The Supreme Court dismissed the Special Leave Petition filed by the State of Uttar Pradesh against the Allahabad High Court's decision involving M/s Sai Computers. The case revolved around a show cause notice (SCN) issued to M/s Sai Computers under Section 74 of the CGST/UPGST Act, proposing a tax demand of ₹20,916.90. However, the adjudicating authority later issued an order demanding a significantly higher amount of ₹1,55,878.26, which included a penalty of ₹20,000 and interest of ₹63,737.
M/s Sai Computers contested this order in the Allahabad High Court, claiming it violated Section 75(7) of the Act, which restricts demands from exceeding the scope or amount specified in the SCN. The High Court agreed, quashing the order and remanding the case for a fresh adjudication, ensuring the assessee was given a fair hearing. The State of U.P. challenged this decision in the Supreme Court.
The Supreme Court upheld the High Court's ruling, emphasizing that Section 75(7) explicitly prohibits tax, interest, and penalties from surpassing the amounts specified in the SCN or being based on new grounds not included in the SCN. Given the adjudicating authority's demand was nearly eight times the SCN's amount, the Supreme Court found no fault in the High Court's decision to quash the order, leading to the dismissal of the State's petition.
Order date: 29 Aug 2025
Parties: State of U.P. & Anr. v. M/s Sai Computers
Facts -
- The petitioner, M/s Sai Computers, was issued a SCN dated 17.12.2024 under Section 74 of the CGST/UPGST Act for a proposed demand of ₹20,916.90 (tax, penalty, and interest).
- Despite this, the adjudicating authority passed an order dated 28.08.2024 raising a much higher demand of ₹1,55,878.26, including ₹20,000 penalty and ₹63,737 interest.
- The assessee challenged the order before the Allahabad High Court, arguing it violated Section 75(7) which prohibits orders exceeding the scope or quantum of the SCN.
- The High Court accepted this plea, holding that the demand was ex facie contrary to Section 75(7). It quashed the order and remanded the matter to the authority for fresh adjudication after giving the assessee opportunity of hearing.
- The State of U.P. filed an SLP challenging the High Court’s order.
Issue -
- Whether a demand order under Section 74 can exceed the quantum specified in the show cause notice, and if so, whether the High Court erred in quashing such an order under Section 75(7).
Order -
- The Supreme Court found no reason to interfere with the High Court’s judgment. It agreed that Section 75(7) explicitly prohibits tax, interest, and penalty demanded in an order from exceeding the amount specified in the SCN or from being based on grounds not contained in the SCN.
- Since the adjudicating authority had imposed a demand nearly eight times higher than that in the SCN, the High Court rightly quashed the order as violative of Section 75(7).
- The SLP was accordingly dismissed.
