HC: Tax, Interest, and Penalty Demanded In GST Order Shall Not Exceed Amount In Notice
The current writ petition [Writ Tax No. 3043 of 2025 (Neutral Citation No. 2025:AHC:110158-DB)] dated July 10, 2025, is being filed by M/S Shri Ram Trading Company Situated (petitioner) before the Allahabad High Court (Bench comprising Hon’ble Shekhar B. Saraf, J. and Hon’ble Praveen Kumar Giri, J.).
Background of Case:
- The petitioner, i.e., M/S Shri Ram Trading Company, has filed this current writ petition challenging a demand order dated April 5, 2025, issued by the tax officer (respondent 2nd) under the Goods and Services Tax Act, 2017, for the financial year 2018-19. The demand order was worth Rs. 41,84,920, which included tax, interest, and penalty.
- Previously, a show cause notice (SCN) dated November 20, 2024, was issued to the petitioner in GST DRC-01 format, under Section 74 of the GST Act. The SCN was to inform the petitioner about the imposed penalty amount of Rs. 23,69,062.50, which included tax, interest, and penalty. Additionally, the company was asked why the particular action should not be taken against them.
- However, the petitioner did not respond to this show-cause notice. The tax department then sent a reminder on December 21, 2024, giving a final opportunity to reply by December 27, 2024, and appear for a hearing on December 31, 2024.
- Regardless of this reminder, the petitioner neither submitted any reply nor appeared for a hearing before the authority. As a result, the tax department passed a final order dated April 5, 2025, demanding Rs. 41,84,920, which was much more than the previous amount, i.e., Rs. 23,69,062.50 mentioned in the initial notice.
Petitioner’s Arguments:
The petitioner’s lawyers, named Rakesh Kumar Garg and Yash Garg, served the following arguments before the high court:
- The final order demanding Rs. 41.84 lakhs is illegal and much more than the initial amount, i.e., Rs. 23.69 lakhs proposed in the SCN.
- This action violates Section 75(7) of the GST Act, which clearly says that the final order cannot demand an amount higher than what was specified in the show-cause notice.
- They requested the court to quash the order and send the matter back to the tax authority for fresh consideration after awarding them a fair chance to present their side.
Respondents’ Argument:
The Standing Counsel represented the respondent (State of U.P. and Another), served the following arguments before the High Court:
- The petitioner was given a fair opportunity to respond and appear, but they did not appear.
- The final order was passed when the petitioner did not appear for the hearing.
- The penalty and interest are statutory, so the tax officer had the right to impose them even if they were not fully detailed in the initial show-cause notice.
- Hence, the writ petition should be quashed.
Court’s Observation:
- The high court listened to both sides carefully and examined Section 75(7) of the GST Act, which says, “The amount of tax, interest, and penalty demanded in the final order must not be more than the amount mentioned in the show-cause notice. Also, the reasons (grounds) for demanding the tax must be the same as those mentioned in the notice.”
- The judges discovered that the show-cause notice only mentioned a demand of Rs. 23,69,062.50.
- However, the final order demanded Rs. 41,84,920, which is clearly in excess of the notice. This was a clear violation of Section 75(7) of the Act.
Court’s Final Decision:
Keeping all the points in mind, the high court judges ruled:
- The court quashed the demand order dated April 5, 2025.
- Sent the case back to the tax officer (respondent no. 2) for a fresh review.
- Directed the officer to give the petitioner a proper opportunity to file a reply to the show-cause notice,
- Conduct a hearing, and then issue a fresh order in accordance with the law.