GST Demand Quashed for Exceeding SCN Amount Without Fresh SCN: Karnataka HC

The Amount Of Tax, Interest And Penalty Demanded In The Order Shall Not Be In Excess Of The Amount Specified In The SCN: Karnataka High Court

ABSTRACT

• In Prestige NOTTINGHILL INVESTMENTS V. UNION OF INDIA (2025 (36) Centax 290 (Kar), the Karnataka High Court set aside a GST Order-in-Original, confirming 6.93 crore demand against an SCN proposing only Rs. 2.49 crores, invoking Section 75(7) of the CGST Act as a jurisdictional bar.
• Justice S.R. Krishna Kumar, remanded the matter for fresh adjudication, upholding the doctrine of audi alteram partem (hear the other side), which mandates pre-decisional opportunity on precise charges. This ruling curbs revenue overreach, ensuring adjudications stay within SCN confines.

INTRODUCTION

• The judgment exemplifies the doctrine of “audi alteram partem”, a cornerstone of natural justice requiring authorities to disclose exact allegations and quantum in the SCN for effective rebuttal.
• Section 75(7) CGST Act, operationalizes this by prohibiting demands exceeding SCN amounts or on unstated grounds, preventing surprise escalations post-reply. This judgment reinforces procedural fairness amid rising GST disputes.

FACTUAL BACKGROUND

• Prestige Nottinghill Investments received a SCN dated May 28, 2024, demanding Rs. 2,49,63,816 under GST audit proceedings. The taxpayer submitted a detailed reply, yet the Order-in-Original vide No. CTO (AUDIT)-1.8/GST/DRC-7/No.40/2024-2025, dated September 20, 2024 confirmed Rs. 6,93,77,821.
• A Rectification Application under Section 164 KGST Act, was rejected on March 19, 2025, prompting the writ petition.

LEGAL ISSUES

• The primary issue: Whether the Order-in-Original confirming a demand nearly three times the SCN amount, without fresh notice, violates Section 75(7) CGST/KGST Act. Subsidiary concerns included rejection of rectification and breach of natural justice principles.

ARGUMENTS AND COUNTERARGUMENTS

• Petitioner Arguments: Counsels highlighted the SCN’s fixed quantum, arguing post-reply escalation as ultra vires Section 75(7), denying opportunity to contest enhanced figures. They stressed rectification rejection compounded jurisdictional error.
• Respondent Arguments: Counsel for Union of India and State urged dismissal, claiming merit in the order without specifics on Section 75(7) compliance. No counter to quantum discrepancy was advanced.

JUDICIAL ANALYSIS AND FINDINGS

• Justice Krishna Kumar extracted Section 75(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 grounds other than the grounds specified in the notice.” The court held the excess confirmation illegal and arbitrary, violating natural justice via audi alteram partem.

• Orders at Annexures A and A1 were set aside, matter remanded to Respondent No.3 for fresh consideration by November 17, 2025, with liberty for additional submissions.

CONCLUSION

• This precedent binds GST authorities to SCN limits in DRC-07/audit orders, deterring auto-escalations of interest/penalty. Taxpayers gain stronger Article 226 writ grounds; authorities must issue revised SCNs for enhancements.
• The Karnataka HC fortifies Section 75(7) as a statutory shield, embedding audi alteram partem in GST processes. By remanding with procedural directives, it balances revenue interests with taxpayer rights, urging precise SCN drafting. Advocates should invoke this in replies and writs to quash infirm demands.