GST adjudication order, wholly unsustainable where demand grossly exceeds SCN proposal: Allahabad High Court
The Allahabad High Court in Mi Industries India Private Limited v. Union of India & 4 Ors. quashed a GST adjudication order that confirmed a demand of ₹9.42 crore when the show cause notice (SCN) proposed only ₹1.72 crore, holding the order to be jurisdictionally unsustainable. The Court found that the adjudicating authority travelled far beyond the SCN in breach of Section 75(7) of the CGST Act, which strictly caps confirmation to the quantum and grounds specified in the notice. It further held that the order was “wholly laconic” and violated principles of natural justice because the assessee was neither confronted with the adverse material relied upon for the enhanced demand nor afforded a meaningful opportunity of hearing. Given the patent jurisdictional defect and procedural violations, the Court exercised writ jurisdiction under Article 226 to set aside the order outright, declining remand to appellate authorities as no part of the order could survive scrutiny. The ruling reinforces that any enhancement beyond the SCN, without a fresh notice and due hearing, renders GST adjudication void ab initio.
Facts:
Mi Industries India Private Limited (“the Petitioner”) challenged the impugned adjudication passed pursuant to SCN proposing demand of tax and penalty of Rs. 1,71,79,347.92.
The proper officer (“the Respondents”) issued SCN proposing demand of Rs. 1,71,79,347.92 imposing tax and penalty, but passed the impugned adjudication order determining demand at Rs. 9,42,21,714.94 without confronting the Petitioner with adverse material relied upon for the excess and without affording due opportunity of hearing.
The Petitioner contended that the impugned adjudication order travels much beyond the scope of the SCN by escalating demand and was passed without confronting adverse matter or providing opportunity of hearing, constituting jurisdictional error and violation of natural justice. The Respondent contended through instructions that opportunity of hearing had been provided, but could not effectively dispute lack of confrontation with adverse material or due hearing.
Aggrieved the Petitioner approached the High Court by way of Writ Tax petition seeking quashing of the order.
Issues:
- Whether the GST adjudication order confirming demand of Rs. 9,42,21,714.94 is sustainable when the SCN proposed only Rs. 1,71,79,347.92 (tax and penalty)?
- Whether the order having been passed without confronting the Petitioner with adverse material or affording due opportunity of hearing constitutes jurisdictional error warranting outright quashing under Article 226 without remand to appellate authority?
Held:
The Hon’ble Allahabad High Court at Judicature in WRIT TAX No. – 291 of 2024 held as under:
- Noted that, with principal objection by the Petitioner is that adjudication order exceeds SCN and passed without confronting adverse material or affording due opportunity of hearing.
- Held that, to the extent adjudication order may not exceed SCN and confirms only proposed demand without additions, as also for violation of natural justice (non-confrontation of adverse material and no due opportunity to object/hear), and that no useful purpose may be served in remitting to appellate authority. Once jurisdictional error or violation of rules of natural justice exists, Petitioner remains entitled to exercise of extraordinary jurisdiction under Article 226 of the Constitution of India.
- Found that jurisdictional error crept in the adjudication order inasmuch as against proposed demand Rs. 1,71,79,347.92, the order created demand of Rs. 9,42,21,714.94, that is far in excess of demand pressed to be confirmed.
- Further found that, Revenue could not effectively dispute that opportunity of hearing remained unprovided as adverse material was not confronted to the Petitioner, rendering the impugned adjudication order wholly laconic.
- Accordingly, set aside the impugned adjudication order.
Our comments:
The Division Bench adopts a nuanced approach under Article 226, outright quashing the entire adjudication order for patent jurisdictional defect under Section 75(7) CGST Act by prohibiting confirmation of demand/penalty exceeding SCN proposal or on grounds beyond SCN, coupled with natural justice violation, and eschewing appellate remand where order is “wholly laconic” and no portion survives scrutiny.
Similarly, this court in the case of M/s Pavan Traders v. State of U.P. & Anr. [Writ Tax No. – 1258 of 2025, order dated July 03, 2025], quashed an ex-parte GST order under Section 73 confirming demand of Rs. 24,40,363.10 of tax and penalty, as it grossly exceeded the SCN proposal of Rs. 4,80,527.36 (tax/interest/penalty). It held Section 75(7) strictly limits the adjudicating authority to the quantum and grounds in the SCN such 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”. Therefore, a new/enhanced demand without fresh notice vitiates proceedings even if assessee remains ex-parte, as scope of adjudication confined thereto renders excess confirmation void ab initio, remanding for fresh order post-hearing
Relevant Provision:
Section 75(7) of the Central Goods and Services Tax Act, 2017
“75. General provisions relating to determination of tax.-
(1) Where the service of notice or issuance of order is stayed by an order of a court or Appellate Tribunal, the period of such stay shall be excluded in computing the period specified in sub-sections (2) and (10) of section 73 or sub-sections (2) and (10) of section 74 or sub-sections (2) and (7) of section 74A, as the case may be.
(2) Where any Appellate Authority or Appellate Tribunal or court concludes that the notice issued under sub-section (1) of section 74 is not sustainable for the reason that the charges of fraud or any wilful-misstatement or suppression of facts to evade tax has not been established against the person to whom the notice was issued, the proper officer shall determine the tax payable by such person, deeming as if the notice were issued under sub-section (1) of section 73.
(2A) Where any Appellate Authority or Appellate Tribunal or court concludes that the penalty under clause (ii) of sub-section (5) of section 74A is not sustainable for the reason that the charges of fraud or any wilful-misstatement or suppression of facts to evade tax has not been established against the person to whom the notice was issued, the penalty shall be payable by such person, under clause (i) of sub-section (5) of section 74A.
(3) Where any order is required to be issued in pursuance of the direction of the Appellate Authority or Appellate Tribunal or a court, such order shall be issued within two years from the date of communication of the said direction.
(4) An opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.
(5) The proper officer shall, if sufficient cause is shown by the person chargeable with tax, grant time to the said person and adjourn the hearing for reasons to be recorded in writing:
Provided that no such adjournment shall be granted for more than three times to a person during the proceedings.
(6) The proper officer, in his order, shall set out the relevant facts and the basis of his decision.
(7) 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.”
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