In the case of Lakshmi Narayan Shah v. State of West Bengal & Ors., the Calcutta High Court addressed the issue of whether an Appellate Authority can enhance tax liability on grounds not included in the original show cause notice or adjudication order, without providing the taxpayer an opportunity to respond, as required under Section 107(11) of the GST Act. The petitioner had been issued a show cause notice under Section 73 of the CGST/WBGST Act due to alleged short payment of tax related to outward and inward supply, as well as reversible ITC. However, the petitioner was unable to respond effectively because the notice was only uploaded on the GST portal.
The Appellate Authority partially allowed the appeal but unexpectedly increased the petitioner's taxable turnover by classifying an alleged excess zero-rated supply as taxable at 18%, without prior notice. The High Court found this enhancement to be in violation of the second proviso to Section 107(11) of the GST Act, as the issue of taxable turnover enhancement was not part of the original adjudication proceedings. Consequently, the appellate order was set aside to the extent it increased taxable turnover and imposed additional tax.
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The matter was remanded to the Appellate Authority for limited reconsideration, requiring them to provide the petitioner an opportunity for a hearing. Additionally, the court set aside the rectification rejection order, allowing the petitioner to submit an additional reply. This decision underscores the requirement for due process and the right to be heard in tax adjudication and appellate proceedings.
Case Title: Lakshmi Narayan Shah v. State of West Bengal & Ors.
Order Date: 14 January 2026
Facts –
- The petitioner was issued a show cause notice under Section 73 of the CGST/WBGST Act alleging short payment of tax on outward supply, inward supply under RCM, and reversible ITC.
- The petitioner could not respond to the notice as it was uploaded only on the GST portal without effective communication.
- The Appellate Authority partly allowed the appeal but additionally enhanced the petitioner’s taxable turnover by treating alleged excess zero-rated supply as taxable at 18%.
- This enhancement was made without any prior notice or opportunity to rebut the new ground.
Issue –
- Whether the Appellate Authority can enhance tax liability on a ground not forming part of the show cause notice or adjudication order, without granting opportunity as mandated under Section 107(11) of the GST Act?
Order –
- The High Court held that enhancement of tax liability without prior notice violates the second proviso to Section 107(11) of the GST Act.
- It observed that the issue of taxable turnover enhancement was never part of the original adjudication proceedings.
- The appellate order was set aside to the extent it increased taxable turnover and imposed additional tax.
- The matter was remanded to the Appellate Authority for limited reconsideration after granting opportunity of hearing.
- The rectification rejection order was also set aside, with liberty to the petitioner to file an additional reply.
