Allahabad HC Quashes GST Demand Order Exceeding Show Cause Notice

Demand Order Exceeding Show Cause Notice Violates Section 75(7) of the CGST Act and is liable to be quashed: Allahabad HC

Allahabad High Court has ruled that a demand order issued under the Central Goods and Services Tax Act, 2017 (CGST Act), cannot exceed the amount specified in the original show-cause notice. In the case of M/s Vrinda Automation v. State of Uttar Pradesh & Anr, the court deemed a demand order for ₹1,34,94,294 as violative of Section 75(7) of the CGST Act, which mandates that the final demand cannot be higher than the amount proposed in the notice.

The petitioner, Vrinda Automation, received a show-cause notice in November 2023 proposing a recovery of ₹66,13,874.78. However, this notice was reportedly only uploaded to a specific tab on the GST portal and not served through any other means, leading the petitioner to claim they were unaware of it and thus unable to file a reply. Subsequently, in December 2024, the Deputy Commissioner, State Tax, Ghaziabad, issued a demand order significantly increasing the total amount to ₹1,34,94,294, which included higher penalty and interest components than initially proposed. The respondent argued this increase was due to a previous calculation error and that interest had been indicated. However, the High Court observed that the final demand far exceeded the show-cause notice amount, directly contravening Section 75(7) of the CGST Act. The court emphasized that this provision is mandatory and serves to protect taxpayers from unexpected demands. Consequently, the High Court quashed the demand order and remitted the matter back to the Deputy Commissioner, directing them to provide the petitioner with an opportunity to respond to the original notice before issuing a fresh order in accordance with law.

Facts:

Vrinda Automation (“the Petitioner”) is a registered taxpayer that received a show‑cause notice dated November 25, 2023, in Form GST DRC‑01 under Section 74 of the CGST Act, proposing recovery of ₹66,13,874.78 inclusive of tax, penalty, and interest.

State of Uttar Pradesh (“the Respondent”) acting through the Deputy Commissioner, State Tax, Ghaziabad Sector‑4, uploaded the notice only under the “Additional Notice and Order” tab of the GST portal and served it by no other mode.

The Petitioner contended that it remained unaware of the notice, could not file any reply, and the Respondent thereafter passed an order dated December 30, 2024, raising a total demand of ₹1,34,94,294 (inclusive of penalty ₹45,79,228 and interest ₹43,35,838), far in excess of the amount provided in the Show Cause Notice, thus being completely contrary and in violation of Section 75(7) of the CGST Act.

The Respondent contended that the increase resulted from a prior mistake in calculating penalty on IGST and that interest at 18 % p.a. had already been indicated, hence the order was lawful.

Aggrieved, the Petitioner filed the present writ petition seeking quashing of the demand order and a fresh opportunity to reply to the notice.

Issue:

Whether the demand order issued under Section 74 can lawfully exceed the amount specified in the show‑cause notice, contrary to the express bar in Section 75(7) of the CGST Act?

Held:

The Hon’ble Allahabad High Court in Writ Tax No. 2006 of 2025 held as under:

• Observed that, the show‑cause notice proposed recovery only of ₹66,13,874.78 towards tax, penalty and interest, whereas the impugned order demanded ₹1,34,94,294, thus increasing both penalty and interest beyond the scope of the notice.
• Noted that, Section 75(7) expressly mandates that the amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice.
• Held that, raising demand beyond the notice amount is ex facie contrary to Section 75(7); the provision is mandatory and safeguards the taxpayer from surprise demands.
• Further quashed the order dated December 30, 2024, and remanded the matter to the Deputy Commissioner, State Tax, Ghaziabad Sector‑4, with directions to give the Petitioner an opportunity to respond to the notice and to pass a fresh order in accordance with law.

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 (Author can be reached at info@a2ztaxcorp.com)