JOSCO GOLD CORPORATION PRIVATE LIMITED vs Commissioner of Kerala SGST Department, Deputy CommissionerII Legal Cell O/o The Commissioner State GST Department, State Tax Officer TPSC SGST Kottayam Town, Joint Commissioner (Appeals) SGST Kottayam

GOODS AND SERVICES TAX APPELLATE TRIBUNAL
THIRUVANANTHAPURAM BENCH
Division Bench : Court No I

APPEAL NO : APL/40/TVP/2026
[arising out of OIA No. JC KTM- 2024 GSTA (KTYM)- 103 dated 12/06/2025 passed by Joint
Commissioner (Appeals) SGST Department, Kottayam]
(hearing in hybrid mode)

JOSCO GOLD CORPORATION PRIVATE LTD …………….. Appellant

Vs

THE COMMISSIONER OF KERALA SGST
THIRUVANANTHAPURAM

for Appellant for Respondent
K Ramaswamy, CA Mansur MI, AR


CORAM : Hon’ble Shri Subramanya Rayaprol, Vice-President
Hon’ble Shri Ramamoorthi Sriram, Member (Technical)
…………………………………………………………………………………………………
FINAL ORDER NO : 20/TVP/KERALAM/2026
Date of Hearing: 25/09/2026
Date of Order: 05/11/2026

Order Per: Ramamoorthi Sriram, Member (Technical)

1.0 Josco Gold Corporation Private Limited is holder of GSTIN 32AABCJ7245A1Z4.
On scrutiny of their returns for the tax period July 2017 to March 2018 it appeared
that the appellant has claimed sales return, but has not issued any credit note with
respect to any of the outward supplies effected during the year. It appeared that
there is escapement of turnover of Rs.7029725 and there is short remittance of tax
of Rs.210892 (CGST Rs.105446 and SGST Rs.105446) and non-payment of
interest on belated tax payment of CGST Rs.489 and SGST Rs.324.
2.0 . A show cause notice under Section 73(1) of the CGST/SGST Act 2017 dated
28.09.2023 was issued to the Appellant noting the above irregularities. Vide Order
No. A6/DRC 07//2017- 18/06/32AABCJ 7245A1Z4 (OIO) dated 29.12.2023
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demand of Rs.105446 CGST and Rs.105446 SGST was confirmed, with applicable
interest and penalty.
3.0 Appeal filed before the JC (Appeals) SGST, Kottayam (Appellate Authority) against
the said OIO was dismissed vide the impugned order issued by the Appellate
Authority. Aggrieved by the said order in appeal, the appellant has filed this appeal
before the Tribunal.
4.0 Grounds of Appeal / Submissions of the Appellant:
a. The Show Cause Notice was confined to the allegation that the Appellant had not
issued any credit notes in respect of the sales returns claimed. In response, the
Appellant furnished a list of credit notes with sample copies and expressly stated
that the complete set was available for verification on requisition. The Adjudicating
Authority, without issuing any deficiency notice, without calling for the remaining
credit notes, and without granting any further opportunity of hearing proceeded to
confirm the demand on entirely new technical grounds relating to the value and
sequencing of credit notes vis-à-vis the original invoices — grounds not contained
in the SCN. The completion of adjudication on grounds not stated in the SCN and
without affording an opportunity to respond to those grounds is a fundamental
breach of the principle of audi alteram partem. The Order-in-Original is accordingly
void and liable to be set aside on this ground alone.
b. It is a settled proposition of law that the Adjudicating Authority is bound by the four
corners of the Show Cause Notice and cannot travel beyond its specific averments.
The demand confirmed in the Order-in-Original rests on grounds — namely, value
differentials between credit notes and invoices, and the sequencing of credit note
issuance — that do not feature in the SCN. The demand, to the extent it is based
on grounds not notified to the Appellant, is without jurisdiction and void, and is liable
to be set aside by this Hon’ble Tribunal.
c. Section 34 of the CGST Act provides that a registered person may issue a credit
note in respect of a supply already made where: (a) the tax charged exceeds the
tax payable; (b) the goods are returned by the recipient; or (c) the goods or services
are found to be deficient. The provision uses the discretionary expression “may
issue”, indicating a conditional entitlement and not a mandatory obligation in every
case of exchange. The exchange transactions effected by the Appellant do not fall
squarely within Section 34 for the following reasons:
(i) In each exchange, the customer does not return goods for a cash refund or
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reject the supply — the customer re-selects ornaments of equivalent quantity
and value. The original supply, in substance, survives and is merely substituted
in kind.
(ii) No excess tax is collected from any customer in the exchange transactions. The
credit note adjusts only the accounting entry, not the underlying tax liability.
(iii) The credit notes have been disclosed in Column 13 of Form GSTR-1 for each
relevant month, satisfying the reporting requirement under the CGST
framework. 29.
(iv) The Appellant, therefore, has not violated Section 34, and the rejection of credit
notes on that basis is unsustainable.
d. The First Appellate Authority dismissed the appeal on four grounds that were not
raised in the Show Cause Notice and were not the basis of the Order-in-Original:
non-disclosure within the time limit under Section 34; non-reflection in annual
returns; simultaneous generation of credit notes and invoices; and improbability of
exchanges within a few days. It is well-settled that an appellate authority, even
while exercising suo motu powers, cannot confirm an adverse order on new
grounds without putting the assessee to notice and affording a hearing. The failure
to do so constitutes a fundamental breach of natural justice and renders the Order-
in-Appeal non-est in law.
e. (i) The finding that credit notes were not declared within the prescribed time is
factually incorrect. The credit notes were declared in Column 13 of Form GSTR-1
for each relevant month of F.Y. 2017-18. The nonappearance in Table 5H of Form
GSTR-9 is a consequence of the reporting format of the annual return and does
not constitute non-disclosure of the credit notes.
(ii) As to simultaneous issuance of credit notes and invoices, the finding that credit
notes were generated on the same date as original invoices is factually incorrect.
A reference to Annexure – I demonstrates that in each exchange transaction, the
credit note and the fresh invoice are raised on a date subsequent to the original
invoice date, typically one to several days later, which is entirely consistent with the
exchange process described above.
(iii) As to improbability of exchange within a few days, the finding that it is
“unbelievable” that customers would exchange ornaments within three to four days
due to loss of making charges is misconceived. In the Appellant’s case, returned
ornaments are accepted as new gold, not old gold, and no making charges are
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imposed on the customer. This is standard practice in organized retail jewellery,
and the inference of improbability drawn without any factual basis is unsustainable.
(iv) Each credit note issued by the Appellant is correlated to a specific original sale
invoice issued by the Appellant itself. The provenance of the returned ornaments
is established by the documentary chain and is not in dispute.
f. The exchange transactions in retail gold jewellery are fundamentally different from
conventional sales returns that Section 34 is designed to address. The following
distinguishing features are relevant:
(i) No quantity is finally returned or removed from the supply chain — the customer
exits the transaction with equivalent or higher quantity of new gold ornaments.
(ii) No cash refund is made — the credit note value is fully absorbed against the fresh
invoice.
(iii) The returned ornaments are accepted as new gold and are immediately replaced
with new ornaments of the selected design. No depreciation, making charge loss,
or quality degradation is involved.
(iv) The credit notes serve purely as an accounting mechanism to avoid duplication of
turnover — the original invoice is cancelled by the credit note and the selected
ornaments are billed under the fresh invoice. In these circumstances, the demand
of tax by treating the exchange as an escapement of turnover mischaracterizes the
nature of the transaction and is not sustainable in law.
g. With regard to the specific findings of the adjudicating authority,
i. The Adjudicating Authority mistook Invoice No. NMD-253 as the original invoice.
In fact, the original invoice is Invoice No. NMD-7960 dated 30.06.2017 for Rs.
5,383.63/-. The customer returned the ornament purchased under Invoice
NMD-7960 and re-selected an ornament of lesser value (Rs. 4,416.72/-). Credit
Note No. NMD-7 dated 05.07.2017 for Rs. 5,334.52/- was accordingly issued
against Invoice NMD-7960, and fresh Invoice No. NMD-253 was raised for Rs.
4,416.72/-. The credit note value is less than the original invoice value — there
is no excess credit note.
ii. Where the credit note is less than the original invoice value, this arises from
cases where the customer exchanged only a portion of the ornaments originally
purchased, retaining the balance. For example, under Invoice No. NMD-7176
dated 09.09.2017 (total value Rs. 22,515.54/-), only ornaments worth Rs.
12,835.66/- were returned. Credit Note No. NMD-224 dated 11.09.2017 was
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issued for the returned quantity, and fresh Invoice No. NMD-7285 dated
11.09.2017 was raised for Rs. 12,515.28/-. The undisturbed balance of the
original invoice remains billed and taxed. There is no irregularity.
Shri K Ramaswamy, CA , forcefully reiterated the above submissions on behalf of
the appellant,
5.0 Submissions of the Respondent /AR
Shri Mansur MI, learned AR, submits as follows:
a. Grounds 1 and 2: natural justice and “grounds beyond the SCN” –
The charge in the SCN was that the sales return of Rs. 70,29,725 was not proved and
was escaped turnover. The SCN says the Appellant “has not furnished any documents
to prove his claim” and proposes the demand “in the absence of evidences”. The OIO
confirmed the same charge, the same amount, under the same provision: the Appellant
“failed to prove the genuineness of sales return”. The comments on values and dates
are reasons drawn from the Appellant’s own sample credit notes. Weighing a reply is
not a new ground. The Appellant had a personal hearing date (18.10.2023), filed three
replies, and got two reminders. The OIO records that the transaction-wise statement
called for was not produced. The burden was on the Appellant to produce all its credit
notes. It cannot file samples, keep the rest back, and then blame the officer for not
asking again. The first appellate authority examined this plea and found no deviation
from the SCN (OIA para 29). No prejudice is shown. The Appellant has answered every
point in two appeals. Natural justice is not a ritual, and a breach must cause real
prejudice (State Bank of Patiala v. S.K. Sharma, (1996) 3 SCC 364; Dharampal
Satyapal Ltd. v. Deputy Commissioner of Central Excise, (2015) 8 SCC 519).
Ground 3: “no violation of Section 34”
May issue” in Section 34(1) gives a choice whether to issue a credit note. A supplier who
wants to reduce its tax must issue one that meets every condition of the section. Saying no
excess tax was collected misses the point. The question is whether the reduction of Rs.
70,29,725 was lawful. Reporting in GSTR-1 only shows that a reduction was claimed. It does
not prove that any credit note meets Section 34 . On the Appellant’s own plea, either Section
34 applies and is not met, or it does not apply and no reduction is possible
Ground 4: “fresh findings” by the first appellate authority
Under Section 107(11), the appellate authority may confirm an order after such further inquiry
as needed. It must give its own reasons. The reasons in OIA para 33 answer the Appellant’s
own pleas and the statement of 263 credit notes it filed in that appeal. The Appellant was
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heard on 04.02.2025 through its Chartered Accountant. Same-day credit notes were a finding
of the OIO itself. The improbability of quick exchanges is an assessment of the Appellant’s
own evidence, not a new charge. The core finding, that genuine sales returns were not
proved, is the same in the SCN, the OIO and the OIA. The demand stands on that finding,
whatever view is taken of the OIA’s remarks on reporting time limits. In any case, this Tribunal
now hears the matter on facts and law. The Appellant has full opportunity here.
Ground 5: “factual incorrectness”
1. Disclosure in GSTR-1. Netting the credit notes in the B2C figure only records the
Appellant’s claim. It gives no particulars that the officer could verify
Same-day credit notes itself shows entries where invoice, credit note and fresh
invoice are all on one date (Sl. No. 92, NMD-85; NMD-259). In every entry examined,
the credit note and fresh invoice share a date. The credit note is created at the
moment of the new sale.
“No making charge loss”. No price policy, board resolution or customer document
supports this. Credit notes above the original invoice value show re-valuation at the
day’s gold rate, not a return at the old price. In 78 entries the customer was paid back
the difference.
Provenance. At least 12 credit notes relate to pre-GST invoices, one of them 100
days old (NMD-183). The documentary chain the Appellant relies on shows the
defect.
Ground 6: exchange is “not a conventional sales return”
This plea is new and cuts against the Appellant’s own case of “sales return” in its returns and
replies. If no quantity is “finally returned”, there is nothing to reverse under Section 34. The
first supply stands. There is no “duplication of turnover”. There are two supplies on two dates
under two invoices, each taxable. The old ornament handed in is consideration in kind for the
second supply (Section 2(31)).
Ground 7: the specific invoices
The Appellant now says the true original invoice is NMD-7960 dated 30.06.2017. That is a
pre-GST invoice of a KVAT compounded dealer. No GST credit note can be issued against
it. The explanation confirms the demand.
NMD-7176 (partial return). A credit note of Rs. 12,835.66 against an invoice of Rs. 22,515.54
is claimed as a part return. No item, weight or purity detail is given to show which ornaments
came back. The claim stays unproved.
• Tax becomes due at the time of supply (Section 12) on the transaction value (Section
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15).
• Once a tax invoice is issued, the value can be reduced only by a credit note under
Section 34(1).
• Section 34 has conditions. There must be a tax invoice issued for a supply under
GST. The goods must be returned, or the value or tax charged must be found
excessive. The credit note must carry the particulars in Rule 53(1A), including the
original invoice. It must be declared in the return within the time in Section 34(2).
• A taxpayer who claims a reduction in output tax must prove every condition. The
officer is not required to disprove it. The Supreme Court has held that a person
claiming a concession bears the burden of bringing the case squarely within it
(Commissioner of Customs (Import) v. Dilip Kumar & Co., (2018) 9 SCC 1).
• The Appellant is caught on both sides. In Grounds 3 and 6 it now says the exchanges
“do not fall squarely within Section 34” and are “not a conventional sales return”. If
that is right, there is no provision in the Act that lets it reduce turnover at all. The tax
on the original supply stands. If it is a return under Section 34, every condition of
Section 34 must be proved. Neither has been done
Ground 3, para 27, states that the credit note “adjusts only the accounting entry, not
•
the underlying tax liability”. But the Appellant did reduce its tax liability by Rs.
2,10,892. On its own case, that reduction cannot stand.
• An ornament traded in by a customer against a new purchase is, at best,
consideration in kind for the new supply (Section 2(31)). It does not cancel the earlier
completed supply. Only a valid return under Section 34 can do that.
• For intra-state B2C sales, the return formats let a supplier net credit notes off the sales
figure in GSTR-1 Table 7 and GSTR-9 Table 4A. The Respondent does not rest its
case on the format of the returns.
• Because the credit notes were only netted, the returns give no detail of any credit note:
no number, value, date or original invoice. Table 13 of GSTR-1 shows only a count of
serial numbers.
• Netting is the supplier’s own claim. Section 34 allows the reduction only where its
conditions are met. Netting a figure in a return does not prove those conditions, and
does not shift the burden to the officer.
• Since the returns disclose nothing, the claim could be tested only from primary records.
Those were called for and were not produced (OIO).
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• Netting also hides credit notes that could never be valid. The July 2017 returns
absorbed credit notes against sales made under KVAT before 01.07.2017.
• The original sales were made under the KVAT Act, not under GST. No GST was
charged on them. Section 34 applies only to a tax invoice issued under the GST law.
The Appellant was a compounded dealer under KVAT (Form 10DA). It admitted this in
its own reply on the TRAN-1 issue. A compounded dealer collects no tax on its invoice.
There was no output tax on these sales that a GST credit note could reduce.
• Goods sold under the old law and returned after 01.07.2017 are dealt with by Section
142(1). That provision gives a refund under the existing law, subject to conditions. It
does not allow a reduction of GST output tax.
• The Appellant’s own illustration in Ground 7 (Invoice NMD-7960 dated 30.06.2017) is
one of these pre-GST invoices.
• NMD-183 is against an invoice dated 20.05.2017, 100 days earlier. This cannot be the
“exchange within a few days” the Appellant describes.
• a credit note of Rs. 70,701.23 against an invoice of only Rs. 5,978.64, nearly 12 times
the original sale. On scrutiny, more than 30 entries show a credit note higher than the
original invoice.
• If goods are returned, the credit note can at most reverse the value and tax on the
original invoice. A credit note for more than the original value is not a return under
Section 34.
• A higher value shows that the old ornament was re-valued at the gold rate on the day
it came back. That is a buy-back of the ornament from the customer, not a reversal of
the earlier supply. This supports the officer’s finding that some credit notes were
“generated above the value of actual sales invoices”.

6.0 Discussions and Findings
6.1 We find that right at the outset, the appellant has made a very strong plea that completion
of adjudication/ appellate proceedings were based on grounds (i) not stated in the SCN and
(ii) without affording an opportunity to respond to those grounds and therefore suffer from a
fundamental breach of the principle of audi alteram partem. and that the proceedings are
void and liable to be set aside on this ground alone. In all fairness, we find that before delving
into the merits of the matter, this fundamental challenge to the proceedings needs to be
addressed and resolved.
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6.2 On perusal of the SCN, we find that the crux of the allegations against the appellant is as
follows:
a. A Scrutiny of GSTR 9 - table 5H, shows that the tax payer has not issued any credit notes
with respect to any of the outward supplies effected during the year.
b. Thus it was noticed that the dealer neither issued credit notes nor the corresponding
reduction in the claim for input tax credit has not been accepted and communication made
available to the supplier by the recipients through electronic means as envisaged in section
43 and Rule 74 of CGST/KSGST Rule 2017 .
c. Escapement of Turnover of Rs. 70,29,725/- had resulted in short levy of output tax of Rs.
2,10,891/- for which interest is also leviable as per section 50 of CGST Act 2017.
d. The SCN charges the appellant with the contravention of the following legal provisons:
• Section 43 of the CGST/KSGST Act 2017
• Section 59 of the CGST / KGST Act
• Section 50 of the CGST / KGST Act
6.3 a . On perusal of the OIO it is seen that the OIO records as follows:
The tax payer replied that as per the GST return 1, in the case of B2C sales Others They had
to report the Net sales i.e Net of debit notes and credit notes to unregistered persons other
than the supplies covered in Table 5. In their case, all are B2C sales returns and hence, they
were not able to report the details of Sales returns separately in GSTR 1 returns, whereas
the same has been shown as Net of Debit and Credit Notes under B2C- Others sales .
While verifying actual sales invoices with corresponding credit notes , all of the credit notes
are issued on the same day of the actual sales invoices and sales return amount claimed by
the taxpayer are also adjusted in the same invoices on the same date. It means that before
issuing sales invoices , credit notes are generated and that amount adjusted in the actual
sales invoices .
b. If the tax payer has not issued any credit notes with respect to any of the outward supplies
effected during the year, we fail to understand what are these credit notes which were
allegedly issued on the same day of the actual sale invoices. We also fail to understand what
are these credit notes said to have been generated and amount adjusted in the actual sales
invoice.
c. Thus the foundational premise of the SCN that the appellant has not issued any credit
notes is found to be factually inaccurate as per the recording in the OIO itself. We find that
this inaccuracy on facts strikes at the root of the show cause notice. A show cause notice
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which is erroneous on the foundational facts does not survive.
d . We also find that once the allegation in the SCN that no credit notes were issued was
found to be inaccurate, the OIO tries to change course and tries to test these credit notes
against section 34 of the CGST Act and finds them wanting. We find that contravention of
section 34 is not part of the SCN and therefore cannot be a ground for drawing any adverse
inference against the appellant in the OIO.
e. When the fundamental premise of the SCN is that there were no credits it is not understood
how the OIO seeks to rely on section 34 ( not invoked in the SCN) to prove that the credit
notes were issued on the same day as the sales invoice and further goes on to examine the
value of the credit notes ( which were supposedly not issued) against the value of sales
invoices. The OIO which starts of with premise that no credit notes were issued ends with the
conclusion that “the tax payer has failed to prove the genuineness of sales return that means
credit note issued”. These allegations in the SCN / OIO leave us totally flummoxed as to what
is the case of the Revenue:
• Whether tax payer has not issued any credit notes with respect to
any of the outward supplies effected during the year.( An allegation
made in the SCN, but disproved by the contents of the OIO itself)
or
• The credit notes suffered from discrepancies in terms of date of issue
/ value as compared with the invoice (a case which was never part of
the SCN and never put to the appellant at the SCN stage)
f. We find that the Revenue itself seems to have been unsure of the basis of the SCN,
resulting in a shifting of goal posts, which places the appellant in a totally unenviable and
untenable position when it came to putting up a defense against the said charges.

g. On perusal of the OIO it is also seen that there is no record of any personal hearing
conducted. The charges regarding discrepancies in the credit notes are not to be found
in the SCN ( as the charge in the SCN was that there were no credit notes at all) and in
the absence of a personal hearing it is seen that these findings were not put to the
appellant at any stage, before becoming part of the order in original. We therefore find
that the entire proceedings smack of total violation of the fundamental principles of natural
justice.
h. We also reproduce the following portion of the OIO which is quite instructive:
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The taxpayer have responded to the 5th reference show cause notice in Form DRC- 06
through the common portal and E mail and raised following contention against DRC 01.
As per the GST return 1, in the case of B2C sales Others, we have to report the Net sales
i.e Net of debit notes and credit notes to unregistered persons other than the supplies
covered in Table 5. In our case, all are B2C sales returns and hence, we are not able to
report the details of Sales returns separately in GSTR 1 return, whereas the same has
been shown as Net of Debit and Credit Notes under B2C – Other sales. We hereby
attaching the details of Sales return Ledger for the period 01.07.2017 to 31.03.2018 for
your reference. We are issuing the credit notes to our unregistered and registered
customer in the case of sales return. We are hereby attaching few samples of credit notes
issued to unregistered customers (As the same can be verified with the sales return
ledger) for your reference. We are ready to provide the details of credit notes if any
selected by you for your verification. Since we have reported Net of sales in the case of
unregistered sales to customers, as is reported in GSTR 1, we may request you to kindly
verify the same with our books of accounts and gstr returns ad annual returns for your
verification. This sales return will also get reflected in our stock report GS14A (Attached
herewith for the selected samples for your reference.
h. One would have expected the adjudicating in the interest of fair play and justice taken
up the above offer of the appellant in earnest and carried out a comprehensive verification
of the facts.
i. To the contrary, we find that the order in original makes absolutely no further mention /
discussion of the above offer or at least stated why they could not have taken up the
above offer. Instead the OIO simply goes on to conclude that :
Taxpayer failed to prove the genuineness of sales return that means credit note issued.
Therefore your reply with regard to this discrepancy given in FORM DRC 06 is not
acceptable. There is found some escapement of turnover in the form of credit note which
were shown in the GSTR 1.Escapement of turnover is arrived as under……….
6.4 a.We have also carefully perused the OIA and extract portions from the same and
also provide our comments therein :
(i)in the instant case, the appellant has not declared the details of the credit notes within
the time limit prescribed in Section 34.
(ii)The appellant has not declared the details of credit notes in the returns of the said
months or before the 30th September 2018 .
(iii)The appellant has not declared the credit note details even in the annual return or in
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Form GSTR 9C filed for the year 2017-18 filed on 26.12.2019, i.e. after 30th September
2018.
(iv)Further the respondent in the impugned order stated that, while verifying actual sale
invoices with corresponding credit notes produced, all the credit notes are issued on the
same day of the actual sale invoices and sales return amount claimed by the taxpayer are
also adjusted in the same invoices on the same date which means that before issuing
sale invoices, credit notes are generated and that amount adjusted in the actual sales
turnover. Regarding this, the appellant has stated that the ornaments are exchanged and
new ornaments are purchased and the value of credit notes are adjusted against the value
for fresh invoice and this practice is followed not only in respect of old gold ornaments but
also for new gold ornaments. In the case of exchange , how is it possible that the entire
gold ornaments exchanged are purchased by the customer from their shop itself. And how
can the appellant claim sales return and adjust the value in the invoice in such cases.
Further on verification of the statement produced the date of the original invoice and the
date of the credit note and fresh invoice are in a gap of around three-four days. It is
unbelievabe that the customers will exchange the gold within a short span of four or five
days except in rare cases, as it will cause huge loss to the customers in respect of making
charges. No jewellery will adjust the making charges of the old ornaments against the new
ornaments purchased. And the appellant has not given the credit note details even in the
annual return or in Form GSTR 9C reconciliation statement. So the contention of the
appellant is absolutely devoid of merit and hence rejected.
b. With regard to the above the appellant has contended that
The First Appellate Authority dismissed the appeal on four grounds that were not raised
in the Show Cause Notice and were not the basis of the Order-in-Original:
• non-disclosure within the time limit under Section 34;
• non-reflection in annual returns;
• simultaneous generation of credit notes and invoices; and
• improbability of exchanges within a few days.
It is well-settled that an appellate authority, even while exercising suo motu powers,
cannot confirm an adverse order on new grounds without putting the assessee to
notice and affording a hearing. The failure to do so constitutes a fundamental breach
of natural justice and renders the Order-in-Appeal non-est in law
c. On perusal of the order in appeal, we cannot but agree with the above said contentions
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of the appellant and find that the order in appeal is largely founded on grounds not
specified in the SCN. It is based not on legal principles, but on certain theories on the
economics of the jewellery trade and behavioral psychology of consumers; however,
these theories cannot supplant evidence and legal principles which alone can be the
touch stone of a tax appeal proceeding.
c. We therefore find that the order in appeal suffers from fundamental errors with regards
to the principles to be followed in appeal proceedings and therefore find that the order in
appeal is not sustainable for being passed on grounds totally extraneous to the show
cause notice.
d. We find that in the instant case both the order in original and order in appeal are based
on charges / grounds which are not to be found in the SCN. We therefore find both the
OIO and OIA fall foul of the provisions of section 75(7) of the CGST / KGST Act which
reads as follows:

“75. General provisions relating to determination of tax.—...
xxx (7) The amount of tax, interest and penalty demanded in the order shall not be in excess
of the amount specified in the notice and no demand shall be confirmed on the grounds other
than the grounds specified in the notice.”

e . Apart from the categorical provisions of the statute, we also find support for our in the
decision of the honorable Supreme Court on the subject in the case of M/s Armour Security
(India) Ltd v Commissioner, CGST, Delhi East Commissionerate, [2025] 177 taxmann.com
478 (SC), with specific reference to section 75(7) of the CGST Act wherein the honorable
clearly upheld the following principles as laid out in other decisions of the Supreme Court:
a. It is well settled that unless the foundation of the case is made out in the show- cause notice,
Revenue cannot in Court argue a case not made out in its show-cause notice……… [(C.C.E.,
Bhubaneswar-1 vs M/S. Champdany Industries Ltd – para 50 )]
b. if there is no invocation of the concerned rules in the show-cause notice, it would not be open
to the Commissioner to invoke the said Rule.” [Commissioner of Central Excise, Nagpur
v.Ballarpur Industries Ltd. MANU/SC/3595/2007 :]
h. The Court went on to state that:
From the above exposition of law, we can safely conclude that a show cause notice
delineates the scope of the proceedings in the expression of subject matter with which the
authority would be dealing. It would be impermissible for an authority to invoke such rules,
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claims or grounds at a later stage which do not figure in the show cause notice. That is to
say, any ground, reasoning or claim which does not figure out in the show cause notice
cannot be permitted to adversely affect the noticee. Such recognition has even been made
statutorily, as per sub-section (7) of Section 75 of the Act, which reads ……..as thus:
f. On the issue of the OIO / OIA relying on grounds extraneous to the SCN we find that the
learned Revenue has contended as follows:
(i) The comments on values and dates are reasons drawn from the Appellant’s own
sample credit notes.
(ii) Weighing a reply is not a new ground.
(iii) The Appellant had a personal hearing date (18.10.2023), filed three replies, and got
two reminders.
(iv) The OIO records that the transaction-wise statement called for was not produced.
(v) The burden was on the Appellant to produce all its credit notes. It cannot file samples,
keep the rest back, and then blame the officer for not asking again.
(vi) The first appellate authority examined this plea and found no deviation from the SCN
(OIA para 29). No prejudice is shown. The Appellant has answered every point in two
appeals.
(vii) Natural justice is not a ritual, and a breach must cause real prejudice (State
Bank of Patiala v. S.K. Sharma, (1996) 3 SCC 364; Dharampal Satyapal Ltd. v. Deputy
Commissioner of Central Excise, (2015) 8 SCC 519).
(viii) Under Section 107(11), the appellate authority may confirm an order after such
further inquiry as needed. It must give its own reasons.

(ix) The reasons in OIA para 33 answer the Appellant’s own pleas and the statement of
263 credit notes it filed in that appeal. The Appellant was heard on 04.02.2025 through
its Chartered Accountant.
(x) Same day credit notes were a finding of the OIO itself.
(xi) The improbability of quick exchanges is an assessment of the Appellant’s own
evidence, not a new charge.
(xii) The core finding, that genuine sales returns were not proved, is the same in the
SCN, the OIO and the OIA. The demand stands on that finding, whatever view is taken
of the OIA’s remarks on reporting time limits.
(xiii) In any case, this Tribunal now hears the matter on facts and law. The Appellant
has full opportunity here.
g. We provide underneath our analysis / comments on each of the above contentions:
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(i) The fact that values and dates are reasons drawn from the Appellant’s own sample
credit notes, does not give any license to the adjudicating authority to make these as
fresh grounds against the appellant. Even if they wanted to use these contentions
against the appellant, the minimum that is expected of the adjudicating authority is to
put the tax payer on notice with respect to these new grounds ( whatever be their
provenance), at least during the personal hearing. Unfortunately, we find that in this
case no personal hearing was conducted wherein the tax payer could have been
confronted with these new grounds. We find that a personal hearing is an opportunity
not only for the tax payer to present his oral defense, but it also provides an opportunity
for a fair and unbiased adjudicating authority to clarify his doubts regarding the case.
By not conducting a personal hearing, not only was this valuable opportunity lost, there
was also a clear violation of Section 75(4) of the CGST Act / SGST Act which reads
as follows:
An opportunity of hearing shall be granted where a request is received in writing from the
person chargeable with tax or penalty, or where any adverse decision is contemplated against
such person .
(ii)
We also find that the order in original went about sustaining a case against the
appellant on grounds which were not in the SCN, thus clearly violating section 75(7) of
the CGST Act which clearly and unambiguously states that no demand shall be
confirmed on the grounds other than the grounds specified in the notice.”
(iii) We observe that the instant case the appellant came to know of the fresh grounds
(which were formulated against him behind his back, without putting him on any kind
of notice) only after issue of the adjudication order.
h. We therefore find that the order in original is liable to be held null and void for the
following reasons:
• It was passed in total violation of all canons of natural justice
• It was passed in violation of the specific provisions of section 75(4) and 75(7) of the
KGST / CGST Act.
(i) We also find that the Revenue has contended that
• the OIO records that the transaction-wise statement called for was not
produced.
• the burden was on the Appellant to produce all its credit notes. It cannot file
samples, keep the rest back, and then blame the officer for not asking again.
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(j) We find that OIO itself records the undertaking of the tax payer that they are ready
to provide the details of credit notes if any selected for verification . This would imply
that if the adjudication officer had called for all the credit notes, the appellant was
bound to produce the same. There is no record of the adjudicating officer having
called for production of all the credit notes and the appellant refusing to produce the
same. For the Revenue to contend that the appellant cannot file samples , keep the
rest back and then blame the officer for not asking again smacks of a peevish and
churlish behavior, which is certainly not expected in this day and age when tax payers
services are a critical part of the revenue’s charter of duties.
(k) Revenue has also contended that the first appellate authority found no deviation from
the SCN (OIA para 29). No prejudice is shown. The Appellant has answered every
point in two appeals.
(l) On examination of the SCN and OIO we find that one of the important findings of
the OIO is as follows:
While verifying actual sales invoices with corresponding credit notes , all of the credit
notes are issued on the same day of the actual sales invoices and sales return amount
claimed by the taxpayer are also adjusted in the same invoices on the same date. It means
that before issuing sales invoices , credit notes are generated and that amount adjusted
in the actual sales invoices .
We find that these allegations never put to the appellant at any stage and were made
known them only after issuance of the OIO. We therefore find that notwithstanding the
clean chit given by the OIA, the OIO has been vitiated by extraneous grounds not put to
the appellant at any stage. This not only prejudiced their defense, but also was a clear
violation of section 75(7) of the CGST Act as discussed above.
(m). In the light of our findings that the appellant was severely prejudiced on account of
confirmation of the demand on grounds which were made known to them only after the issue
of the OIO, we find that the case laws cited by the Revenue (State Bank of Patiala v. S.K.
Sharma, Dharampal Satyapal Ltd., et al) have no application to the issue under consideration.
We find that the ratio adopted by the honorable Apex Court in the case of Armour Security
supra, which specifically cites section 75(7) of the CGST Act is more appropriate to the
current case and is squarely in favor of the appellant .
(n) Revenue has also contended that ‘Under Section 107(11), the appellate
authority may confirm an order after such further inquiry as needed. It
must give its own reasons. “
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(o) We find that the section reads as follows:
The Appellate Authority shall, after making such further inquiry as may be necessary, pass
such order, as it thinks just and proper, confirming, modifying or annulling the decision or
order appealed against but shall not refer the case back to the adjudicating authority that
passed the said decision or order:
(p) While we wholeheartedly agree with the contention that under Section 107(11) the
Appellate may confirm the order after such further enquiry as it thinks and just and
proper in our opinion, any further enquiry conducted by the Appellate Authority has
also to be done strictly within the framework of natural justice and the appellate
authority is not permitted to enter any finding without first putting it to the appellant and
recording their contentions thereof and pass a speaking order incorporating findings
arrived at based on the discussions / analysis of the above.
(q) We find that the Appellate Authority has made the following some findings which are
dehors the grounds set out in the SCN :
• non-disclosure within the time limit under Section 34;
• non-reflection in annual returns;
• simultaneous generation of credit notes and invoices; and
• improbability of exchanges within a few days.
( r ) If it is the contention of the Revenue that these findings are based on further inquiry in
terms of section 107(11) of the Act, we are unable to accept such a contention as
we find no evidence to the effect that the Appellate Authority has arrived at these conclusions
based on any inquiry in terms of section 107(11). As already stated by us, any such enquiry
will have to be conducted in keeping with the principles of natural justice, after due notice to
the appellant and recording their submissions with respect to the above.
In the absence of any such discussion in the order in appeal, we find that section 107(11)
has no application in the instant case.
(s ) We find that the Revenue has further contended that same day credit notes were a
finding of the OIO itself. We find that the order in appeal has to confine itself to the grounds
made in the SCN and just because a finding on a particular ground (not contained in the
SCN) figures in the OIO, it does not attain any sanctity. In fact it is the bounden duty of the
appellate authority to rectify / remedy such errors found in the OIO during the appeal
proceedings. In this case, the order in appeal has not rectified / remedied the errors in the
OIO, but regrettably compounded the same by adding its own share of findings on grounds
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dehors the SCN.
(t) Revenue further states that the improbability of quick exchanges is an assessment of the
Appellant’s own evidence, not a new charge. We find that no basis whatsoever as to how
this so called ‘assessment “ was arrived at.
(r) We also find that the Revenue has contended that core finding, that genuine sales
returns were not proved, is the same in the SCN, the OIO and the OIA. The demand
stands on that finding, whatever view is taken of the OIA’s remarks on reporting time
limits.
We reproduce the paragraph in question form the OIA as follows:
33. But in the instant case, the appellant has not declared the details of the credit notes within the time
limit prescribed in Section 34. The credit notes were claimed as issued throughout the year. The
appellant has not 7 declared the details of credit notes in the returns of the said months or before the
30th September 2018. The appellant has not declared the credit note details even in the annual return
or in Form GSTR 9C filed for the year 2017-18 filed on 26.12.2019, i.e. after 30th September 2018.
Further the respondent in the impugned order stated that, while verifying actual sale invoices with
corresponding credit notes produced, all the credit notes are issued on the same day of the actual sale
invoices and sales return amount claimed by the taxpayer are also adjusted in the same invoices on
the same date which means that before issuing sale invoices, credit notes are generated and that
amount adjusted in the actual sales turnover.
(s) On a perusal of the above, it is seen that the above is not a stray / harmless remark,
but one with which the OIA seeks to discredit the credit notes submitted by the
appellant, also relying on similar findings made in the OIO [ on grounds not found in
the SCN, which were found to have been made behind the back of the appellant ,
without providing the statutory personal hearing under section 75(4)]. We therefore
find that for the above reasons, the contention of Revenue that “the demand stands,
whatever view is taken of the OIA’s remarks on reporting time limits” is completely
untenable and misconceived.

(t) In response to the appellants contentions regarding not being provided a proper
opportunity to present their case, Revenue has contended that “In any case, this
Tribunal now hears the matter on facts and law. The Appellant has full opportunity
here.”

(u) We are amazed by these contentions which seem to imply that the fact that the appellant
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is provided full opportunity at the Tribunal somehow compensates for the lack of such
opportunities at the lower fora. In our view, it is the vested legal right of the appellant to
be provided full opportunity to present his case at every stage of the adjudication
proceedings and any contention to the effect that any lack of opportunity at the lower
level can be condoned on the ground that “in any case Tribunal hears the matter on
facts and law” is foreign to all known principles of jurisprudence and cannot be
countenanced even to the slightest degree. We are disappointed that the Revenue even
thought it fit to raise such a contention in the first place and reject the same with the
disdain it deserves.
(v) To sum up, we find that in the instant case,
a. The order in original and order in appeal have been passed in a totally egregious
manner, dehors the contents of the SCN, in total violation of the principles of natural
justice as well as the specific provisions of section 75(7) of the CGST / KGST Act
b. The order in original also has been passed in clear violation of the provisions of section
75(4) of the CGST / KGST Act
We find that as the orders in question have not passed the minimum threshold of being in
conformity with the principles of natural justice and as they have also been passed in clear
violation of statutory provisions, they are liable to be quashed and declared null and void on
these grounds alone and any further examination on the merits of the issue would be otiose
and an exercise in futility.
7. In view of the above findings, the following order is passed.

The appeal is allowed and the order in appeal is set aside, with consequential relief.

(Order pronounced in open court)

Rayaprol
Subramanya
Viswanatha
Digitally signed by
Rayaprol Subramanya
Viswanatha
Date: 2026.11.05 20:55:14
+05'30'

Subramanya Rayaprol
Vice-President



Ramamoorthi Sriram
Ramamoorthi
Sriram
Digitally signed by
Ramamoorthi Sriram
Date: 2026.11.05 21:08:17
+05'30'
Member (Technical)

Date: 5-11-2026

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