GST Authority Slapped with Setback: Demand Jumps from ₹69L to ₹5.2Cr Without Notice

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Case Name

M/s Hajee AP Bava And Company Construction Private Limited Vs The Assistant Commissioner

Court Name: High Court of Andhra Pradesh

Case No.: W.P.No.18276 of 2022

Date of Order: 12th July 2022

Bench: Hon’ble Sri Justice C. Praveen Kumar and Hon’ble Sri Justice Tarlada Rajasekhar Rao

Key Takeaways

1. You can’t demand more than what’s in the Show Cause Notice (SCN): The tax authority issued an SCN for ₹69,12,114/- but then passed an order demanding ₹5,20,39,891/-. That’s a massive jump, and the court said — not acceptable!

2. IGST cannot be added out of thin air: The authority added ₹84,16,365/- as IGST, which was never part of the original show cause notice. The court clearly held this to be impermissible under law.

3. Separate notices are required for interest and penalty: If the authority wants to add interest and penalty over and above the tax amount in the SCN, they must issue separate notices for that. They can’t just spring it on the taxpayer in the final order.

4. Objections must be genuinely considered: The authority simply extracted (copy-pasted) the petitioner’s explanation without actually discussing or addressing the objections raised. That’s not how it works — the court flagged this as a serious procedural lapse.

5. Going beyond the SCN scope is illegal: The authority went into the issue of excess ITC (Input Tax Credit) claims, which was not even part of the show cause notice. This was held to be improper.

Issue

The central legal question the court framed was:

"Whether the tax demanded is in accordance with the procedure established by law?"

In simpler terms: Did the tax authority follow the correct legal process before demanding ₹5.20 crores from the company?

Short answer from the court: NO, it did not.

Facts

Who is the Petitioner?

The petitioner is a company engaged in mechanical erection and fabrication of Cement and Steel plants, registered under GST with GSTIN No. 37AACCH1218C3Z4. They were regularly filing GST returns and claiming Input Tax Credit (ITC) under Section 16 of the CGST/SGST Act, 2017.

The Inspection (November 2020):

The 1st respondent (Assistant Commissioner) inspected the petitioner’s business premises on 02.11.2020, following authorization from the 2nd respondent. After the inspection, a notice dated 03.11.2020 was issued under Section 73/74 of APGST/CGST Rules, 2017, assessing tax payable as:

• ₹69,12,453/- for Assessment Year 2018-19
• ₹1,53,25,314/- for Assessment Year 2019-20

The Show Cause Notice (August 2021):

On 10.08.2021, the Office of the Assistant Commissioner (ST)(FAC), Tadipatri issued a show cause notice demanding:

• ₹69,12,114/- under CGST
• ₹69,12,114/- under SGST (a separate notice on the same day)

The notice also proposed to levy penalty and interest in addition to the tax, through Form DRC 01A.

The Petitioner’s Response (September 2021):

The petitioner submitted a detailed explanation on 09.09.2021, pointing out the mistakes committed by the authority in arriving at the tax figures. The representation was duly received by the department.

The Impugned Order (November 2021):

Despite the explanation, on 17.11.2021, the authority passed an order in Form GST DRC-07 fixing the total liability at a staggering ₹5,20,39,891/-, broken down as follows:

Component ----------- Amount

IGST Tax ------------₹84,16,365/-

IGST Penalty---------84,16,365/-

IGST Interest--------₹31,05,921/-

CGST Tax-------------₹69,09,201/-

CGST Penalty---------₹69,09,201/-

CGST Interest--------₹22,28,521/-

SGST Tax-------------₹69,12,201/-

SGST Penalty---------₹69,12,201/-

SGST Interest--------₹22,29,915/-

Total----------------₹5,20,39,891/-

The order also threatened recovery proceedings if payment wasn’t made within 30 days.

Arguments

Petitioner’s Arguments (The Company):

1. The order is without reasons: The authority simply extracted the petitioner’s explanation but never actually considered or addressed it while fixing the liability.

2. Demand exceeds the SCN amount: The show cause notice demanded ₹69,12,114/- under CGST and SGST each, but the final order demands ₹5,20,39,891/- — this is way beyond what was asked in the SCN.

3. IGST was never part of the SCN: An additional ₹84,16,365/- was added as IGST, which was never mentioned in the show cause notice. This is beyond the scope of the notice and therefore illegal.

4. No separate notice for interest and penalty: The authority added huge amounts of interest and penalty without issuing separate notices for the same, violating the principles of natural justice.

5. ITC issue was outside the SCN scope: The authority went into the question of excess ITC claims in the order, which was not part of the show cause notice at all.

Respondent’s Arguments (The Tax Department):

1. Petitioner didn’t respond to the SCN: The department’s counsel argued that the petitioner did not respond to the show cause notice, so the order needs no interference.

2. No prejudice caused: Even though the demand in the order is higher than in the SCN, the department argued that this does not cause any prejudice to the petitioner.

Note: The court clearly disagreed with both these arguments

Key Legal Precedents & Provisions

The judgment references the following specific legal provisions (no separate case law precedents were cited, but the following statutory provisions were central):

Section 16 of CGST/SGST Act, 2017

The provision under which the petitioner was claiming Input Tax Credit (ITC)

Section 73/74 of APGST/CGST Rules, 2017

The provision invoked by the authority to issue the initial notice and assess tax payable

Form DRC 01A

The form used to communicate the proposed tax liability before issuing the formal show cause notice

Form GST DRC-07

The final order form used to communicate the demand — this is the order that was challenged and set aside

Key Legal Principle Applied:

The court applied the well-established principle of natural justice — specifically the rule of audi alteram partem (hear the other side). The authority cannot:

• Demand more than what was stated in the SCN
• Add new tax heads (like IGST) without notice
• Ignore the taxpayer’s explanation without proper reasoning
• Go beyond the scope of the SCN in the final order

Judgment

Winner: The Petitioner (The Company)

The court set aside the Order in Form GST DRC-07, dated 17.11.2021 and remanded the matter back to the authority with the following directions:

“The matter is remanded back to the authority to issue fresh notice and thereafter proceed further in accordance with law.”

Reasoning behind the decision:

The court found multiple serious flaws in the authority’s order:

1. The final demand of ₹5,20,39,891/- was far in excess of the SCN amount of ₹69,12,114/- — this is impermissible.

2. Adding IGST of ₹84,16,365/- without any mention in the SCN was held to be “impermissible under law”.

3. The authority failed to issue separate notices for interest and penalty before including them in the final order.

4. The petitioner’s explanation was not genuinely considered — the authority merely extracted it and overruled it with a table, without addressing the actual objections raised.

5. The authority went into the ITC excess claim issue, which was outside the scope of the show cause notice.

All Miscellaneous Petitions pending were also closed.

FAQs

Q1: What does “remanded back” mean? Does the company escape the tax demand?

Not necessarily. “Remanded back” means the case goes back to the tax authority to redo the process correctly — issue a fresh, proper notice, consider the petitioner’s response genuinely, and then pass a fresh order. The company doesn’t automatically escape liability; the authority just has to follow the correct procedure this time.

Q2: Why was the IGST addition considered illegal?

Because the show cause notice only mentioned CGST and SGST. IGST was never part of the notice. You can’t demand something in the final order that you never gave the taxpayer a chance to respond to. That’s a fundamental violation of natural justice.

Q3: Can the tax authority issue a fresh demand for the full ₹5.20 crores again?

They can issue a fresh notice, but this time they must follow the proper procedure — the demand must be clearly stated in the SCN, the taxpayer must be given a fair opportunity to respond, and the final order must address the taxpayer’s objections with proper reasoning.

Q4: What is the significance of “principles of natural justice” here?

Natural justice basically means fair play in legal proceedings. Two key rules are: (1) give the person a proper notice of what’s being demanded, and (2) genuinely hear and consider their response before deciding. The authority violated both rules here.

Q5: What is Form GST DRC-07?

It’s the official GST form used by tax authorities to communicate the final demand for tax, interest, and penalty after the adjudication process. In this case, the DRC-07 was the impugned (challenged) order.

Q6: What lesson does this case hold for GST taxpayers?

This case is a strong reminder that:

• Always respond to show cause notices with a detailed explanation
• If the final order demands more than the SCN, challenge it immediately
• Tax authorities cannot add new tax heads or go beyond the SCN scope in the final order
• Proper reasoning in orders is mandatory — a copy-paste of your explanation is NOT enough!

Heard Sri Bhasker Reddy Vemireddy, learned counsel for the petitioner and Sri Sai Kumar, learned counsel representing the learned Government Pleader for Commercial Taxes and with their consent, the Writ Petition is disposed of at the stage of admission.

2. The present Writ Petition came to be filed questioning the order in Form GST DRC-07, dated 17.11.2021 as illegal, improper, incorrect and violative of principles of natural justice.

3. The facts in issue show that the petitioner is a Company carrying on business in mechanical erection and fabrication of Cement and Steel plants. The petitioner is registered as a taxable person under the provisions of Central Goods and Services Tax Act, 2017 (for short, “CGST Act) and State Goods and Services Tax, 2017 (for short, “SGST Act”) with GSTIN No.37AACCH1 218C3Z4. It is said that the petitioner has been filing returns regularly after adjusting the tax credit in terms of Section 16 of CGST/SGST Act, 2017. The 1st respondent in pursuance of the authorization said to have been

issued by the 2nd respondent inspected the business premises of the petitioner on 02.11.2020 and thereafter issued a notice dated 03.11.2020, invoking the power under Section 73/74 of APGST/CGST Rules, 2017, assessing the tax payable to the petitioner as Rs.69,12,453/- in respect of the assessment year 2018-19 and Rs.1,53,25,314/- in respect of the year 2019-20.

4. The 1st respondent is said to have issued a show cause notice

dated 10.08.2021 proposing to levy penalty and interest in addition

to the tax already ascertained by him through Form DRC 01A. The

petitioner herein is said to have given the explanation to the show

cause notice mentioning the incorrectness in the show cause notice

issued. Pursuant thereto, the authority passed an Order dated

17.11.2021, which is impugned in the present Writ Petition.

5. Learned counsel appearing for the petitioner mainly submits

that the order impugned in the Writ Petition is bereft of any reasons

and the explanation given by the petitioner has not been considered.

Accordingly to him, except extracting the contents of the explanation

given to the show cause notice, there is no consideration of the same

while fixing the liability. He further submits that while the show

cause notice is for payment of Rs.69,12,114/- under SGST and

CGST Acts, the order impugned directs levying of Rs.5,20,39,891/-

as the amount payable by the petitioner, which according to the

petitioner is beyond the amount demanded under the show cause

notice.

6. Sri Sai Kumar, learned counsel representing the respondents,

on instructions, states that, the petitioner did not respond to the

show cause notice issued and as such the order impugned warrants

no interference. He further submits that though the amount

demanded to be paid is more than the amount demanded in the

show cause notice, but the same in no way cause any prejudice to

the petitioner.

7. Learned counsel for the petitioner, in reply, contends that

apart from adding CGST and SGST, the authority concerned has

imposed IGST interest to a tune of Rs.84,16,365/-, which is also

beyond the purview of the show cause notice.

The point that arises for consideration is that,

Whether the tax demanded is in accordance with the procedure

established by law ?

8. As seen from the record, the show cause notice was issued on

10.08.2021, by the Office of the Assistant Commissioner (ST)(FAC),

Tadipatri, demanding the petitioner to pay a sum of Rs.69,12,114/-

under CGST. On the very same day, another show cause notice was

issued demanding payment of Rs.69,12,114/- under SGST Act.

9. The petitioner submitted his explanation on 09.09.2021

explaining the mistake committed by the authority in arriving at the

said figures. The representation was received on 09.09.2021.

Thereafter, the impugned order came to be passed on 17.11.2021

fixing the liability at Rs.5,20,39,891/-. The said amount was arrived

at after calculating interest and penalty to be paid by the petitioner,

on the amount demanded. Not only that, an amount of

Rs.84,16,365/- was added towards Integrated Goods and Services

Tax ( for short, “IGST”) which in our view is impermissible under law.

It would be appropriate to extract the findings arrived at by the

authority which are as herein under:-

“Hence, the orders are passed accordingly and levied supra cited IGST Tax

of Rs.84,16,365/-, IGST penalty of Rs.84,16,365/-, IGST interest of

Rs.31,05,921/-, CGST Tax of Rs.69,09,201/-, CGST penalty of

Rs.69,09,201/-, CGST interest of Rs.22,28,521/-, SGST Tax of

Rs.69,12,201/- and SGST penalty of Rs.69,12,201/- and SGST Interest of

Rs.22,29,915/- total levied of Rs.5,20,39,891/- (Rupees Five Crore Twenty

Lakh Thirty Nine Thousand Eight Hundred and Ninety One only) and the

amount shall be paid within 30 (thirty) days without fail, lest recovery

proceedings will be initiated. DRC-07 (system generated copy) is herewith

attached”.

10. It is also to be noted here that in case if the authority intend to

add interest and penalty on the amount fixed in the show cause

notice, separate notices ought to have been issued to the petitioner

for the said demand, which was not done in the instant case. Apart

from that a perusal of the order would show that except extracting

the explanation given to the show cause notice, there is no

discussion raised on the objections. The objections raised were

overruled stating as follows:-

“The same is verified and arrived the actual tax liability as

under:-

The tax payer has claimed excess ITC during 2018-19 and the

same was shown and availed in annual return GSTR-9. The difference

is excess claim and accordingly levied”.

11. It is also to be noted that, while dealing with the objections

raised, the authority goes into the aspect of claim of ITC alleged to

have been made by the petitioner which was not the content of the

show cause notice.

12. Having regard to the above circumstances, the Order under

challenge i.e., Form GST DRC-07, dated 17.11.2021, is set aside and

the matter is remanded back to the authority to issue fresh notice

and there after proceed further in accordance with law.

Miscellaneous Petitions pending, if any, shall stand closed.

JUSTICE C.PRAVEEN KUMAR

JUSTICE TARLADA RAJASEKHAR RAO

Date: 12-07-2022