2025 (7) TMI 790 - HC - GST

Demand raised contrary to SCN - violation of Section 75(7) of GST Act - HELD 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. Admittedly in the present case the show-cause notice merely indicates the amount of Rs. 23, 69, 062.50 as representing the tax interest and penalty and the demand qua the three components has been raised at Rs. 41, 84, 920/- which is ex facie contrary to the provisions of Section 75(7) of the Act. Thus on account of violation of provisions of Section 75(7) of the Act the order impugned cannot be sustained - the matter is remanded back to the respondent no. 2 to provide an opportunity to the petitioner to file response to the show-cause notice and after providing opportunity of hearing pass a fresh order in accordance with law - petition allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

- Whether the demand order dated April 5, 2025, raising a financial demand of Rs. 41,84,920/- against the petitioner, is valid in light of the show-cause notice issued under Section 74 of the Goods and Services Tax Act, 2017 (the Act) which specified a lesser amount of Rs. 23,69,062.50/- as tax, interest, and penalty;

- Whether the order passed by the respondent violates the provisions of Section 75(7) of the Act, which restricts the demand in the order to the amount and grounds specified in the show-cause notice;

- Whether the non-appearance and failure of the petitioner to respond to the show-cause notice and reminder justifies the passing of the demand order without further opportunity of hearing;

- Whether the imposition of interest and penalty not explicitly mentioned in the show-cause notice can be sustained under the statutory framework;

- Whether principles of natural justice have been complied with in the issuance and adjudication process leading to the demand order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the demand order vis-`a-vis the amount specified in the show-cause notice under Section 75(7) of the Act

Relevant legal framework and precedents: Section 75 of the Goods and Services Tax Act, 2017, governs the determination of tax and related demands. Sub-section (7) explicitly provides: "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." This provision safeguards the taxpayer from arbitrary or excessive demands beyond the scope of the notice.

Court's interpretation and reasoning: The Court noted that the show-cause notice dated November 20, 2024, specified a total demand of Rs. 23,69,062.50 covering tax, interest, and penalty. However, the impugned order dated April 5, 2025, raised a demand of Rs. 41,84,920/-, which substantially exceeds the amount indicated in the notice. This discrepancy was held to be a clear violation of Section 75(7), as the order demands an amount beyond that specified in the notice.

Key evidence and findings: The record shows that the petitioner was issued a show-cause notice and a subsequent reminder, but no response or appearance was made. Despite this, the authority proceeded to pass an order with a demand amount nearly double the amount specified in the notice.

Application of law to facts: Applying the statutory mandate of Section 75(7), the Court concluded that the excess demand in the order cannot be sustained. The law restricts the demand to the amount and grounds specified in the show-cause notice, and any deviation renders the order invalid.

Treatment of competing arguments: The respondents argued that charging interest and penalty is statutory and that the authority retains the power to demand these irrespective of their explicit mention in the show-cause notice. The Court, however, emphasized the clear language of Section 75(7) which curtails the demand to the notice's specified amount and grounds, thereby rejecting the respondents' contention.

Conclusion: The demand order is invalid to the extent it exceeds the amount specified in the show-cause notice and thus violates Section 75(7) of the Act.

Issue 2: Compliance with principles of natural justice and opportunity of hearing

Relevant legal framework and precedents: Principles of natural justice require that a person affected by an adverse order must be given a fair opportunity to present their case. Section 75 of the Act mandates issuance of a show-cause notice and opportunity to respond before passing a demand order.

Court's interpretation and reasoning: The petitioner did not file any reply to the show-cause notice nor appeared at the hearing fixed by the authority despite reminders. The respondents contended that non-appearance justified passing the order without further opportunity.

Key evidence and findings: The record confirms the issuance of the show-cause notice and reminder with specified dates for reply and hearing. The petitioner's failure to respond or appear was established.

Application of law to facts: Despite the petitioner's non-compliance, the Court found that the order passed was flawed due to the excess demand beyond the notice. The Court remanded the matter to the authority to provide the petitioner an opportunity to file a response and be heard before passing a fresh order in accordance with law.

Treatment of competing arguments: While the respondents argued that passing the order without further hearing was justified, the Court balanced this against the violation of Section 75(7) and held that a fresh opportunity must be provided.

Conclusion: The principles of natural justice require that the petitioner be given an opportunity to respond and be heard before a valid demand order is passed, particularly when the previous order is quashed for legal infirmity.

Issue 3: Authority's power to impose interest and penalty not explicitly mentioned in the show-cause notice

Relevant legal framework and precedents: Interest and penalty are statutory components under the GST regime, generally arising from tax defaults. However, Section 75(7) restricts the demand amount and grounds to those specified in the show-cause notice.

Court's interpretation and reasoning: The Court held that irrespective of the statutory nature of interest and penalty, the authority cannot demand amounts exceeding those specified in the notice. The notice in the instant case specified a combined amount for tax, interest, and penalty, and the order exceeded this aggregate amount.

Key evidence and findings: The notice specified Rs. 23,69,062.50 as the aggregate demand, which included tax, interest, and penalty. The order demanded Rs. 41,84,920/-, including tax and penalty components in excess of the notice.

Application of law to facts: The Court applied the statutory bar in Section 75(7) to hold that the authority's power to impose interest and penalty does not extend to amounts beyond those notified in the show-cause notice.

Treatment of competing