Jay Dee Enterprises Vs Deputy Commissioner State Tax SGST And Another (Allahabad High Court)
Penalty Imposed in Excess of the Amount Proposed in the SCN is a Jurisdictional Error Under Section 75(7) of the GST Act: Allahabad High Court
Summary: The Allahabad High Court in M/S Jay Dee Enterprises v. Deputy Commissioner State Tax SGST and Another considered a challenge to an order dated 21 December 2023 passed under Section 73 of the Uttar Pradesh Goods and Services Tax Act, 2017 for the tax period 2017-18. The petitioner contended that the adjudication order suffered from a jurisdictional defect because the show cause notice had proposed a penalty of Rs. 4,60,542, whereas the impugned order imposed a penalty of Rs. 9,21,084.
The Court examined the statutory restriction contained in Section 75(7) of the UPGST Act, 2017, which prohibits an adjudicating authority from confirming tax or penalty liability in excess of the amount specified in the show cause notice. The Court noted that the statutory prohibition extended to the quantum of liability and that confirmation of a liability exceeding the amount proposed in the notice constituted a jurisdictional error.
When queried by the Court, the learned Standing Counsel for the State could not dispute the factual and legal position. Consequently, the High Court set aside the impugned order and remitted the matter to the adjudicating authority for passing a fresh order after providing due opportunity of personal hearing to the petitioner and considering its objections, if any. The Court directed that the fresh proceedings be completed as expeditiously as possible, preferably within three months from the date of the order.
The writ petition was accordingly disposed of by the Division Bench comprising Saumitra Dayal Singh, J. and Swarupama Chaturvedi, J. The judgment was pronounced on 6 July 2026.
Facts:
- M/s Jay Dee Enterprises (“the Petitioner”) was issued a Show Cause Notice (“the SCN”) under Section 73 of the UPGST Act for the tax period 2017-18, proposing a penalty of Rs. 4,60,542/- only.
- However, the Adjudicating Authority, vide order dated December 21, 2023 (“the Impugned Order”) passed under Section 73 of the UPGST Act, imposed a penalty of Rs. 9,21,084/- i.e., double the amount of penalty proposed in the SCN.
- Aggrieved by the Impugned Order, the Petitioner filed a writ petition before the Hon’ble Allahabad High Court, contending that the Impugned Order suffers from the defects of jurisdiction, having been passed in clear violation of the mandatory provisions of Section 75(7) of the UPGST Act, which prohibits confirmation of tax or penalty liability in excess of that proposed in the show cause notice.
- On being queried by the Hon’ble Court, the learned Standing Counsel appearing for the Revenue could not deny the said position, either in fact or in law.
Issue:
Whether the adjudication order imposing penalty in excess of the amount proposed in the Show Cause Notice is sustainable in law?
Held:
The Hon’ble Allahabad High Court in Writ Tax No. 2908 of 2026 held as under:
- Observed that, the SCN proposed a penalty of Rs. 4,60,542/- only, whereas the Impugned Order imposed a penalty of Rs. 9,21,084/-, and therefore, the Impugned Order suffers from the defects of jurisdiction.
- Noted that, there is a clear prohibition under the Act to confirm tax or penalty liability in excess of that proposed in the show cause notice and to that extent, a clear jurisdictional error exists in the Impugned Order.
- Held that, the Impugned Order, having been passed in violation of the mandatory provisions of Section 75(7) of the UPGST Act, is liable to be set aside.
- Directed that, the matter is remitted back to the Adjudicating Authority to pass a fresh order after affording due opportunity of personal hearing to the Petitioner and dealing with the Petitioner’s objections, if any, as expeditiously as possible, preferably within a period of three months.
Hence, the Impugned Order was set aside and the matter was remanded back to the Adjudicating Authority for fresh adjudication.
Our Comments:
Section 75(7) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) [pari materia to Section 75(7) of the UPGST Act] provides as under:
“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.”
A bare perusal of the above provision makes it evident that the statute incorporates twin safeguards for the taxpayer at the stage of adjudication: firstly, the amount of tax, interest and penalty confirmed in the order cannot exceed the amount specified in the show cause notice; and secondly, no demand can be confirmed on grounds other than those specified in the show cause notice. The show cause notice is the very foundation on which the adjudication proceedings rest, and the adjudicating authority cannot travel beyond it, either in quantum or on grounds. Any breach of this mandate is not a mere procedural irregularity but a jurisdictional defect going to the root of the matter, rendering the order amenable to challenge under Article 226 of the Constitution of India, notwithstanding the availability of an alternative remedy.
The present ruling is in line with the consistent view taken by the Courts. The Hon’ble Allahabad High Court in M/s Vibhuti Tyres v. State of U.P. and Another [Writ Tax No. 2055 of 2025 dated May 07, 2025] set aside a demand order raising a demand of Rs. 32,97,336/- against Rs. 8,81,080/- proposed in the SCN, holding the same to be in clear violation of Section 75(7) of the CGST Act. Similarly, in M/s Vrinda Automation v. State of Uttar Pradesh and Another [2025 (5) TMI 1435 – Allahabad High Court], the order demanding Rs. 1,34,94,294/- as against Rs. 66,13,874/- proposed in the SCN was quashed, observing that Section 75(7) safeguards the taxpayer from surprise demands.
Further, the Hon’ble Allahabad High Court in M/s Associated Switch Gears and Projects Ltd. v. State of U.P. and Others [Neutral Citation No. 2024:AHC:12780] elaborately held that a show cause notice is a vital checkpoint which delineates the boundaries within which any authority can operate, and the authorities cannot travel beyond the show cause notice to impose liability on the assessee. Reliance in this regard was placed on the judgments of the Hon’ble Supreme Court in Commissioner of Customs, Mumbai v. Toyo Engineering India Ltd. [(2006) 7 SCC 592] and Commissioner of Central Excise v. Ballarpur Industries Ltd. [(2007) 8 SCC 89], wherein it was categorically held that the Department cannot travel beyond the show cause notice. The Hon’ble Supreme Court in Commissioner of Central Excise, Bangalore v. Brindavan Beverages (P) Ltd. [(2007) 5 SCC 388] has also held that the show cause notice is the foundation on which the Department has to build up its case, and if the allegations are not specific and are vague, the proceedings pursuant thereto cannot be sustained.
It is also pertinent to note that the rigour of Section 75(7) applies equally to interest. The Hon’ble Allahabad High Court in M/s Sanjay Construction v. State of U.P. [Writ Tax No. 161 of 2026 dated February 17, 2026] quashed the show cause notice and the adjudication order where interest was not quantified in the notice, holding that the same contravenes Section 75(7) of the CGST Act and that Section 75(9) cannot cure such a defect at the notice stage.
In view of the settled legal position, taxpayers are well advised to carefully compare the demand confirmed in the adjudication order (FORM GST DRC-07) with the amount and grounds proposed in the show cause notice (FORM GST DRC-01). Any confirmation of demand in excess of, or on grounds beyond, the show cause notice is a jurisdictional error which vitiates the order and can be effectively challenged before the jurisdictional High Court.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Sri Suyash Agarwal, learned counsel for the petitioner and Sri Ankur Agarwal, learned Standing Counsel for the State.
2. Challenge has been raised to the order dated 21.12.2023 passed under Section 73 of the UPGST Act, 2017 (hereinafter referred to as ‘the Act’) for the tax period 2017-18.
3. Submission is, the order suffers from the defects of jurisdiction. In that, it has been submitted that the show cause notice proposes penalty of Rs. 4,60,542/- only, whereas in the impugned order, the penalty of Rs. 9,21,084/- has been imposed. Thus, the impugned order has been passed clearly in violation of mandatory provisions of Section 75(7) of the Act.
4. To the extent, there is a clear prohibition under the Act to confirm tax or penalty liability in excess of that proposed in the show cause notice, clearly jurisdictional error exists.
5. In such circumstances, on being queried, learned Standing Counsel could not deny that position in fact and in law.
6. Accordingly, the impugned order is set aside and the matter is remitted to the adjudicating authority to pass a fresh order after affording due opportunity of personal hearing to the petitioner, dealing with the petitioner’s objection, if any, as expeditiously as possible, preferably within a period of three months from today.
7. Accordingly, the present petition is disposed of.
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