• Dated 01^st December, 2025

High Court Sets Aside Order Due to Mismatch Between SCN and Adjudication Period

In a recent decision, the Orissa High Court reiterated a foundational but often overlooked principle of adjudication that the final order must align with the period and particulars stated in the Show Cause Notice (SCN). Any deviation strikes at the root of natural justice. The Court has set aside an adjudication order where the SCN covered one period, but the final tax, interest and penalty were computed for entirely different years indicating a clear case of non-application of mind.

Brief Facts of the Case

A SCN in Form DRC-01 dated 16 May 2025 was issued to the taxpayer under Section 74 of the GST Act for the period April 2020 to March 2021. However, the final order in DRC-07 dated 23 July 2025, while mentioning the correct tax period in the summary, actually calculated tax, interest and penalty using figures from FY 2018–19 and ITC details from FY 2019–20. A demand of ₹17,89,972 was raised based on this mismatch. The Assessee challenged the order before the High Court.

Contention of the Appellant

The adjudication order is void as it is not based on the SCN. Though the SCN concerned FY 2020–21, the authority computed the demand for earlier years (2018–19 and 2019–20). The demand figures in the DRC-07 summary do not match the reasoning and calculations in the detailed order appended. This amounts to mechanical adjudication, lack of application of mind, and violates the principles of natural justice. Therefore, the SCN and the final order should both be quashed.

Contention of the Respondent

The Department's Standing Counsel conceded before the Court that the figures in the adjudication order were incorrect, and the calculation needed to be redone strictly based on the period for which the SCN was issued (FY 2020–21).

Held

The Court observed that the period mentioned in the SCN and the period used in the adjudication order do not match. Such inconsistency itself warrants interference. Accordingly:

1. The order dated 23 July 2025 in DRC-07 was set aside.
2. The matter was remanded to the State Tax Officer to adjudicate afresh, strictly based on the SCN dated 16 May 2025.
3. Fresh adjudication must be done within 2 months, with due opportunity of hearing to the taxpayer.
4. The Court clarified that no opinion was expressed on the merits of the case.

Comments

This judgment reinforces a critical compliance requirement for tax authorities i.e. an SCN sets the boundary of adjudication. Any demand raised outside the contours of the SCN is unsustainable.

Case: Sai Sitaram Construction Versus State Tax Officer W.P.(C) No. 25270 of 2025, decided on 30-10-2025 [(2025) 36 Centax 247 (Ori.) [30-10-2025]]

Author: Siddharth Kumar Shaw

Edited by: Saket Shaw