Allahabad HC Grants Relief to Vibhuti Tyres, Quashes GST Demand as Illegal Beyond SCN Scope

The Allahabad High Court ruled in favour of the applicant (M/S Vibhuti Tyres). The final demand of Rs 32.97 lakh was not legal and is higher compared to the original amount of Rs 8.81 lakh as specified in the show cause notice issued before the applicant under section 73 of the GST Act, the court discovered.

As per Section 75(7) of the Act, the court cited that the tax authorities could not ask for a demand in the final order that was more than what was mentioned in the SCN. The court held that the department’s order is not valid as the rule was breached. Thereafter, the case is remanded back to the GST officer, asking them to furnish Vibhuti Tyres a chance to respond and to issue a fresh order merely after complying with the accurate statutory procedure.

The Case

From July 2017 to March 2018, M/S Vibhuti Tyres, a business, was under the inspection of the GST department.

The GST department issued a Show Cause Notice (SCN) under Section 73 of the GST Act, dated 29th September 2023. Under the notice, the firm was asked why Rs 8.81 lakh (including tax, interest, and penalty) must not be recovered. The same notice was in the format known as GST DRC-01.

No answer was furnished before the notice by M/s Vibhuti Tyres, and it also does not appear for any hearing.

After that, a GST officer passed a final order dated November 18, 2023, asking for Rs 32.97 lakh (this included Rs. 15.93 lakh as interest and Rs. 1.54 lakh as penalty), which was higher than the original amount, i.e., Rs. 8.81 lakh.

Vibhuti Tyres Implementation

Vibhuti Tyres, post getting the notice, submitted a writ petition in the HC, citing that, “This is unfair! The show cause notice only mentioned Rs. 8.81 lakh, but the final order asks for nearly Rs. 33 lakh! That’s not allowed under GST law—it violates Section 75(7).”

Concerning Section 75(7) of the GST Act, the final demand (tax + interest + penalty) can’t exceed what was mentioned in the SCN.

The officer cannot add the new reasons in the final order that were not written in the notice.

The contention of the government

The state government lawyer stated that, “It’s okay to add interest and penalty later because those are automatically allowed under law, even if not mentioned in the notice.”

Decision of the High Court

From the opinion of the government, the court disagreed and decided in its decision, which is mentioned below-

• Clear breach of Section 75(7).
• The statement noted only Rs. 8.81 lakh.
• The final order presented Rs. 32.97 lakh, which is considerably more.

Read Also: Assessee Cannot Plead Lack of Hearing If Show Cause Notice Was Available on GST Portal

The courts undertaking

• The court dispatched the case back to the GST officer.
• The court requested the officer to give the company a proper opportunity to answer, hold a hearing, and then pass a new order as per law.
• The court withdrew the Rs. 32.97 lakh order.