A tax demand of more than ₹1.02 crore imposed on M/s Sanjay Construction has been set aside by the Allahabad High Court, Lucknow Bench, which held that interest not quantified in the show cause notice cannot subsequently be levied in the adjudication order.
The Division Bench comprising Justice Shekhar B. Saraf and Justice Manjive Shukla observed that the interest liability related to the financial year 2020–21, a period that was already known to the authorities when the show cause notice was issued on November 29, 2024. However, despite having this information, the authorities did not quantify the interest component in the notice.
The petitioner filed a legal request under Article 226 of the Constitution to challenge an order dated February 14, 2025, made u/s 73(9) of the GST Act, 2017. In this order, the authorities demanded tax, interest, and a penalty totalling ₹1,02,58,921.42 from the petitioner for the FY 2020–21.
The applicant’s counsel said that while the SCN quantified tax and penalty, it did not quantify any interest for the period April 2020 to March 2021. Even after the same omission, the adjudicating authority included interest in the final order.
Before the Court, the question was whether the interest could be levied in the adjudication order when it was not mentioned or quantified in the SCN.
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The applicant put reliance on Section 75(7) of the GST Act, which states that the amount of tax, interest, and penalty demanded in the order shall not surpass the amount set in the notice and that no demand shall be confirmed on foundations other than those identified in the notice. No inclusion of interest was cited in the SCN, which directed to a breach of statutory safeguards and principles of natural justice.
The State authorities said that the interest is subject to being filed statutorily on tax short paid or not paid, regardless of whether it is specified in the notice or order. They put reliance on Section 75(9) of the Act, which states that the interest on tax short paid or not paid will be liable to be paid whether or not mentioned in the order determining tax liability.
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The Bench said that the failure to quantify the interest in the SCN was in breach of Section 75(7) of the GST Act. It outlined that the adjudicating authority could not travel beyond the extent of the notice.
The State’s reliance was denied by the Court on section 75(9), citing that the provision is applicable where interest is not mentioned in the final order, not where it was omitted from the SCN itself.
To address the reason, the Bench referred to an earlier decision of a Coordinate Bench in M/s Vrinda Automation vs. State of Uttar Pradesh and Another (Writ Tax No. 2006 of 2025, decided on May 14, 2025), which had similarly held that penalty and interest beyond the scope of the SCN would be ex facie contrary to Section 75(7).
The Court quashed both the impugned order and the underlying SCN by holding that the adjudication order disregarded the regulatory limitations.
The Bench provided the GST authorities with the option to issue a fresh SCN in accordance with the law and proceed afresh.
| Case Title | M/S Sanjay Construction vs. State Of U.P. |
| Case No | WRIT TAX No. – 161 of 2026 |
| Counsel for Petitioner | Deepak Kumar Pandey, Piyush Agnihotri, and Shailesh Sachan |
| Counsel for Respondent | C.S.C. |
| Allahabad High Court | Read Order |
