The Calcutta High Court has partly refused an appellate order given under the West Bengal GST regime. The HC figured that the appellate authority unlawfully raised the assessee’s tax penalty without furnishing the requisite option for a hearing, thereby violating Section 107(11) of the CGST and WBGST Act of 2017.
The bench of Justice Om Narayan Rai said that the original adjudication proceedings were limited to three issues and did not engage any dispute for the excess zero-rated supplies or enhancement of taxable turnover. As the appellate authority gets its jurisdiction challenged from the adjudication order, it cannot roll out a new ground without following the regulatory safeguards.
The writ petition was filed contesting an appellate order on December 19, 2024, passed under section 107 of the CGST/WBGST Act, which modified an earlier adjudication order on September 8, 2023, issued u/s 73 of the Act. The original adjudication originated from a show cause notice issued on May 17, 2023, alleging discrepancies in GST returns GSTR-1, GSTR-2A, GSTR-9, and GSTR-9C for the period July 2017 to March 2018.
SCN, uploaded on the GST portal under the Additional Notices and Orders tab, does not answer as the applicant claimed to be clueless. The notice alleged three issues: short payment of tax on outward supplies, short payment on inward supplies under the RCM, and unlawful availment of ITC.
The appellate authority, while hearing the appeal, accepted the admission of the applicant on two counts, outward supply tax and reverse charge mechanism (RCM) liability, and annulled the demand for ITC reversal. But it goes beyond the extent of the original adjudication and held that the petitioner had allegedly claimed excess zero-rated supplies amounting to over 27 lakh.
Therefore, the authority added the tax turnover amount and levied additional GST at 18%, thereby improving the overall tax obligation. The subsequent rectification application of the applicant against the same enhancement was also denied, which prompted the writ petition before the HC.
The main problem before the court was whether the appellate authority can improve the tax obligation based on a fact which was never part of the original Show Cause Notice (SCN) or adjudication order, without giving the chance to the taxpayer to answer, as obligated by the second proviso to Section 107(11) of the Act.
The court said that Section 107(11) mandates that when the appellate authority contemplates improvement of tax or penalty, the taxpayer should be furnished a chance of being heard. The Court, relying on the earlier Division Bench ruling in Hriday Kumar Das v. State of West Bengal (2024), held that failure to comply with the same obligatory process renders the appellate order unsustainable.
The court said that the factual non-application of the mind by the appellate authority, which relied on numbers from GSTR-3B, without acknowledging the applicant’s explanation that the error had earlier been corrected in GSTR-9 and GSTR-9C. The court ruled that these claims needed to be analysed before drawing adverse conclusions.
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Subsequently, the HC set aside the appellate order merely to the extent that it improved the taxable turnover and levied additional tax at 18%. The case has been remanded to the appellate authority for confined reconsideration after allotting the applicant a chance to submit an additional response and be heard on the problem of alleged excess zero-rated supplies.
Also, the order denying the rectification application was quashed. The court did not analyse the merits of the tax dispute and asked the appellate authority to determine the case as per the law. No order was passed.
| Case Title | Lakshmi Narayan Shah vs. State of West Bengal |
| Case No. | WPA 6227 of 2025 |
| Counsel for the Petitioner | Himangshu Kumar Ray |
| Counsel for the Respondent | Tanoy Chakraborty |
| Calcutta High Court | Judgment Not Uploaded on the HC’s Website |
