Facts of the Case:

The petitioner challenged the adjudication order dated 26.05.2026 passed under Section 74 of the CGST Act, 2017. Two principal objections were raised: first, that the adjudicating authority had not recorded the requisite satisfaction regarding fraud, wilful misstatement or suppression of facts for invoking Section 74; and second, that the adjudication order imposed penalty despite the SCN dated 30.01.2026 not clearly proposing or quantifying such penalty in Form DRC-01. The Revenue contended that the petitioner had participated in the proceedings and that the SCN contained a reference to penalty.

Issue:

Whether an adjudication order can confirm penalty when the amount of penalty was not clearly specified/proposed in the SCN as required under Section 75(7) of the CGST Act, and whether the validity of invoking Section 74 required fresh consideration?

Held That:

The High Court set aside the adjudication order and remanded the matter for fresh adjudication. It noted that Section 75(7) mandates that the amount of tax, interest and penalty payable must be clearly specified in the SCN. Although the Revenue referred to a general mention of penalty in the SCN, it could not dispute that the statutory requirement of clearly specifying the amount in Form DRC-01 had not been complied with.

The Court further observed that the petitioner’s objection regarding the absence of the requisite ingredients for invoking Section 74 had not been adequately addressed. Accordingly, the adjudicating authority was permitted to issue a supplementary notice quantifying the penalty and interest, after which the petitioner could raise fresh objections on jurisdiction and limitation. The authority was directed to pass a fresh order after hearing the petitioner and specifically deal with the objection concerning invocation of Section 74.

Key Takeaway

Under Section 75(7), the adjudication order cannot travel beyond the demand proposed in the SCN. Where penalty is not clearly specified in the SCN/DRC-01, its confirmation in the adjudication order is vulnerable. Further, where invocation of Section 74 is specifically challenged for absence of fraud, wilful misstatement or suppression, the adjudicating authority must address that foundational objection by a reasoned finding.

Case Name: Chandel Cloth House Versus Union of India And Another dated 22.09.2026

Citation No. 2026 Taxo.online 3000