Sarik Infratech Vs State of U.P. and Another (Allahabad High Court)
Summary: The Allahabad High Court, in M/S Sarik Infratech, examined whether an adjudication order passed under Section 74A of the UPGST Act, 2017 could sustain a GST demand on a ground different from the one specified in the original show cause notice. The petitioner had received Form GST DRC-01 dated 12.09.2025 for FY 2024-25, proposing tax at 14% each under the UPGST and CGST Acts on a turnover of Rs 4,20,07,730. However, the subsequent order dated 30.01.2026, accompanied by Form GST DRC-07, confirmed tax at 9% under each Act on a different turnover of Rs 2,66,66,643. The demand originally proposed was not confirmed on its stated ground. The Court held that the discrepancy violated Section 75(7) of the UPGST Act, which restricts adjudication to the grounds specified in the show cause notice. The fact that the confirmed tax was lower than the proposed tax did not cure the defect because the basis of the demand had changed. The taxpayer had been required to answer one case but was subjected to an order founded on another. Finding a glaring and incurable procedural defect apparent from the record, the Court considered it unnecessary to seek a counter affidavit. Accordingly, the High Court quashed the order dated 30.01.2026 and allowed the writ petition, while granting the revenue liberty to issue a fresh show cause notice in accordance with law. The Court also observed that limitation for fresh proceedings remained available. The decision reinforces the requirement that a GST adjudication order must remain within the grounds disclosed in the notice, even where the final tax demand is lower.
The Notice and the Order
The petitioner, M/S Sarik Infratech, received a DRC-01 dated 12.09.2025 for the financial year 2024-25. The notice rested on a single ground. It proposed tax at 14% under each of the UPGST and CGST Acts, a total of 28%, on a turnover of Rs 4,20,07,730.
The order that followed was passed under Section 74A of the UPGST Act and dated 30.01.2026. It was issued with a DRC-07. The Court recorded that no demand had been confirmed with reference to the DRC-01 proposal. Instead, the order proposed and confirmed tax at 9% under each Act, a total of 18%, on a different turnover of Rs 2,66,66,643.
On the department’s own figures, the notice demanded about Rs 1,17,62,164 in tax, and the order confirmed about Rs 47,99,996. The tax went down. The base changed, and the ground changed with it.
The Court’s View
The Bench treated the matter as a violation of Section 75(7) of the UPGST Act. Its reasoning rested on the mismatch between the ground in the notice and the ground on which the demand was confirmed. The demand confirmed had not been proposed when the DRC-01 was issued, so the adjudication order rested on a footing the taxpayer had never been asked to meet.
The Court found that the defect had caused an incurable prejudice to the petitioner. It did not consider it useful to call for a counter affidavit at that stage, since the error was apparent on the record. The impugned order was quashed, the writ was allowed, and the revenue was granted liberty to issue a fresh show cause notice in accordance with law. The Court also recorded that limitation for a fresh proceeding still existed.
Why a Lower Amount Does Not Answer the Defect
The department may say that the tax confirmed is less than the tax proposed, so the taxpayer cannot have been prejudiced. The answer lies in what the notice actually does. A show cause notice states the case: the rate, the base, the period, and the amount the department says is payable. The taxpayer answers that case, decides whether to pay under protest, and gathers evidence to meet it.
A smaller figure on a different base is not a part of the notified demand. Rs 4.20 crore and Rs 2.67 crore are different turnovers, and the notice gave no explanation for the move from one to the other. A taxpayer who replies to 28% on Rs 4.20 crore is not replying to 18% on Rs 2.67 crore. The Section 75(7) question is whether the ground was proposed, and a reduction in the final figure does not answer that question.
The reduction does something else as well. It shows that the department abandoned the demand it had noticed and substituted a new one. The order was not a partial confirmation of the notice. It was a fresh demand brought into the adjudication, and the lower figure is the trace of that substitution.
What the Decision Leaves Open
The decision does not say how much time the department has for a fresh notice, nor does it tell the department what shape that notice must take. The Court’s observation on limitation is a signal that the period has not run out. It is not a finding on how many days remain. A fresh notice could again demand tax at 28% on the larger turnover, or at 18% on the smaller one, and the taxpayer would need to answer either.
The decision also leaves the interest and penalty imposed in the order to be tested on their own footing. The order confirmed interest of Rs 25,63,464 and a penalty of Rs 77,40,536. Whether the notice stated those amounts is a separate question, and the answer decides whether the Section 75(7) point reaches them.
Conclusion
The Sarik Infratech decision is a reminder that the notice defines the case the taxpayer must meet. An adjudication order that confirms a different ground, on a different base, at a different rate, does not become a lawful order because the tax it confirms is smaller. The lower amount is evidence of the substitution, and the substitution is the defect.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Sri Ravindra Kumar Rastogi, learned counsel for the petitioner and Sri Arvind Kumar Mishra, learned Standing Counsel for the revenue.
2. Submission is, DRC-01 dated 12.09.2025 issued for the Financial Year 2024-25 was on one ground only. Thereby tax @ 14% (both under the UPGST and CGST Act, 2017) was proposed on the turnover Rs. 4,20,07,730/-. No other demand was raised in the said DRC-01.
3. However, in DRC-07, issued along with the order passed under Section 74(A) of the UPGST Act, 2017, while no demand has been confirmed with reference to the demand proposed in DRC-01 dated 12.09.2025, another demand of tax @ 9% each (both under the UPGST and CGST Act, 2017) has been proposed on turnover Rs. 2,66,66,643/-.
4. Referring to Section 75(7) of the UPGST Act, 2017, it has been submitted that hedemand confirmed is contrary to the mandatory provision of law.
5. We have heard learned counsel for the parties and have perused the records. Clearly, it is undeniable that the demand of tax as confirmed was not proposed at the stage of issuance of the demand note on DRC-01. To that extent, violation of Section 75(7) of the UPGST Act, 2017 exists, as the demand has been confirmed (vide impugned order dated 30.01.2026) on a ground different from the ground proposed in the show cause notice.
6. In such facts, no useful purpose would be served in keeping the present petition pending or calling for a counter affidavit, at this stage. Glaring and incurable mistake has been caused in the proceedings. Also limitation to draw a fresh proceeding exists.
7. Accordingly, the impugned order dated 30.01.2026 is quashed. Thus, the present writ petition stands allowed. Liberty is granted to the revenue to issue a fresh show cause notice, in accordance with law.
