GST Assessment Quashed: Ex-Parte Order Based on Unaware Assessee and Demand Exceeding SCN Amount

Issue:

Whether an ex-parte assessment order creating a tax liability is valid when the assessee claims unawareness of the underlying notices (under Sections 61 and 73) due to lack of intimation, and the demand raised in the order exceeds the amount specified in the show cause notice, thereby violating Section 75(7) of the Central Goods and Services Tax Act, 2017.

Facts:

The assessee claimed that they were unaware of notices issued under Section 61 (scrutiny of returns) and Section 73 (demand for tax not involving fraud, etc.) of the GST Act. This unawareness was attributed to the notices being uploaded on the departmental portal without any specific intimation to the assessee. Subsequently, the revenue passed an ex-parte order under Section 73(9) of the GST Act, creating a significant tax liability of ₹48,57,213.68. The assessee contended that this order was contrary to the show cause notice (SCN) and specifically violated Section 75(7) of the GST Act, which stipulates that the demand raised in an order should not exceed the amount specified in the SCN.

Decision:

The court ruled in favor of the assessee. The orders dated August 8, 2024, and May 30, 2024 (presumably the ex-parte order and any related communication), were quashed. The matter was remanded back to the Deputy Commissioner with a direction to provide the assessee an opportunity to file a response to the show cause notice within four weeks. Following this, the Deputy Commissioner was instructed to pass a fresh order after providing a hearing opportunity to the assessee. The writ petition was allowed.

Key Takeaways:

Effective Service of Notice: Merely uploading notices on the departmental portal without ensuring proper intimation or actual knowledge to the assessee can be a ground for challenging an ex-parte order, especially when it leads to a denial of natural justice.
Violation of Natural Justice: Passing an ex-parte order without ensuring the assessee was aware of the proceedings and had a reasonable opportunity to respond constitutes a violation of the principles of natural justice (audi alteram partem).
Adherence to Show Cause Notice Amount (Section 75(7)): Section 75(7) of the CGST Act is a crucial safeguard. It explicitly states that “The amount of tax, interest and penalty demanded in the order shall not exceed the amount specified in the notice.” A demand order exceeding the SCN amount is a fundamental legal infirmity.
Consequences of Procedural Infirmities: When a demand order suffers from fundamental procedural flaws (like denial of opportunity of hearing and exceeding SCN amount), courts are likely to quash the order and remand the matter for fresh adjudication.
Remand for Fresh Adjudication: The direction to the Deputy Commissioner to allow the assessee to file a response and grant a personal hearing ensures that the principles of natural justice are upheld and a fair assessment is conducted.
Writ Jurisdiction: The High Court exercised its writ jurisdiction to correct a clear case of arbitrary action and procedural non-compliance by the revenue authorities.

HIGH COURT OF ALLAHABAD

Raksha Enterprises

State of U.P.

Arun Bhansali, CJ.
and Kshitij Shailendra, J.

WRIT TAX No. – 1864 of 2025

APRIL 28, 2025

Akhil Agnihotri, for the Petitioner.

ORDER

1. This petition is directed against orders dated 08.08.2024 and 30.05.2024 passed by the Deputy Commissioner, Commercial Tax Department, Sector-1, Auraiya under Section 73(9) and Section 161 of the Goods and Services Tax Act, 2017 (for short, ‘the Act’) respectively.

2. Submissions have been made that the petitioner was issued notice under Section 61 of the Act intimating discrepancies in the return after scrutiny on 30.11.2023. The petitioner did not file any reply to said notice being unaware of issuance of the same, as the same was uploaded on the Portal of the Department, resulting in issuance of notice under Section 73 of the Act on 30.05.2024. In the said notice, the reply was to be filed by 29.06.2024 and date of personal hearing was indicated as 05.07.2024. The petitioner did not file reply to the said notice as well, resulting in passing of the order impugned dated 08.08.2024 under Section 73 of the Act creating a liability of Rs. 48,57,213.68.

3. It is further submitted that the order passed is contrary to show cause notice and in violation of Section 75(7) of the Act, inasmuch as the demand raised is much beyond the show cause notice. In S R Construction v. State of U.P.: Writ Tax no. 1407 of 2025, this Court, inter alia, on the said aspect, came to the following conclusions:

“7. 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.”

8. 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.

9. Admittedly, in the present case, the show-cause notice merely indicates the amount of Rs. 28,15,200/- as representing the tax, interest and penalty and the demand qua the three components has been raised at Rs. 59,27,500/-, which is ex facie contrary to the provisions of Section 75(7) of the Act.

10. So far as the plea pertaining to not providing any opportunity of hearing is concerned, once it is the case of the petitioner that he was unaware of the issuance of the show-cause notice and the reminder, the fact that in the notices issued to the petitioner, the date of filing of reply and date of personal hearing were the same looses its significance and it cannot be said that on account of such indications, the notice, on its own, would stand vitiated.

11. 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.”

4. Further in the case of M/s Hari Shanker Transport v. Commissioner of Commercial Tax U.P. Lucknow and another: Writ Tax No. 606 of 2025, this Court, after hearing the parties, came to the following conclusion:

“7. A bare look at the order impugned dated 27.04.2024 passed under Section 73(9) of the Act reveals that the same only makes reference to issuance of two notices, the fact that they have not been responded to, and a demand has been raised.

8. The manner of passing of order dated 27.04.2024 falls foul of the requirements of Section 75(6) of the Act, which requires that ‘the proper officer, in his order shall set out the relevant facts and the basis of his decision’, the statutory requirements for passing an order by setting out relevant facts and basis for the decision are totally missing from the order dated 27.04.2024. Even if no response was filed to the notices issued under Sections 61 and 73 of the Act, it was incumbent on respondent no.2 to pass an order in compliance of the provisions of Section 75(6) of the Act, as a final order should be self contained and merely making reference to the previous notices while passing the said order does not suffice for making it a self contained order.

9. Consequently, the petition is allowed. The order dated 27.04.2024 (Annexure-6 to the writ petition) is quashed and set aside. The matter is remanded back to respondent no.2/Deputy Commissioner, State Tax, Sector-3, Sonbhadra to provide an opportunity of filing response to the show cause notice issued under Section 73 of the Act to the petitioner, which response shall be filed within a period of four weeks from today and thereafter, after providing opportunity of hearing, a fresh order in accordance with law be passed.”

5. In view of law as laid down in M/s Hari Shanker Transport (supra) and M/s S R Construction (supra), the petition is allowed. The orders dated 08.08.2024 and 30.05.2024 (Annexure-1 & 2 to the writ petition) are quashed and set aside. The matter is remanded back to respondent no.2/Deputy Commissioner, Commercial Tax Department, Sector-1, Auraiya to provide an opportunity of filing response to the show cause notice issued under Section 73 of the Act to the petitioner, which response shall be filed within a period of four weeks from today and thereafter, after providing opportunity of hearing, a fresh order in accordance with law be passed.