Tax Demand Exceeding SCN Proposals and Ignoring Exemption

Tax Demand Exceeding SCN Proposals and Ignoring Exemption Pleas Is Unsustainable and Liable to Be Quashed

Issue

Whether an adjudication order under the GST Act is legally sustainable if it confirms a tax demand vastly exceeding the amount proposed in the Show Cause Notice (SCN) and completely fails to consider the assessee’s specific statutory exemption claims.

Facts

Context: The Petitioner, a Limited Liability Partnership (LLP), provided project management consultancy services to State Government bodies and local authorities during the financial year 2021-22.
Scrutiny & SCN: The case was selected for scrutiny under the Maharashtra Goods and Services Tax (MGST) Act due to a mismatch between TDS in GSTR-7 and turnover in GSTR-3B. Consequently, an SCN dated June 18, 2025, was issued, proposing an unpaid tax liability of approximately Rs. 57.56 lakh based on a TDS turnover of around Rs. 3.20 crore.
Petitioner’s Reply: On July 16, 2025, the petitioner filed a detailed reply asserting there was no mismatch, and specifically claimed a tax exemption for services rendered to government bodies under Notification No. 12/2017 dated June 28, 2017.
Adjudication Order: Following a hearing, the adjudicating authority issued an order dated December 26, 2025, raising a total liability of approximately Rs. 2.06 crore (including tax, interest, and penalty). The authority also completely omitted any consideration of the petitioner’s exemption plea.
Writ Action: The petitioner challenged both the SCN and the final adjudication order through a Writ Petition before the High Court.

Decision

Excess Demand Violates Section 75: The High Court held that under the statutory provisions governing the determination of tax (Section 75 of the CGST/MGST Act), the final tax, interest, and penalty confirmed in an order cannot exceed the amount specified in the notice, nor can a demand be confirmed on grounds beyond those stated in the SCN.
Quashing Due to Monetary Discrepancy: Since the SCN proposed a demand of Rs. 57.56 lakh but the final order imposed a liability of Rs. 2.06 crore, the order directly violated statutory boundaries and was deemed entirely unsustainable.
Failure to Consider Exemption: The Court further noted that the adjudicating authority completely ignored the petitioner’s valid contention regarding the exemption under Notification No. 12/2017, making the order flawed on merits as well.
Final Relief: The High Court quashed both the SCN and the adjudication order, ruling in favor of the assessee. The matter was remanded back to the authority for a fresh, merits-based consideration after providing a fair opportunity of being heard.

Key Takeaways

1. Strict Adherence to the SCN: An adjudication order cannot go beyond the scope of its preceding Show Cause Notice. The quantified demand in the final order is strictly capped by the amount proposed in the SCN.

2. Mandatory Evaluation of Submissions: Adjudicating authorities are legally bound to deal with and evaluate all defenses raised by the taxpayer, particularly statutory exemption notifications. Ignoring such claims violates the principles of natural justice.

3. Section 75 Safeguards: Section 75 of the CGST/MGST Act acts as a shield for taxpayers against arbitrary escalations of tax demands during the adjudication phase.

HIGH COURT OF BOMBAY

Yash Innovative Solution LLP

Joint Commissioner Goods and Services Tax and State Taxation^*

Nitin B. Suryawanshi and VAISHALI PATIL JADHAV, JJ.

WRIT PETITION NO. 4163 OF 2026

APRIL 20, 2026

Sikchi Aditya N., Adv. for the Petitioner. P.K. Lakhotiya, AGP for the Respondent.

JUDGMENT

Nitin B. Suryawanshi, J. – Rule. Rule made returnable forthwith and heard finally with the consent of parties.

2. This petition, filed under Article 226 of the Constitution seeks following prayers :

“A. The Hon’ble High Court may be pleased to issue appropriate writ, order or direction in the nature of writ and thereby quash and set aside the impugned order dated 26.12.2025 passed by the Respondent No.2 under Section 73 (1) of the Maharashtra Goods and Services Tax Act, 2017 for the Financial Year 2021-22.

B. The Hon’ble High Court may be pleased to issue appropriate writ, order or direction in the nature of writ and thereby quash and set aside the show cause notice dated 18.06.2025 issued by the Respondent No.2 under Section 73 (1) of the Maharashtra Goods and Services Tax Act, 2017 for the Financial Year 2021-22.”

3. The petitioner is a Limited Liability Partnership which is providing project management consultancy services to the Maharashtra Jeevan Pradhikaran, Maharashtra State Road Transport Corporation, local municipal bodies and various other Government institutions for the purpose of water sewage, solid waste management, roads and other incidental and ancillary consultancy. The petitioner’s case was selected for scrutiny under Section 61 of the MGST Act and accordingly, notice dated 07.05.2024 was issued to the petitioner for difference of the return deducted under GSTR 7 by the tax deductor and turnover shown by the petitioner under Form GSTR 3B.

The petitioner submitted its reply along with its supporting documents demonstrating that there was no mismatch and that the services provided by the petitioner were exempted from tax.

Thereafter a show cause notice dated 18.06.2025 was issued to the petitioner stating that the TDS turnover as per GSTR 2A returns was Rs. 3,19,75,708/- and the unpaid tax on the same was Rs. 57,55,627/-.

The petitioner replied the show cause notice on 16.07.2025 explaining that the services provided by the petitioner to the Municipal Corporation, Aurangabad was due to misconception. The petitioner also gave the details of GST paid on taxable services provided by it.

By the impugned adjudication order dated 26.12.2025, tax liability of Rs. 2,06,46,142/- including interest and penalty is imposed on the petitioner. Hence, the present petition.

4. Thereafter, after hearing the petitioner, adjudication order was passed on 26.12.2025 thereby directing the petitioner to pay the total amount of Rs. 2,06,46,142/-. Petitioner is aggrieved by the show cause notice and the adjudication order.

5. Heard learned advocate for the petitioner. He assailed the show cause notice and the impugned adjudication order stating that both are issued in utter violation of principles of natural justice and both are without jurisdiction. In support of his submission, reliance is placed on the decisions of Division Bench judgment of Allahabad High Court and Single Bench decision of Madras and Karnataka High Court.

6. Learned AGP for the respondents has strenuously opposed the petition arguing that the petitioner has alternate and efficacious remedy of filing appeal under Section 107 of the CGST Act and therefore, according to him the petition should not be entertained. He further submits that opportunity of hearing was given to the petitioner and therefore, there is no merit in the submission of the petitioner that principles of natural justice are not followed.

7. In reply to the ground of maintainability of the writ petition, learned advocate for the petitioner has relied upon Godrej Sara Lee Ltd. v. Excise and Taxation Officer-cum-Assessing Authority AIR 2023 SC 781.

8. Heard learned advocate for the petitioner and learned AGP at length. Perused the record and the citations relied upon.

9. In Godrej Sara Lee Ltd. (supra) the Apex Court on the point of maintainability of the writ petition, wherein alternate efficacious remedy is available, has held that;

“6. At the end of the last century, this Court in paragraph 15 of the its decision reported in (1998) 8 SCC 1 (Whirlpool Corporation v. Registrar of Trade Marks, Mumbai and Others) carved out the exceptions on the existence whereof a Writ Court would be justified in entertaining a writ petition despite the party approaching it not having availed the alternative remedy provided by the statute. The same read as under:

(i)

where the writ petition seeks enforcement of any of the fundamental rights

(ii)

where there is violation of principles of natural justice;

(iii)

where the order or the proceedings are wholly without jurisdiction; or

(iv)

where the vires of an Act is challenged.”

10. In the decisions relied upon by the petitioner, it is held that, “Section 75 of the said Act 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.” We are in respectful agreement with the aforesaid proposition.

11. Applying this ratio to the facts of the present case, it is clear that in the impugned notice a demand of Rs. 57,55,627.44/- is made to the petitioner. In the impugned adjudication order, a liability of payment of Rs. 2,06,46,142/- which includes tax plus interest plus penalty is imposed on the petitioner.

12. Since the same is contrary to the provision sub-Section (7) of Section 75, the impugned notice and the adjudication order cannot be sustained in the facts of the present case.

13. Another ground raised by the petitioner in reply to the show cause notices that petitioner is rendering services to the State Government or Government Undertaking or Corporation, etc. which are exempted and therefore as per Notification No. 12/2017 dated 28.06.2017, it is exempted from paying the taxes under Section 11(1) of the CGST Act, is not considered by the respondent while passing the impugned adjudication order. The impugned order is unsustainable on this ground also.

14. In the result, Writ Petition succeeds. The impugned show cause notice dated 18.06.2025 as well as the impugned order dated 26.12.2025 are hereby quashed and set aside.

15. The matter is remanded back to respondent No. 2 for consideration on merits in accordance with law after giving opportunity of hearing to the petitioner. The said exercise shall be completed within eight (8) weeks from the date of receipt of copy of this order.

16. Respondents are permitted to issue additional demand notice to the petitioner.

17. Rule is made absolute in the above terms.

18. The Writ Petition is disposed of.