Assessment and DRC-7 Exceeding SCN Scope and Rejection of GST Cancellation Pending Dues Are Untenable

By | October 6, 2026
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Assessment and DRC-7 Exceeding SCN Scope and Rejection of GST Cancellation Pending Dues Are Untenable
Issue
Whether an assessment order and Summary of Order (Form GST DRC-7) that quantify tax demands beyond the scope proposed in the Show Cause Notice (SCN) and fail to record appropriations of tax already paid are legally sustainable, and whether an application for cancellation of GST registration on grounds of business discontinuation can be rejected solely due to pending outstanding demands.
Facts
  • SCN & Assessment Order:
    • The Show Cause Notice (SCN) originally proposed a tax demand of approximately ₹1.36 lakh against the petitioner.
    • The petitioner had belatedly paid approximately ₹47.57 lakh towards IGST through Form GSTR-3B, which was duly recorded in the detailed assessment order dated August 30, 2024.
    • However, the detailed assessment order quantified tax demands far exceeding the amount proposed in the SCN and appropriated the belated IGST payment towards the confirmed tax.
    • The corresponding Summary of Order in Form GST DRC-7 failed to record the appropriation of ₹47.57 lakh, confirmed the entire unappropriated demand, and contained determinations beyond the SCN’s scope.
    • The petitioner invoked writ jurisdiction challenging both the assessment order and Form GST DRC-7.
  • GST Registration Cancellation:
    • The petitioner applied for cancellation of GST registration on September 27, 2025, citing discontinuation of business.
    • The Department rejected the cancellation application solely on the ground of existing outstanding tax demands.
    • The petitioner filed a writ petition contending that discontinuation of business is a valid statutory ground for cancellation and that dues can be legally recovered even post-cancellation.
Decision
  • Demand Beyond SCN:
    • The High Court found that both the assessment order and Form GST DRC-7 travelled beyond the scope of the original SCN.
    • The failure of Form GST DRC-7 to reflect the recorded appropriation of ₹47.57 lakh was held to be improper.
    • Subject to the petitioner remitting 50% of the original tax demand of ₹1.36 lakh, the assessment order was set aside, and the matter was remanded for fresh adjudication following a new SCN.
  • Cancellation of Registration:
    • The Court held that discontinuation of business is a specific statutory ground for cancellation under Section 29 of the CGST/TNGST Act.
    • Tax authorities can proceed with recovery of outstanding amounts even after registration is cancelled; hence, rejecting cancellation solely due to pending dues is legally untenable.
    • The order rejecting the cancellation application was set aside, and the authorities were directed to reconsider the application in accordance with law.
Key Takeaways
  • Boundaries of SCN (Section 75): Adjudicating authorities cannot travel beyond the scope or amounts proposed in the Show Cause Notice; any demand determined outside the SCN parameters violates principles of natural justice and statutory provisions.
  • Accurate Record of Appropriations: Summary orders in Form GST DRC-7 must accurately reflect payments and appropriations recorded in the detailed assessment order rather than issuing inflated demand notices.
  • Post-Cancellation Recovery (Section 29): Pendency of tax dues is not a valid ground to refuse cancellation of GST registration when business has been discontinued, as the law explicitly empowers authorities to recover liabilities post-cancellation.
HIGH COURT OF MADRAS
Safelane Agencies
v.
Superintendent of GST and C.Ex
Senthilkumar Ramamoorthy, J.
WP Nos. 23824 and 23848 of 2026
WMP. Nos. 25852, 25855, 25857 and 25892 of 2026
SEPTEMBER  17, 2026
K.G. Jayasuriya for the Petitioner. Su. Srinivasan, Sr. Standing Counsel and C. Mohan for the Respondent.
ORDER
1. By these two writ petitions, assessment order dated 30.08.2024 and order dated 09.12.2025 rejecting the petitioner’s application for cancellation of GST registration are challenged.
2. Adverting to show cause notice dated 29.05.2024, learned counsel for the petitioner submits that said show cause notice only deals with a tax proposal of Rs.1,35,676/-, whereas the impugned detailed order travels beyond the show cause notice. With reference to the DRC 7, learned counsel submits that the DRC 7 also fails to take note of payments made by the petitioner in a sum of Rs.47,57,105/- towards IGST, which was taken note of in the detailed order. Without prejudice, learned counsel submits that the petitioner agrees to remit 50% of the demand of Rs.1,35,676/- in the show cause notice as a condition for remand. An endorsement has been made on the bundle to that effect.
3. Comparing the show cause notice with the impugned assessment orders, it is evident that both the detailed order and the DRC 7 travel beyond the scope of the show cause notice. The detailed order records that a sum of Rs.47,57,105/-, which was paid through the GSTR 3B belatedly, is appropriated towards the confirmed tax demand. The DRC 7 does not take note of this and, therefore, confirms the entire demand. In these circumstances, subject to the petitioner remitting 50% of the tax demand of Rs.1,35,676/-, the impugned assessment order is set aside and the matter is remanded for reconsideration. After issuing a fresh show cause notice, the respondent shall dispose of the matter in accordance with law. Subject to fulfillment of the above condition, the bank attachment relating to the impugned order shall be raised.
4. The petitioner had applied for cancellation of the registration on 27.09.2025 for reason that the petitioner had discontinued the business. Said application was rejected on the ground that there is an outstanding tax demand against the petitioner.
5. As submitted by learned counsel for the petitioner, discontinuation of business is one of the grounds for seeking cancellation under Section 29(1)(a). Even if such application were to be allowed, as per sub-section (3) of Section 29, it is open to respondents 1 to 3 to initiate proceedings to recover any outstanding amounts. Hence, the order of rejection is untenable and is set aside. As a consequence, respondents 1 to 3 are directed to re-consider the petitioner’s application for cancellation in accordance with law. Both these writ petitions are disposed of on these terms without any order as to costs. Consequently, connected miscellaneous petitions are closed.