Case Title: Indian Railway Finance Corporation Limited v. Assistant Commissioner (ST)
Court: High Court of Judicature at Madras
Petition Number: W.P. No. 8992 of 2025, W.M.P. No. 10101 of 2025
Category: Input Tax Credit / Natural Justice
Date of Judgment: 07 April 2025
Relevant Sections: Section 73 and Section 75(4) of the CGST Act, 2017; Article 226 of the Constitution of India
Facts (Paras 2–2.1)
The petitioner, Indian Railway Finance Corporation Limited (IRFC), engaged in financial leasing services under the CGST Act, had filed its GST returns and paid appropriate taxes for FY 2020–21. The department issued a show cause notice (SCN) dated 26.10.2023 in Form DRC-01, covering only one issue. IRFC duly submitted its reply on 24.11.2023.
However, the assessment order dated 04.12.2024 went beyond the SCN and introduced an entirely new issue concerning reversal of Input Tax Credit (ITC) relating to Reverse Charge Mechanism (RCM) liability. This additional issue was never proposed in the SCN, nor was IRFC given an opportunity of hearing on this new ground. The impugned demand amounted to ₹1,56,53,60,166/–.
Questions before the Court
Whether an assessment order can introduce new grounds and confirm tax demand beyond the scope of the show cause notice, without providing the assessee a fresh opportunity of hearing.
Observations (Paras 3–6)
The respondent’s counsel fairly admitted that the SCN covered only one issue and that the order included a second issue unrelated to it. The Court observed that adding new grounds not mentioned in the SCN amounts to expanding the scope of adjudication and violates the principles of natural justice.
Justice Krishnan Ramasamy noted that the assessee was denied the opportunity to present its case on the additional issue, and therefore, the order was not sustainable. The Court held that an order cannot travel beyond the proposals made in the show cause notice, as this undermines procedural fairness mandated under Section 75(4) of the CGST Act.
Judgment (Paras 7–8)
The Court set aside the impugned assessment order dated 04.12.2024 and directed as follows:
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The order shall be treated as a show cause notice.
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The petitioner shall file a detailed reply/objection within four weeks from the receipt of the order.
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The respondent shall issue a 14 days’ clear notice for a personal hearing before passing a fresh order on merits and in accordance with law.
The writ petition was disposed of with no costs.
Summary of Cases Referred
| Case | Court & Citation | Ratio / Verdict |
|---|---|---|
| None cited directly | – | – |
Between Fine Lines
The ruling reinforces that tax authorities cannot widen the scope of adjudication beyond the contents of the show cause notice. Any additional issue must be separately put to the taxpayer with a clear opportunity to respond. For businesses, this serves as a reminder to challenge orders that confirm tax or ITC reversals on uncommunicated grounds, as they are violative of natural justice and Section 75(4) of the CGST Act.
Disclaimer – “The above summary is for academic purpose only; not formal legal opinion. Seek professional opinion before application. Author or publisher or website shall not be responsible for any usage in any form.”
