Facts of the Case:

The petitioner challenged an order passed by the Appellate Authority under Section 107 , whereby the petitioner’s appeal against an adjudication order passed under Section 73 was disposed of by modifying the adjudication order. The proceedings originated from a show cause notice issued under Section 73 of the Act for the tax period July 2017 to March 2018, alleging discrepancies in the petitioner’s statutory returns, namely GSTR-1, GSTR-2A, GSTR-9 and GSTR-9C. The petitioner asserted that the show cause notice was never brought to its knowledge, as it was uploaded on the GST portal under the tab “Additional Notices and Orders”, and therefore no reply could be submitted.

Although the show cause notice itself was non-speaking, the prior intimation notices indicated that the proposed demand was based on three specific grounds short payment of tax on outward supplies, short payment of tax on inward supplies under the reverse charge mechanism and input tax credit found to be reversible.

During the appellate proceedings, the petitioner accepted liability on the first two grounds relating to outward supplies and RCM. However, in respect of the third ground concerning reversal of ITC, the appellate authority set aside the demand. Despite this, the appellate authority went beyond the scope of the adjudication order and introduced a new issue, holding that the petitioner had claimed excess zero-rated supplies by comparing figures reflected in various GST returns.

On this basis, the appellate authority enhanced the petitioner’s taxable turnover and levied additional CGST and SGST at 9% each, thereby increasing the petitioner’s tax liability beyond what was proposed in the show cause notice or determined by the adjudicating authority. The petitioner’s explanation that an incorrect figure had been initially reported in GSTR-3B and later rectified in GSTR-9 and GSTR-9C was not considered. The petitioner thereafter filed an application for rectification dated 30 December 2024, which was also rejected. Since the appellate order resulted in an enhancement of tax liability on a ground never put to the petitioner, the present writ petition was filed before the High Court. 

Issue:

Whether the appellate authority, while exercising powers under Section 107 of the CGST/WBGST Act, could enhance the petitioner’s tax liability by introducing a new ground relating to excess zero-rated supplies, without issuing prior notice or affording an opportunity of hearing, as mandated under the second proviso to Section 107(11) of the Act.

Held that:

The High Court held that the scope of the adjudication proceedings was confined to the three grounds mentioned in the show cause notice and adjudication order, namely short payment on outward supplies, short payment under RCM and reversal of ITC. The issue of enhancement of taxable turnover on account of alleged excess zero-rated supplies was never part of the adjudication proceedings and, therefore, could not have been considered by the appellate authority while deciding the appeal. The Court observed that although Section 107 confers wide powers on the appellate authority, any enhancement of tax liability is expressly circumscribed by the second proviso to Section 107(11), which mandates that the appellant must be given a reasonable opportunity of showing cause against such enhancement. In the present case, no notice or opportunity was granted to the petitioner before increasing the taxable turnover and imposing additional tax.

Reliance placed upon the Calcutta High Court in Hriday Kumar Das v. State of West Bengal, wherein the Court reiterated that non-compliance with Section 107(11) vitiates an appellate order to the extent it enhances tax, interest or penalty. The Court further held that the appellate authority had failed to apply its mind by selectively relying on figures in GSTR-3B without considering the petitioner’s contention that the said figures were corrected in GSTR-9 and GSTR-9C, and without affording an opportunity to explain the alleged discrepancy. 

Accordingly, the Court set aside the appellate order only to the limited extent it enhanced the petitioner’s taxable turnover and imposed tax thereon at 18%. The matter was remanded to the appellate authority for reconsideration of that limited issue after granting the petitioner an opportunity of hearing and permitting the filing of an additional reply. 

Case Name: Lakshmi Narayan Shah Versus The State of West Bengal & ors. dated 14.01.2026

To read the complete judgement 2026 Taxo.online 59