Demand Order Exceeding SCN Amount Quashed: Violation of Section 75(7) and Lack of Proper Hearing

Demand Order Exceeding SCN Amount Quashed: Violation of Section 75(7) and Lack of Proper Hearing

Issue:

Whether a demand order passed under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act), is valid if the demand raised in the order (tax, interest, and penalty) significantly exceeds the amount specified in the show cause notice (SCN), thereby violating Section 75(7) of the CGST Act, and if the assessee was unaware of the SCN due to its upload on a non-obvious portal tab and not being granted a personal hearing.

Facts:

For the period 2018-19, a show cause notice (SCN) was issued to the assessee under Section 73 of the CGST Act. The assessee contended that this SCN was uploaded on the “Additional Notices and Orders” tab on the GST portal, leading to their unawareness and inability to file a response. Subsequently, an impugned order was passed, raising a demand against the assessee.

The assessee submitted two critical points:

1. The demand of ₹68.07 lakhs in the impugned order was contrary to the SCN, which had sought to recover a demand of only ₹45.66 lakhs (tax, interest, and penalty combined).
2. In the SCN, while the date for filing a reply was mentioned, the column pertaining to the date of personal hearing indicated “NA” (Not Applicable), suggesting no personal hearing was granted.

Decision:

The court ruled in favor of the assessee. It held 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. In the present case, the show cause notice merely indicated an amount of ₹45,66,398/- as representing tax, interest, and penalty, while the demand for these three components had been raised at ₹68,07,953/-, which was ex facie (on the face of it) contrary to the provisions of Section 75(7).

Therefore, the impugned order was set aside for violation of Section 75(7), and the matter was remanded to provide an opportunity to the assessee to file a response to the SCN, effectively ensuring a proper hearing.

Key Takeaways:

• Mandatory Limit on Demand (Section 75(7)): This is the central point of the judgment. Section 75(7) is a crucial statutory safeguard that restricts the adjudicating authority from demanding tax, interest, or penalty in an order beyond the amount specified in the show cause notice. This prevents “surprise” demands significantly higher than what was initially alleged.
• Purpose of Show Cause Notice: The SCN serves to clearly inform the assessee of the specific allegations and the proposed demand, enabling them to file an effective reply and present their case. Demanding a much higher amount in the final order defeats this purpose.
• Violation of Natural Justice (Implied): While the court primarily focused on Section 75(7), the lack of proper intimation of the SCN (due to being on a “wrong tab”) and the absence of a personal hearing (indicated by “NA”) further contribute to a violation of natural justice. The remand direction to provide an opportunity to file a response confirms this.
• Consequences of Statutory Violation: A demand order passed in clear contravention of a mandatory statutory provision like Section 75(7) is fundamentally flawed and liable to be set aside.
• Remand for Proper Adjudication: The matter is remanded to ensure that the assessee is given a proper opportunity to respond to the original SCN (with the correct proposed demand amount in mind) and that the final order adheres to statutory limits.
• In Favour of Assessee: The outcome is highly beneficial to the assessee, as the entire demand order is quashed, and the process will restart with due adherence to procedural fairness and statutory limits.