Interest and Penalty Cannot Go Beyond Show Cause Notice: Allahabad High Court

The Allahabad High Court has ruled that interest, penalty and tax demanded in the order cannot be more than the amount mentioned in the show cause notice issued prior to the order.

The petitioner company, Ziva Auto Sales, filed a petition against the GST Department challenging their GST order imposing a liability of Rs 10,04,955, including tax, interest and penalty.

The company referred to Section 75(7) of the GST Act, 2017, arguing that the tax, interest and penalty cannot form a part of the GST order unless these amounts are demanded in the show cause notice.

Section 75(7) of the GST Act stops the tax authorities from issuing demand orders exceeding the amount specified in the Show Cause Notice. As per this section, the tax authorities cannot even confirm demands on the grounds not mentioned in the original notice.

The GST department referred to Section 75(9) of the Act, 2017, arguing that it mandates that interest on tax short-paid or unpaid is payable by the taxpayer even if this interest is not mentioned in the order determining the tax liability.

The Court observed that the GST department already knew about the interest liability of the company when they were issuing the notice. However, adding this later in the order violates Section 75(7) of the Act, 2017.

The Court clarified that Section 75(9) is not applicable in the present case, because it only applies when the interest is not mentioned in the final order, not the show cause notice.

Therefore, the court quashed and set aside both the order and the show cause notice.