GST demand order exceeding SCN amount, including tax, interest, and penalty, is unsustainable under Section 75(7)

GST demand order exceeding SCN amount, including tax, interest, and penalty, is unsustainable under Section 75(7) and must be set aside and remanded.

Issue:

Whether a demand order passed under the Central Goods and Services Tax Act, 2017 (CGST Act, 2017), can confirm a demand for tax, interest, and penalty that is significantly in excess of the total amount specified in the original show-cause notice (SCN), thereby violating Section 75(7) of the Act.

Facts:

• For the period July 2017 to March 2018, the petitioner (assessee) was issued a show-cause notice (SCN) in Form GST DRC-01.
• The SCN explicitly called upon the petitioner to show cause as to why tax, penalty, and interest to the tune of Rs. 8,81,080 should not be imposed.
• The petitioner apparently did not file any response to this SCN.
• Subsequently, an order was passed raising a total demand of Rs. 32,97,336.
• The petitioner contended that the respondents’ action of raising a demand that included penalty and interest, which was substantially higher than the amount specified in the SCN, was contrary to the SCN and in violation of Section 75(7) of the CGST Act.

Decision:

The court held in favor of the assessee. It ruled that Section 75(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 grounds other than those specified in the notice. The court found that, admittedly, in the present case, the SCN merely indicated a total amount of Rs. 8,81,080 for tax, interest, and penalty, whereas the demand for these three components had been raised at Rs. 32,97,336. This was found to be ex facie (on the face of it) contrary to the provisions of Section 75(7). On account of this clear violation, the impugned order could not be sustained. The matter was remanded back to pass a fresh order.

Key Takeaways:

• Principle of Ad Idem (Same as): A fundamental principle of natural justice and statutory compliance is that the final demand order cannot exceed the scope or amount proposed in the show-cause notice (SCN). The SCN serves as the foundation for the demand, giving the assessee an opportunity to respond to specific allegations and proposed liabilities.
• Section 75(7) of CGST Act: This section explicitly enshrines this principle by stating: “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 grounds other than the grounds specified in the notice.”
• Mandatory Nature of Section 75(7): The court’s decision highlights that this provision is mandatory. Any deviation from the amounts specified in the SCN, without a proper revised SCN, renders the final order unsustainable to the extent of the excess.
• Consequence of Violation: A demand order that violates Section 75(7) is procedurally invalid. The appropriate remedy, as decided by the court, is to set aside the order and remand the matter for fresh adjudication. This allows the tax authority to issue a proper SCN with the correct amounts and allow the assessee to respond, ensuring due process.
• Even No Reply Doesn’t Validate Excessive Demand: The fact that the petitioner did not file a response to the SCN did not negate the violation of Section 75(7). The demand itself, being beyond the SCN, was fundamentally flawed.