Introduction
One of the most litigated areas under the Goods and Services Tax (GST) regime is the validity of demand orders passed by adjudicating authorities. Time and again, taxpayers have faced a peculiar situation where the quantum of tax, interest, or penalty demanded in the final order far exceeds what was proposed in the Show Cause Notice (SCN).
This practice raises an important legal question: Can the Revenue demand more than what it originally proposed in the SCN?
The answer, firmly rooted in statutory law and judicial precedent, is No. Section 75(7) of the Central Goods and Services Tax Act, 2017, clearly stipulates that the amount of tax, interest, and penalty imposed in the order shall not exceed the amount specified in the notice. This statutory limit protects the taxpayer's fundamental right to fair hearing and natural justice.
In this article, I will examine the legal framework, discuss landmark judgments, and outline practical implications for taxpayers dealing with inflated or excessive demand orders.
Statutory Framework
The relevant provision is Section 75(7) of the CGST Act, 2017, which states:
"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
This provision is rooted in the doctrine of audi alteram partem-the right to be heard. An assessee can only defend against the specific allegations raised in the SCN. If the final order exceeds the scope of the SCN, the assessee is deprived of the opportunity to contest the excess demand, making such an order inherently invalid.
Judicial Precedents
Indian courts, including various High Courts, have consistently quashed demand orders that travel beyond the scope of the SCN. A survey of recent judgments highlights the judiciary's strict approach:
1. Gillette India Ltd. - Madras High Court (2025) 26 CENTAX 271
The SCN raised a demand of ₹10.60 crores, but the adjudicating authority, in its order, quantified the liability at ₹247.32 crores-a quantum leap. The High Court categorically held that the authority had exceeded its jurisdiction. The impugned order, having traversed beyond the SCN, was unsustainable and struck down.
2. Kalidas Medical Store - Allahabad High Court (2024) 104 GST 700
In this case, the SCN proposed a demand of ₹14.45 lakhs, yet the adjudicating authority confirmed a demand of ₹16.50 lakhs. Though the excess was comparatively small, the Court emphasized the principle over the quantum, holding that even a minor excess cannot be sustained. The order was set aside.
3. NTT India Pvt. Ltd. - Madras High Court (2025) 171 taxmann.com 859
The Court reiterated that exceeding the SCN violates Section 75(7). The order was quashed, and the matter remanded for de novo consideration. The case underscores that authorities cannot bypass statutory limits under the guise of adjudication.
4. Nanjappan Senthilkumar - Madras High Court (2024) 163 taxmann.com 755
Here, the adjudicating authority passed an unreasoned order confirming demand beyond the SCN amount. The Court held that reasoning is the soul of an order, and in its absence-coupled with violation of Section 75(7)-the order was unsustainable.
5. Dynamed Equipments - Madras High Court (2024) 164 taxmann.com 770
In this case, the order imposed tax, interest, and penalty exceeding the SCN's scope. Interestingly, the Court treated the impugned order itself as a fresh SCN and directed fresh proceedings with full opportunity for the assessee to respond. This creative remedy balanced taxpayer protection with revenue interests.
Broader Legal Principles
From these rulings, the following legal principles emerge:
- Confinement to SCN - Demand orders are confined to the allegations and quantifications made in the SCN.
- Violation of Natural Justice - Any excess demand violates the right to defend, rendering the order void.
- Doctrine of Jurisdiction - Authorities derive jurisdiction only from the SCN; going beyond it amounts to acting without jurisdiction.
- Unreasoned Orders - Orders without proper reasoning, particularly when exceeding the SCN, are liable to be quashed.
- Judicial Protection - Courts have consistently protected assessees, even where the excess is marginal.
Practical Takeaways for Taxpayers
- Scrutinise the SCN and final order carefully - Compare the quantum and grounds of demand. If the order exceeds the SCN, you have strong grounds for challenge.
- Invoke Section 75(7) - This provision is a powerful statutory tool and should form the backbone of any representation or appeal.
- Challenge at the appellate stage or High Court - Courts have shown a clear trend of striking down such orders, often with costs.
- Maintain detailed records - Ensure that replies to SCNs specifically highlight quantum issues to strengthen grounds for later challenge.
- Don't accept minor excesses - Even a small overreach is illegal; taxpayers should not compromise on principle.
Conclusion
The jurisprudence around Section 75(7) reinforces a fundamental truth: Revenue cannot demand what it has not proposed. The SCN sets the outer boundary of the adjudicating authority's jurisdiction. Any attempt to exceed that boundary amounts to an abuse of power and violation of natural justice.
For taxpayers, this body of case law provides a robust shield against arbitrary demands. For adjudicating authorities, it serves as a reminder to exercise discipline and fairness in adjudication. Ultimately, the rule of law demands that taxation be within the confines of notice, not beyond it.
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