Karnataka High Court Sets Aside GST Adjudication Order; Remands Matter Awaiting Supreme Court Decision on Limitation Extension
Background of the Dispute
In the matter before the Karnataka High Court, Bangalore Matics Private Limited filed a writ petition challenging an adjudication order passed ex parte on 12.03.2024 along with the show cause notice dated 08.12.2023. The said notice was issued under Section 73 of the CGST/KGST Act, 2017 pertaining to the financial year 2018–19.
The controversy arose when tax authorities discovered discrepancies between the input tax credit claimed by the assessee in GSTR-3B returns when compared against the GSTR-2A records. The Revenue department alleged that the assessee had availed excess input tax credit, triggering proceedings under the statute.
Initiation of Proceedings and Ex Parte Adjudication
The fourth respondent issued Form GST DRC-01A on 28.11.2023 for the assessment year 2018-19, followed by a formal show cause notice on 08.12.2023 issued under Section 73(1) of the CGST/KGST Act, 2017. The core allegation centered on the assessee claiming higher input tax credit in GSTR 3B returns compared to what was reflected in GSTR 2A.
Due to the assessee's failure to respond to the show cause notice, the tax authority proceeded to pass an adjudication order dated 12.03.2024 under Section 73(9) of the CGST/KGST Act for the tax period 2018-19. The order confirmed a substantial demand amounting to ₹1,62,13,140/- which included the principal tax amount, applicable interest, and penalties.
Notably, the adjudicating authority did not grant any personal hearing opportunity to the assessee before passing the final order. This procedural lapse became one of the grounds for challenging the order before the High Court.
Contentions Raised by the Assessee
The petitioner approached the Karnataka High Court seeking multiple reliefs through the writ petition. The primary prayers included:
Relief (a): Issuance of a writ of certiorari or any appropriate writ to quash the Order-in-Original bearing Order No. JACCT/LGSTO-27/DRC07/115/2023-24 dated 12.03.2024 (Annexure-A), along with the Show Cause Notice ACCT/LGSTO-27/M2/2A Vs 3B/2018-19 dated 08.12.2023 (Annexure-B).
Relief (b): Issuance of a writ to quash Notification No. 9/2023-CT dated 31.03.2023 and Notification No. 56/2023-CT dated 28.12.2023 (Annexures C and D respectively), along with the corresponding State notifications — Notification No. 06/2023, FD CSL 2023 dated 06.04.2023 and Notification No. 25/2023, FD 20 CSL 2023 dated 29.12.2023 (Annexures E and F respectively) — declaring them ultra vires, arbitrary, and issued without jurisdiction.
Primary Arguments Advanced
The counsel representing the assessee made several substantive submissions before the Court:
Inadvertent Omission: The counsel emphasized that the show cause notices had inadvertently gone unnoticed by the petitioner, which resulted in non-filing of replies and supporting documentation. This inadvertent omission culminated in the ex parte adjudication order.
Request for Opportunity: The assessee sought a fresh opportunity to file comprehensive replies and supporting documents in response to the notices. The petitioner undertook to submit all necessary documentation if the ex parte order was set aside.
Limitation Bar: A crucial legal argument centered on the contention that the entire proceedings initiated through the show cause notice dated 08.12.2023 were time-barred under
Section 73(10)of the KGST Act. This became the cornerstone of the challenge to the validity of the proceedings.
Revenue Department's Defense
The learned Additional Government Advocate appearing for the Revenue authorities countered the limitation argument by relying on several notifications that purportedly extended the limitation period. The Revenue submitted that the limitation period prescribed under the statute had been validly extended through the following notifications:
- Notification No. 13/2022 dated 05.07.2022
- Notification No. 9/2023 dated 31.03.2023
- Notification No. 56/2023 dated 08.12.2023
Based on these extension notifications, the Revenue contended that the proceedings could not be considered barred by limitation and were validly initiated and concluded within the extended timeframe.
Critical Judicial Notice — Supreme Court Reference
A significant development emerged when the petitioner's counsel drew the Court's attention to Special Leave Petition (C) No. 4240/2025 pending before the Supreme Court of India. This petition directly challenged the validity of the very notifications that the Revenue was relying upon to defend against the limitation plea.
The counsel submitted that since the constitutional and legal validity of Notification Nos. 9/2023 and 56/2023 (along with corresponding state notifications) were already under consideration before the Apex Court, any decision by the High Court on the same issue might lead to conflicting judgments.
This submission carried significant weight as it raised the question of whether the High Court should adjudicate on the validity of notifications when the same issue was sub judice before the Supreme Court.