Facts of the Case:
In this case, the petitioner challenged an order passed under Section 73(9) of the CGST Act, 2017, whereby tax, interest and penalty were imposed. The grievance of the petitioners was that the show-cause notice issued on 29 November 2024 did not quantify any interest for the period April 2020 to March 2021. However, in the final adjudication order, interest for the said period was imposed along with tax and penalty. Relying on Section 75(7) of the CGST Act, the petitioners contended that the amount of tax, interest and penalty confirmed in the order cannot exceed or travel beyond what is specified in the show-cause notice. It was argued that since interest was not demanded or quantified in the notice, the same could not be included in the final order.
The petitioners further relied on the judgment of the Coordinate Bench in M/s Vrinda Automation v. State of Uttar Pradesh, which held that demand of penalty and interest beyond the show-cause notice is ex facie contrary to Section 75(7). On the other hand, the GST authorities contended that interest is statutorily payable on short-paid tax and relied on Section 75(9) of the Act, which provides that interest shall be payable whether or not specified in the order determining tax liability.
Issue:
Whether interest can be imposed in an adjudication order under Section 73(9) of the CGST Act when such interest was neither quantified nor demanded in the show-cause notice, in view of Section 75(7) of the Act.
Held that:
The High Court held that Section 75(7) clearly mandates that the amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the show-cause notice, and no demand can be confirmed on grounds other than those specified in the notice. In the present case, the authorities were fully aware of the relevant tax period when issuing the show-cause notice. However, no interest was quantified or demanded therein. Imposition of interest in the final adjudication order, therefore, amounted to travelling beyond the show-cause notice and was in direct contravention of Section 75(7).
The Court rejected the reliance placed by the department on Section 75(9), holding that the said provision applies to situations where interest is not specified in the adjudication order, and not to cases where interest was omitted from the show-cause notice itself. Following the ratio laid down in M/s Vrinda Automation v. State of Uttar Pradesh, the Court held that demand of interest beyond the scope of the show-cause notice is legally unsustainable.
Accordingly, the impugned show-cause notice and the adjudication order dated 14 February 2025 were quashed and set aside, with liberty granted to the authorities to issue a fresh show-cause notice in accordance with law.
Case Name: M/s Sanjay Construction Thru. Authorized Representative Shivendra Kumar Versus State Of U.P. Thru. Prin. Secy. Finance Deptt. Lko. And Another dated 17.02.2026
