Case Law Details
K.K. Steel Traders Vs Assistant Commissioner of Commercial Taxes (Karnataka High Court)
The petitioner challenged an adjudication order dated 30.08.2025 passed under Section 74 of the Karnataka Goods and Services Tax Act/Central Goods and Services Tax Act, 2017 read with Rule 142(5) of the Central Goods and Services Tax Rules, 2017, along with the appellate order dated 14.01.2026 dismissing the appeal on limitation. The principal issue before the Karnataka High Court was whether the adjudication order warranted interference on the ground of lack of opportunity.
The adjudicating authority had concluded that the petitioner had wrongly availed Input Tax Credit (ITC) on the basis of fabricated invoices relating to inward and outward supplies. The order recorded that pre-notice consultation in Form GST DRC-01A was undertaken, followed by reminders and a show cause notice. Since no reply was received to the show cause notice, the authority presumed that the transactions were clandestine and intended solely to avail inadmissible ITC, and accordingly confirmed the demand and issued Form GST DRC-07.
The petitioner contended that it had already responded to the Form GST DRC-01A by submitting invoices, e-way bills and bank statements to establish that the purchases and ITC claims were genuine. It was argued that although the show cause notice was issued nearly one and a half years after receipt of this response, the adjudicating authority neither referred to nor considered the earlier reply while passing the order.
The State submitted that some assessees deliberately avoid responding to show cause notices under Section 74 and relied on the issuance of the show cause notice and reminders. It also suggested that, if the Court considered granting another opportunity, enforcement of the demand could be deferred to enable the petitioner to file a response and participate in a personal hearing, with liberty to the authorities to act upon the existing adjudication order if the petitioner failed to avail that opportunity.
The High Court noted that the petitioner had, in fact, responded to the Form GST DRC-01A by producing invoices, e-way bills and bank statements. However, the adjudication order proceeded on the incorrect premise that no response had been filed and presumed clandestine transactions undertaken solely for wrongful availment of ITC. In these peculiar facts, the Court held that it would be reasonable to defer enforcement of the demand and direct the authorities to extend an opportunity of hearing. The petitioner was permitted to produce the original invoices, e-way bills and bank statements already relied upon, enabling the authorities to examine whether the transactions were genuine. If found genuine, the authorities were directed to dissolve the order; otherwise, they could proceed in terms of the impugned adjudication order.
Accordingly, the writ petition was disposed of by deferring enforcement of the adjudication order. The petitioner was granted liberty to submit the original invoices, e-way bills and bank statements before the Assessing Authority by 06.07.2026. The Court further observed that if the petitioner failed to avail this opportunity or declined to participate, the respondents would be at liberty to enforce the impugned demand, subject to the petitioner’s right to pursue the appellate remedy available in law.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner has suffered an Adjudication Order dated 30.08.2025 under Section 74 of the Karnataka Goods and Services Tax Act/Central Goods and Services Tax Act, 2017 [for short, ‘the Act’] read with Rule 142[5] of Central Goods and Services Tax Rules, 2017 and the Confirmation of this Order with the dismissal of the appeal on limitation. The Adjudication Order dated 30.08.2025 is produced as Annexure-E and the Order in Appeal dated 14.01.2026 is produced as Annexure-A.
2. The question for consideration is: should this Court interfere with these Orders on the ground of lack of opportunity? The first respondent has premised the conclusion that the petitioner has claimed Input Tax Credit [ITC] based on fabricated documents such as invoices of inward and outward suppliers in the following.
“Pre-notice consultations were held by undersigned vide summary of demand in FORM GSTR DRC 01 as required under section74 of Karnataka GST Rules and Central GST Rules read together with Rule 142[1A] of the Karnataka GST Rules and Central GST Rules dated 02.04.2025 and also a Reminder 1 & 2 was issued on 13.05.2025 and 19.05.2025. No reply has been received for this show-cause notice. Therefore, it is presumed that these are clandestine transactions which are made with the sole intention of availing the input tax credit. Hence, the show cause notice issued is hereby confirmed for orders and accordingly DRC 07 is issued.”
3. Sri Gowri Shanker, the learned counsel for the petitioner, argues for intervention asserting that the intimation in Form GST DRC-01A is issued on 06.07.2023 to which the petitioner responded on 16.08.2023 producing documents to substantiate the petitioner’s case that the purchases and the ITC claims are covered by valid documents such as invoices and e-way bills as also payment transactions as reflected in the petitioner’s bank statement but the first respondent who has issued the Show Cause Notice almost after two years, has not even considered the same.
4. Sri K Hemakumar, the learned Additional Government Advocate, submits that this Court may consider that certain assessees who want to avoid the consequences of proceedings when justified under Section 74 of the Act do not respond to the Show Cause Notice or the reminders issued, and in this regard, the learned Additional Government Advocate invites this Court’s attention to the Show Cause Notice issued on 02.04.2025 and the reminders issued on 13.05.2025 and 19.05.2025.
5. Sri K Hemakumar also submits that if this Court is persuaded to opine that there must be another opportunity to the petitioner, this Court may consider deferring the enforcement of the Demand consequent to the impugned Order of Adjudication extending an opportunity to the petitioner to file a response and participate in the personal hearing observing that if the petitioner does not avail this opportunity, the respondents can act upon the impugned order without passing another reiteration order. When queried, Sri Gowri Shanker M submits that this recourse would address the petitioner’s grievance.
6. The petitioner, when issued with the Intimation in Form GST DRC-01A, has filed responses producing copies of the invoice, e-way bills, and bank statement. The Show Cause Notice is issued one and a half years from the date of receipt of the response. The first respondent has not referred to this response and has concluded the proceedings on the ground that the petitioner has filed no response and therefore it must be presumed that there are clandestine transactions based on spurious documents with the sole intention of availing ITC.
7. This Court, in the peculiarities, opines that for the demand to be enforced, it would be reasonable if the authorities are called upon to extend an opportunity of hearing to the petitioner with liberty to file copies of the invoices, e-way bills and the bank statements already produced in response to the intimation and to dissolve the order if the transactions are genuine; otherwise to proceed in terms of the impugned order. If the authorities proceed in terms of the impugned order because the petitioner does not avail the opportunity that is now being extended, the petitioner must avail remedy as is permissible in law before the proper appellate Court. In the light of the afore, the following:
ORDER
a. The petition stands disposed of deferring the enforcement consequent to the impugned Order of Adjudication dated 30.08.2025 [Annexure-E] reserving liberty to the petitioner, even without waiting for a certified copy of this order, to file the originals of the invoices, e-way bills and the Bank statements to justify the genuineness of the transactions with the Assessing Authority. The petitioner shall file these originals by 06.07.2026.
b. It is observed that if the petitioner does not avail this opportunity and refuses to participate, it shall be open to the respondents to act upon the impugned Demand subject to the petitioner’s right to avail the appellate remedy.
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