Jammu and Kashmir High Court Quashes GST Demand Order Exceeding Show Cause Notice Amount

Court affirms violation of natural justice principles and GST Act provisions; orders reassessment in the landmark M/s Ukas Goods Carrier case.

In a significant judgment, the Jammu and Kashmir High Court has set aside a demand order issued by tax authorities against M/s Ukas Goods Carrier, a Goods and Transport Agency (GTA), under the Goods and Services Tax (GST) Act, 2017. The court ruled that the demand order, which exceeded the amount specified in the initial show cause notice, was in violation of the principles of natural justice and the statutory provisions of the GST Act.

The case, adjudicated by Justices Sanjeev Kumar and Sanjay Parihar, involved a dispute over the demand of Rs. 7,61,80,000/- levied on M/s Ukas Goods Carrier. This amount was significantly higher than the Rs. 4,59,50,000/- specified in the show cause notice dated 6th February 2021. The discrepancy was found to breach Section 75(7) of the GST Act, 2017, which mandates that any demand order must not exceed the amount specified in the show cause notice.

The petitioner, represented by Advocates Mr. Shariq J. Reyaz and Mr. Wahid Lone, argued that the demand order violated principles of natural justice as it denied the petitioner an adequate opportunity to respond to the increased demand. The court concurred, emphasizing that Section 75(7) is designed to ensure compliance with natural justice by preventing demand orders from exceeding what was initially outlined in the show cause notice.

The court rejected the respondents' argument, represented by Senior Additional Advocate General Mr. Mohsin Qadiri and Assistant Counsel Mr. Mohd Younus Hafiz, that the petition should not be entertained due to the availability of an appellate remedy under Section 107 of the GST Act. The court noted that despite this statutory remedy, the violation of natural justice warranted immediate judicial intervention.

The bench clarified the importance of adhering to statutory limits as set by the GST Act, highlighting the need for tax authorities to issue fresh show cause notices if they intend to demand amounts exceeding what was initially specified, provided such issuance is within the stipulated limitation period.

In conclusion, the court ordered the quashing of the impugned demand order and directed the assessing authority to reconsider the matter, ensuring compliance with legal provisions and principles of natural justice. This judgment reaffirms the judiciary's role in safeguarding taxpayers' rights and ensuring fairness in administrative proceedings.

Bottom Line:

Goods and Services Tax (GST) - Demand order issued under Section 74(9) of GST Act, 2017 cannot exceed the amount specified in the show cause notice issued under Section 74(1) of the GST Act, 2017 - Such a demand order violating Section 75(7) of the GST Act, 2017 and principles of natural justice is unsustainable in law.

Statutory provision(s): Goods and Services Tax Act, 2017 Sections 74(1), 74(9), 75(7), 107

M/s Ukas Goods Carrier v. Union Territory of JK, (Jammu And Kashmir)(Srinagar)(DB) : Law Finder Doc Id # 2818968