Allahabad High Court Holds GST Demand Beyond Show Cause Notice Unsustainable

The Allahabad High Court in Round Pay Voice Tech Vs State of U.P. has reiterated an important procedural safeguard under the Goods and Services Tax regime: an adjudication order under Section 74 cannot demand a higher amount of tax, interest and penalty than what is proposed in the show cause notice, in view of the clear mandate of Section 75(7) of the Goods and Services Tax Act, 2017.

This ruling assumes significance for assessees facing proceedings under Section 74, particularly where the final order seeks to enhance the demand beyond what was originally put to notice.

Background and Material Facts

The dispute arose from proceedings initiated against the petitioner–assessee, Round Pay Voice Tech, for the period from July 2017 to March 2018.

Chronology of Events

  1. Show Cause Notice

    • A show cause notice dated 07.05.2022 was issued in Form GST DRC-01 under Section 74 of the Goods and Services Tax Act, 2017.
    • In this notice, the adjudicating authority proposed to recover a total of Rs.57,60,00,000/- towards tax, interest and penalty.
    • The assessee was called upon to explain why the proposed demand should not be confirmed.

  2. Adjudication Order

    • Subsequently, an order dated 05.02.2025 was passed by respondent no. 3, covering the same period i.e., July 2017 to March 2018.
    • Through this order, the authority raised a total demand of Rs.59,20,00,000/-.
    • The final figure included penalty of Rs.29,60,00,000/-, resulting in a demand exceeding the amount stated in the show cause notice by Rs.1,60,00,000/-.

  3. Challenge before High Court

    • The assessee filed a writ petition before the Allahabad High Court, seeking to quash the order dated 05.02.2025.
    • The primary ground of challenge was that the final demand was in excess of the amount specified in the show cause notice, in direct violation of Section 75(7) of the Act.

The key legal question considered by the High Court was:

Whether, in light of Section 75(7) of the Goods and Services Tax Act, 2017, the adjudicating authority could pass an order demanding Rs.59,20,00,000/- when the show cause notice had proposed recovery of only Rs.57,60,00,000/- towards tax, interest and penalty.

Put differently, the court had to examine whether the statutory restriction in Section 75(7)—that the demand in the order shall not exceed the amount specified in the notice—was violated in this case, thereby rendering the impugned order invalid.

Submissions on Behalf of the Assessee

Counsel appearing for the assessee advanced the following key arguments: