GST Demand in Final Order Must Not Exceed or Go Beyond SCN Grounds: High Court
The current judgment titled M/S Pavan Traders Vs. State of U.P. and Another belongs to Allahabad High Court (Neutral Citation No. 2025:AHC:103880-DB), decided by a division bench comprising Justice Shekhar B. Saraf and Justice Praveen Kumar Giri. The writ petition (WRIT TAX No. 1258 of 2025) is being filed by M/S Pavan Traders (petitioner), represented by Advocate Aditya Pandey, while the State (respondents) was represented by the Standing Counsel (C.S.C.).
The petitioner filed this petition to challenge an order passed by the tax department (Respondent No. 2) dated April 27, 2024. The order belonged to the financial year 2018-19, raising the demand of Rs. 24,40,363.10 to the petitioner (which included tax, interest, and penalty).
Background of Case:
- The matter began when the department (respondent) issued a Show Cause Notice (SCN) against the petitioner under Section 73 of the GST Act, 2017, on January 30, 2024, using form GST DRC-01. The notice asked the petitioner why the demand order worth Rs. 4,80,527 (including tax, interest, and penalty) should not be issued.
- However, the petitioner does not respond to the notice. The department again reminds the petitioner on April 16, 2024, about the SCN, awarding them a final chance to reply and appear before the authority till April 20, 2024. But the petitioner neither replied to the notice nor appeared before the authority.
- Therefore, on April 27, 2024, the department issued a final order, demanding Rs. 24,40,363.10, a much higher amount than the initial one mentioned in the show-cause notice.
Petitioner’s Argument:
- The Learned counsel of the petitioner, Aditya Pandey, argued that the final order was illegal and violated Section 75(7) of the GST Act, which says the final order cannot demand more in comparison to the initial show cause notice, and it must be based on the same reasons mentioned in that notice.
- However, in this case, the department asked for a much higher amount, i.e., Rs 24.4 lakhs in the final order, even though the initial notice demanded just Rs 4.8 lakhs. This increase is not allowed under the law, and therefore, the order should be quashed and sent back to the department for fresh decision-making.
Respondent’s Argument:
- The Standing Counsel for the government (respondent) argued that the petitioner should be given a fair chance to respond, with both an initial notice and a reminder. Since the petitioner ignored both and didn’t participate, the department had no choice but to pass the order. They also argued that interest and penalty are statutory liabilities, so even if they were not mentioned clearly in the notice, they can still be demanded.
Court’s Observation:
The high court made the following observations:
- The High Court closely examined Section 75(7) of the GST Act, which clearly states that the amount finally demanded cannot be more than the amount stated in the show-cause notice.
- Additionally, the reasons for the final order must align with the reasons stated in the initial notice.
- In this case, it is clear that the notice only mentioned Rs. 4.8 lakhs, but the final order asked for Rs. 24.4 lakhs, which is a great violation of Section 75(7).
Court’s Final Decision:
After analysing all the aspects, the high court ruled:
- The order dated April 27, 2024, was illegal, as it violated Section 75(7) of the GST Act. Hence, the High Court quashed the order and sent the matter back to the tax authority for a fresh review.
- The department has now been ordered to give M/S Pavan Traders a fresh opportunity to respond to the initial show-cause notice.
- After giving the petitioner a chance to be heard, the department must pass a new order in compliance with the law.