GST Demand Collapses as Allahabad High Court Bars Interest Beyond Show Cause Notice

The petitioners challenged an order dated 11 February 2025 passed under Section 73(9) of the CGST Act, 2017, by which tax, interest, and a penalty aggregating to Rs. 10.04 lakh were imposed for the period April 2020 to March 2021. The core grievance was that while the show cause notice dated 13 November 2024 quantified tax and penalty, it did not quantify or even specify the interest component for the relevant period.

Despite this, the adjudication order went on to levy interest as part of the total demand. The petitioners contended that such levy was impermissible under Section 75(7) of the Act, which restricts the adjudicating authority from confirming any demand beyond what is specified in the show cause notice.

Core Issue: Whether interest under the GST law can be imposed through an adjudication order when the show cause notice did not quantify or demand such interest, in light of Section 75(7) read with Section 75(9) of the CGST Act, 2017.

HC Held: The Hon’ble High Court held that the impugned order was ex facie contrary to Section 75(7) of the CGST Act. The Court observed that the liability period for interest was fully within the knowledge of the GST authorities at the time of issuing the show cause notice, and failure to quantify interest at that stage could not be cured later in adjudication. It was clarified that Section 75(9) applies only to situations where interest is not quantified in the final order and does not override the mandatory requirement to specify tax, interest, and penalty in the show cause notice itself.

Relying on M/s Vrinda Automation, the Court quashed both the show cause notice and the consequential adjudication order, while leaving it open to the authorities to issue a fresh notice strictly in accordance with law.

To Read Full Judgment, Download PDF Given Below