₹24 Lakh Tax, Penalty and Interest against Notice Demanding ₹4 Lakh: Allahabad HC quashes GST Order Demand in Excess of Amount in Notice [Read Order]

The Allahabad HighCourt recently set aside a Goods and Services Tax (GST) demand order amounting to over ₹24 lakh upon finding that the demand was vastly in excess of the amount specified in the original show cause notice.

The petitioner, M/S Pavan Traders approached the Allahabad High Court after being aggrieved by an order issued by respondent revenue authorities for the financial year 2018-19 wherein they had computed tax, penalty, and interest totaling ₹24,40,363.10 and raised demands against the same.

A show cause notice dated January 30, 2024 was issued to the petitioner under Section 73 of the Goods and Services Tax Act, 2017, in GST DRC-01 calling upon them to explain why tax, penalty, and interest totaling ₹4,80,527.36 should not be imposed.

Following the notice, a subsequent reminder dated April 16, 2024 fixed April 20, 2024 as the date for reply and hearing. However the petitioner failed to respond or make an appearance, leading to the impugned demand order.

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The petitioner, represented by Aditya Pandey argued before the Court that the respondents’ action in raising a demand of ₹24,40,363.10 including tax and penalty was far in excess of what was indicated in the show cause notice and thus in violation of Section 75(7) of the GST Act.

On the other hand, Standing Counsel for the respondent countered, arguing that the petitioner had chosen not to appear or file a response despite being given notice and a reminder. It was further submitted that the charging of interest and penalty is statutory, and irrespective of the fact that the same was indicated in the show-cause notice.

The Division Bench of Justice Shekhar B. Saraf and Justice Praveen Kumar Giri observed that Section 75(7) of the GST Act expressly provides that the amount of tax, interest, and penalty in the final order cannot exceed what is specified in the show cause notice.

The Bench further noted that in the present case, the notice only indicated a total of ₹4,80,527.36 as tax, interest, and penalty, but the order ultimately raised a demand of ₹24,40,363.10, clearly being in violation of the requisites as laid down by Section 75(7).

The impugned order being contrary to the statute, was thus deemed unsustainable and the Court quashed the impugned order and remanded the matter back to the respondent authority to provide the petitioner an opportunity to respond, on the basis of which a fresh order in accordance with law would be passed after due hearing.

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