2025 (7) TMI 331 - HC - GST

Demand of tax and penalty raised contrary to the SCN issued to the petitioner - beyond the scope of SCN - violation of Section 75(7) of GST Act - HELD THAT - A perusal of Section 75(7) 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. Admittedly in the present case the show-cause notice merely indicates the amount of Rs. 4, 80, 527.36 as representing the tax interest and penalty and the demand qua the three components has been raised at Rs. 24, 40, 363.10 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 order dated April 27 2024 (Annexure-1) is quashed and set aside and 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:

(a) Whether the order dated April 27, 2024, raising a demand of Rs. 24,40,363.10 against the petitioner, is valid in light of the show-cause notice issued under Section 73 of the Goods and Services Tax Act, 2017, which specified a demand of only Rs. 4,80,527.36;

(b) Whether the demand raised in the order exceeds the amount specified in the show-cause notice, thereby violating the provisions of Section 75(7) of the Goods and Services Tax Act, 2017;

(c) Whether the imposition of interest and penalty, which were not explicitly quantified in the show-cause notice, can be sustained in the final demand order;

(d) Whether the principles of natural justice were complied with, given that the petitioner did not respond to the show-cause notice or appear at the hearing despite reminders;

(e) Whether the order impugned should be quashed and the matter remanded for fresh adjudication after providing an opportunity of hearing.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Validity of the demand order vis-`a-vis the show-cause notice and Section 75(7) of the GST Act

The relevant legal framework is Section 75 of the Goods and Services Tax Act, 2017, particularly sub-section (7), which states:

"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 imposes a statutory limitation on the quantum of demand that can be raised in the adjudication order compared to the show-cause notice. The rationale is to ensure fairness and to prevent the tax authorities from exceeding the scope of the notice, thereby violating principles of natural justice.

In the present case, the show-cause notice dated January 30, 2024, specified a demand of Rs. 4,80,527.36, encompassing tax, interest, and penalty. However, the impugned order dated April 27, 2024, raised a demand of Rs. 24,40,363.10, which is substantially higher than the amount mentioned in the notice.

The Court observed that this discrepancy is ex facie contrary to the express mandate of Section 75(7). The order thus demands an amount beyond the scope of the notice, which is impermissible under the statutory scheme.

The Court's reasoning emphasized that adherence to the limits prescribed in Section 75(7) is mandatory and non-negotiable, serving as a safeguard against arbitrary or excessive demands.

Issue (c): Imposition of interest and penalty not specified in the show-cause notice

The petitioner contended that the order includes tax and penalty amounts which were not indicated in the show-cause notice, thereby violating Section 75(7). The respondent argued that interest and penalty are statutory charges and can be levied irrespective of their explicit mention in the notice.

The Court analyzed this contention in light of the statutory provisions and principles of natural justice. While interest and penalty are indeed statutory, Section 75(7) requires that the amount of tax, interest, and penalty demanded in the order should not exceed the amount specified in the notice.

The Court held that the statutory nature of interest and penalty does not override the specific procedural safeguard in Section 75(7). The authority cannot bypass the requirement of quantifying these amounts in the show-cause notice and then demand a higher amount in the order.

This interpretation ensures that the taxpayer is adequately informed of the extent of liability and can prepare a meaningful defense, thus upholding the principles of fair hearing.

Issue (d): Compliance with principles of natural justice

The respondent submitted that since the petitioner failed to respond to the show-cause notice or appear at the hearing despite reminders, the order cannot be challenged on grounds of violation of natural justice.

The Court acknowledged that the petitioner did not file any reply nor appeared despite reminders. However, the Court emphasized that the procedural safeguards enshrined in the statute, including the requirement that the demand not exceed the amount in the notice, are independent of the petitioner's participation.

The Court reasoned that natural justice requires that the notice itself be valid and within statutory limits. An order passed in violation of statutory provisions cannot be sustained merely because the petitioner did not participate.

Therefore, the failure of the petitioner to respond does not cure the statutory violation committed by the authority in exceeding the amount specified in the notice.

Issue (e): Quashing of the order and remand for fresh adjudication

Given the violation of Section 75(7), the Court concluded that the impugned order could not be sustained. The appropriate remedy was to quash and set aside the order dated April 27, 2024, and remit the matter back to the adjudicating authority.

The Court directed the authority to provide the petitioner an opportunity to file a response to the show-cause notice and to pass a fresh order in accordance with law, strictly adhering to the limits prescribed by Section 75(7) and ensuring compliance with principles of natural justice.

3. SIGNIFICANT HOLDINGS

The Court held:

"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 core principle under Section 75(7) was reiterated as mandatory and non-derogable, serving as a crucial safeguard for taxpayers against excessive or arbitrary demands.

The Court conclusively determined that the impugned order, which raised a demand substantially exceeding the amount specified in the show-cause notice, was invalid and unsustainable.

Furthermore, the Court clarified that the statutory nature of interest and penalty does not permit the authority to circumvent the procedural requirement of specifying these amounts in the notice.

Finally, the Court emphasized that non-participation by the petitioner does not validate an order that violates statutory provisions and principles of natural justice.

Accordingly, the order dated April 27, 2024 was quashed and set aside, and the matter was