjourned for the learned Government Advocate for the 1^st respondent to ascertain, whether there was any error in the calculation of the demand in the impugned recovery proceedings dated 31.12.2023.

6. The learned Government Advocate for the 1^st respondent confirms that there appears to be an error, inasmuch as only the interest was proposed in DRC-01 dated 12.04.2023. However, in the impugned order, that amount has also been demanded, though the tax amount appears to have been already paid by the petitioner.

7. The learned counsel for the petitioner submitted that the petitioner will discharge the interest liability of Rs.14,786/- immediately. Hence, prays for vacating the attachment of the petitioner’s Bank account vide communications dated 04.09.2025.

8. Having considered the submissions made by the learned counsel for the petitioner and the learned Government Advocate for the 1^st respondent, I am of the view that prima facie the demand quantified in DRC-07 dated 31.12.2023, seeking to recover the tax that has been already paid is unsustainable. Hence it is sustainable. Consequently, the attachment of the petitioner’s Bank account with the second respondent Bank is unsustainable.

9. Under these circumstances, there shall be a direction to the 1^st respondent to recover the interest component which was confirmed vide order dated 31.12.2023 directly from the petitioner’s account and raise the order of attachment forthwith.

10. This Writ Petition stands disposed of with the above observations.

Consequently, the impugned order dated 31.12.2023 stands modified to the aforesaid extent. No costs. Connected Writ Miscellaneous Petitions are closed.