In a significant decision impacting GST litigations, the Uttarakhand High Court in case of Horizon Packs (P.) Ltd. v. Union of India reinforced a key procedural safeguard under the GST law. The Court held that any tax, interest, or penalty demanded through an order cannot exceed the amount stated in the Show Cause Notice (SCN).
Background of the Case
The petitioner, Horizon Packs (P.) Ltd., challenged a demand order issued by the State GST department under Section 73(9) of the Uttarakhand Goods and Services Tax (UGST) Act. The impugned order, dated November 6, 2023, demanded a total amount of ₹91,95,708, combining tax, interest, and penalties.
However, the petitioner highlighted a glaring discrepancy: the amount mentioned in the Show Cause Notice (SCN) issued in Form GST DRC-01 was only ₹27,06,340. The escalation in the final demand was challenged as arbitrary, unlawful, and in direct contravention of the statutory provisions.
Legal Argument
Mr. Arora, appearing on behalf of the petitioner, strongly relied on Section 75(7) of the UGST Act. This provision clearly stipulates that:
“The amount of tax, interest, and penalty demanded in the final order shall not exceed the amount specified in the show cause notice.”
This safeguard ensures transparency and fairness in tax adjudication, preventing tax authorities from issuing surprise demands without giving the taxpayer a fair opportunity to respond.
State’s Response and Court’s Findings
Mr. Maulekhi, representing the State authorities, conceded before the Court that the final demand order did indeed exceed the amount mentioned in the SCN, and thus violated Section 75(7).
Recognizing the violation, the Uttarakhand High Court allowed the writ petition and quashed the demand order dated November 6, 2023. The Court reiterated the importance of adhering to due process and statutory limits when issuing tax demands.
Important Clarification by the Court
While striking down the excessive demand order, the Court did not prevent the tax authorities from reinitiating proceedings. It granted the department liberty to issue a fresh order, provided it follows the correct legal process.
Moreover, the High Court directed the proper officer to pass the final order within four months, in accordance with the UGST Act’s procedural framework.
Key Takeaways from the Judgment:
- Demand Cannot Exceed SCN: A final order under GST law must be limited to the amount mentioned in the show cause notice.
- Due Process is Essential: Adherence to procedural norms under Section 75 of the UGST Act is mandatory.
- Taxpayer Rights Upheld: The judgment is a strong reminder to tax authorities to act within the bounds of law and protect taxpayer rights.
- Scope for Fresh Proceedings: The authorities can issue a fresh notice and order, but it must conform to the provisions of the GST Act.
Conclusion
The Uttarakhand High Court’s ruling in Horizon Packs (P.) Ltd. v. Union of India serves as a landmark precedent in GST jurisprudence. It strengthens procedural discipline and underscores the principle that tax justice must be fair, transparent, and within legal limits.
Tax professionals and businesses must ensure they are vigilant about such discrepancies in GST proceedings and assert their rights under the law. This ruling is a crucial reminder that procedural lapses by tax authorities can lead to the invalidation of even substantial tax demands.