Tax Authorities Cannot Exceed Scope of Show Cause Notice: Calcutta High Court

The Calcutta High Court emphasised that a GST adjudicating authority cannot deny tax exemption on grounds that were never raised in the show cause notice.

A Bench of Justice Om Narayan Rai set aside an adjudication order passed against M/s Duakem Pharma Pvt. Ltd., observing that the proper officer exceeded the scope of the show cause notice by deciding an issue that was never put to the assessee for explanation.

The Court noted:

"The question as to whether the products/items dealt in by the petitioners fell under the exempted category or not was never put to the petitioner and accordingly could never have been answered by the petitioner. Consequently, the said issue could also not have fallen for consideration before the adjudicating authority."

The dispute arose from an adjudication order under Section 74 of the CGST/WBGT Act. The tax authorities had denied GST exemption on the supply of Dicalcium Phosphate (DCP), raised tax and interest demands, and directed reversal of input tax credit (ITC).

The show cause notice was limited to a single issue: whether ITC was required to be reversed in proportion to exempt supplies. It did not raise any allegations regarding the classification of DCP or its eligibility for exemption under HSN 2309.

Despite this, the adjudicating authority held that the invoices did not establish that DCP was of animal feed grade and, on that basis, denied exemption and imposed tax liability.

The Court emphasised that this issue was never part of the notice to show cause and therefore could not be decided in adjudication. Referring to Section 75(7) of the CGST Act, which mandates that the final demand for tax, interest, and penalty cannot exceed the amount specified in the SCN, the Bench reiterated that an order of adjudication must strictly confine itself to the grounds mentioned in the notice.

The Court accordingly set aside the order, while clarifying that the tax authorities are free to initiate fresh proceedings in accordance with the law.

For Petitioner: Ankit Kanodia, Megha Agarwal, Piyush Khaitan, Tulika Roy

For Respondent: Tanoy Chakraborty, Saptak Sanyal