Karnataka High Court Quashes Ex-Parte ITC Denial Under Section 73; Grants Fresh Opportunity to Assessee Subject to 10% Pre-Deposit

In a significant judicial intervention, the Karnataka High Court recently addressed the unilateral rejection of Input Tax Credit (ITC) stemming from procedural defaults during the global pandemic. The ruling in the matter of Reliflex Exim Services (OPC) Pvt. Ltd. Vs Assistant Commissioner of Commercial Taxes underscores the judiciary's commitment to upholding the principles of natural justice, ensuring that an assessee is not unduly penalized for circumstances beyond their control, provided the interests of the revenue are adequately safeguarded.

Background of the Dispute

The legal controversy originated from two separate adjudication orders issued against the assessee under Section 73 of the CGST Act and KGST Act. These orders pertained to the financial year 2019-2020 and were officially dated 21.04.2023 and 28.08.2024.

The core grievance of the assessee was that both directives were passed on an ex-parte basis. The tax department proceeded to adjudicate the matter unilaterally because the assessee had failed to submit a formal response to the initial show-cause notices.