Can GST Demand Notices Be Challenged? Recent Court Rulings Explained

Introduction  

Since its rollout in 2017, the Goods and Services Tax (GST) regime has fundamentally restructured India’s indirect tax framework. While the intended goal was simplification, the last few years have revealed an increasing trend of litigation, particularly concerning demand notices issued under Sections 73 and 74 of the CGST Act. 

According to government data, between 2022 and 2024, over 2.3 lakh GST-related notices were issued across India. These notices often arise from mismatches in Input Tax Credit (ITC), classification issues, or alleged tax evasions. However, a growing number of these have been challenged successfully in High Courts across the country, pointing to procedural lapses, jurisdictional overreach, and violations of natural justice. 

This article delves into whether these notices can be challenged—and under what circumstances. It draws from recent judgments and evolving jurisprudence to offer a deeper legal understanding of this critical issue. 

Understanding the Structure and Legal Basis of GST Demand Notices 

Demand notices under GST are primarily governed by Sections 73 (non-fraudulent cases) and 74 (fraud, misrepresentation, or suppression of facts). The procedural machinery is activated through Rule 142 of the CGST Rules, which outlines the format, communication, and content requirements of such notices. 

Essential Components: 

• Tax amount due 

• Interest under Section 50 

• Penalty, if applicable 

• Statement of reasons for the demand 

However, the statutory requirement is not limited to amounts. Notices must contain: 

• A clear articulation of facts 

• Proper evidentiary annexures 

• Details of transactions under scrutiny 

Any deficiency in these aspects may render the notice invalid, a point repeatedly emphasised by High Courts. 

Valid vs. Defective GST Notice 

Criteria	Legally Valid Notice	Legally Defective Notice
Reasoned Explanation	Specific facts and reasoning given	Generic or templated language
Opportunity of Hearing	Personal hearing offered & recorded	Denied or merely on paper
Service Method	Via GST portal + email/SMS	Sent via post without portal record
Evidence Annexed	Detailed annexures attached	No documents or vague references

Grounds on Which GST Notices Have Been Quashed 

While many notices are valid and stem from legitimate non-compliance, others are riddled with procedural and legal defects. Courts across India are now seeing a surge in litigation where notices are being quashed on the following grounds: 

1. Limitation Periods Violated 

One of the most common grounds for quashing GST demand notices is the breach of statutory timelines. Notices issued beyond the 3-year (or 5-year) time limit are being struck down. 

For instance, the Allahabad High Court in 2024 quashed a demand notice under Section 73 that was issued well past the permissible limitation period. The court emphasized that retrospective notifications or administrative delays cannot override statutory deadlines. 

2. Improper Service of Notices 

The manner in which the notice is served also matters. In several cases, notices were uploaded on the GST portal under incorrect headings—causing taxpayers to miss them entirely. 

In a recent case, the High Court invalidated a demand because the SCN was uploaded under “View Additional Notices” instead of “View Notices and Orders.” This technical error led the court to conclude that the principles of natural justice were violated. 

3. Lack of Jurisdiction 

Sometimes, officers issuing notices are not properly authorized or act outside their jurisdiction. Such actions render the entire proceeding null and void. 

A flawed assumption of jurisdiction—especially in cross-state matters or special economic zones—has led to the invalidation of several demand notices. 

4. Failure to Follow Natural Justice 

The courts have reiterated that a fair opportunity to be heard must be given before confirming any tax liability. This includes proper time to respond to the SCN, the opportunity for a personal hearing, and a reasoned order that considers the taxpayer’s submissions. 

A mechanical approach—such as ignoring a detailed reply or issuing a demand on flimsy grounds—is increasingly being frowned upon. 

5. Incorrect Classification or Valuation 

In sectors like food services, IT, and manufacturing, notices often stem from disagreements over classification or valuation. These disputes, when not backed by solid reasoning or jurisprudence, are being stayed or quashed. 

For example, one bakery chain received a notice for ₹114 crores claiming it was incorrectly charging tax as a restaurant. The classification was challenged, and the High Court admitted the petition for hearing. 

Recent Judgments That Are Shaping the Landscape 

Here’s a look at some important court rulings that offer instructive precedents: 

1. Hindustan Coca-Cola Beverages Pvt Ltd v. Union of India (Bombay HC, 2024) 

The company faced a demand of ₹2,500 crores due to the valuation of intra-group supplies. The issue was the applicability of Rule 28 of the CGST Rules, which governs transactions between related parties. 

The High Court granted an interim stay on recovery and noted that the valuation adopted by the department needed further scrutiny. This case illustrates how interpretation of rules in related-party transactions must align with actual commercial realities. 

2. Mad Over Donuts India Pvt Ltd (Bombay HC, 2024) 

The department raised a massive demand arguing the firm should be taxed under restaurant services. The company disputed the classification, and the court admitted the challenge. 

The ruling is significant because it reflects the increasing use of judicial review in classification disputes, especially in the F&B sector. 

3. Rawalwasia Ispat Udyog v. UOI (Allahabad HC, 2024) 

A demand notice was struck down purely on the ground of being time-barred. The department argued that a notification extended the timeline, but the court disagreed. 

The judgment affirms that statutory limitation cannot be bypassed through administrative instruments unless expressly allowed by the law. 

4. Cluster of Petitions Dismissed – Bombay HC (2024) 

Several petitioners filed writs directly before the High Court challenging demand notices. The court held that unless there is a gross violation of jurisdiction or a constitutional breach, the proper course is to approach the adjudicating authority or the appellate mechanism first. 

This ruling is a reminder that judicial intervention is not a shortcut but a remedy of last resort. 

5. Mahalaxmi Buildcon v. State of Maharashtra (Bombay HC, 2024) 

The notice was delivered physically without being uploaded to the GST portal. The court ruled that digital service through the portal is non-negotiable. 

Common but Underused Defenses to Demand Notices 

Many recipients of GST demand notices overlook certain technical and procedural defenses that courts have held to be substantial. 

1. Pre-SCN Consultation 

Though not mandatory under Section 74, courts have consistently ruled that failure to offer pre-SCN consultation is a breach of natural justice. 

2. Non-Application of Mind 

Boilerplate language or templated notices without case-specific analysis can be challenged for lack of judicial application. 

3. Absence of Evidence 

Demand notices referencing ITC fraud or supply suppression without enclosing relevant documents may be struck down for non-disclosure of basis. 

4. Misuse of “Best Judgment” Assessment 

Courts demand that even best judgment assessments under Section 62 must cite logic, data points, or corroborative material—not arbitrary estimates. 

Strategic Litigation Trends  

While the existing legal framework under Sections 73 and 74 provides structured grounds for issuance and challenge of GST demand notices, recent litigation reveals a few strategic trends that practitioners should watch closely. These are not just isolated rulings—they signal shifts in judicial attitude that may inform case strategy going forward. 

1. Judicial Intolerance Toward Mechanical Adjudication 

High Courts have increasingly flagged "copy-paste" show cause notices and orders that fail to demonstrate independent application of mind. For example, some courts have scrutinized the practice of authorities issuing demands based on analytics or departmental reports without independently verifying the transactions involved. Where taxpayer responses were ignored or merely acknowledged without rebuttal, courts have declared the resulting orders as “void ab initio.” 

Professionals should meticulously review the language of notices and orders for signs of boilerplate phrasing. If identical reasoning is used across multiple cases or doesn’t reference taxpayer-specific facts, this is often a strong ground for challenge. 

2. Evidentiary Burden on the Department 

Recent rulings have clarified that while the GST framework is revenue-protective, it is not evidence-light. Several High Courts have quashed notices where tax authorities failed to provide transaction-level evidence or annexures justifying the proposed demand. Merely stating that ITC was availed “wrongly” or that “classification was incorrect” does not meet the threshold for a defensible demand. 

In the absence of these, a legal challenge has high probability of success under the principles of natural justice and due process. 

Technology-Driven Procedural Pitfalls 

The digital-first design of GST proceedings was meant to ensure transparency and efficiency. Ironically, several disputes have arisen from tech-enabled procedural lapses: 

• Misclassification of documents on the portal (e.g., uploaded in the wrong section) 

• System glitches in acknowledgment or service 

• Failure to log communication history properly on the portal 

In many cases, taxpayers weren’t even aware of the notices until recovery proceedings began, and courts have intervened to stay such actions due to flawed service. 

Professionals should build internal audit checklists to review the GST portal regularly and monitor for discrepancies between physical and digital communication. 

Emerging Jurisprudence and Forward Outlook (2025–2026) 

The judicial trend is clearly moving toward greater accountability and procedural discipline in tax administration. Two major SLPs currently in the Supreme Court may reshape GST enforcement further: 

1. Validity of Retrospective ITC Reversal: Whether ITC can be denied retroactively based on later clarifications. 

2. Constitutionality of Mandatory Pre-Deposit: Whether mandatory pre-deposits for appeal filing are restrictive of access to justice. 

Conclusion 

GST demand notices are a critical inflection point in compliance and legal strategy. While many are valid and arise from genuine lapses, others are flawed and deserve to be challenged. A sound understanding of the law, combined with vigilance in procedural matters, can be the difference between a resolved dispute and a prolonged legal battle. 

By staying current with legal trends, meticulously examining every notice, and using the right tools and frameworks, businesses can navigate the complexities of GST litigation with greater confidence and success.