GST Adjudication Needs a Reset: Demands, Repeated Proceedings & Unheard Taxpayers

When GST Adjudication Becomes Punishment: Crore-Rupee Demands, Repeated Proceedings and Unheard Taxpayers: Karnataka Needs an Adjudication Reset

Summary: GST adjudication must distinguish between suspicion, investigation and a legally sustainable demand. Using a ₹4.25 crore DRC-01A proposal as an example, the article examines concerns arising when substantial liabilities are proposed without supplier-wise and invoice-wise particulars, detailed computation or identification of the taxpayer’s alleged fraudulent conduct. It discusses the statutory requirements of hearing, disclosure of relevant facts and reasoned adjudication under section 75; the evidentiary burden relating to ITC and supplier-registration cancellation; fraud penalties and interest; overlapping audit, enforcement and jurisdictional proceedings; the Centre–State protection under section 6(2)(b); and the distinction explained by the Supreme Court in Armour Security. The article also considers the financial burden of the section 107 appellate pre-deposit and the circumstances in which Article 226 jurisdiction may remain relevant. It proposes administrative reforms including a common proceeding register, transaction-wise demand schedules, reply-to-finding matrices, review of high-value cases and systematic learning from judicial remands. The central proposition is that effective GST enforcement requires transaction identification, disclosure of relied-upon material, meaningful hearing, examination of records, prevention of duplicate liability and reasoned adjudication.

1. A demand is not proof

A small trader receives a GST communication. The proposed liability runs into crores. The reason occupies one sentence. The suppliers are not identified. The invoices are not listed. The calculation is not explained. Yet the taxpayer is told to pay within a week.

This is not a hypothetical description. A FORM GST DRC-01A issued by a Commercial Tax Officer on 6 October 2026 proposes an aggregate liability of ₹4,25,43,560 for FY 2024–25. The supplied three-page document states that the taxpayer purchased goods from suppliers whose registrations had been cancelled “before/after” the purchase transactions. It provides no supplier-wise or invoice-wise statement in those pages.

The communication is a preliminary intimation, not a final adjudication order. That distinction must be respected. But a preliminary ascertainment of more than ₹4.25 crore should still tell the taxpayer what transactions are questioned and how the amount has been calculated.

The concern is larger than one intimation. Practitioners report instances in Karnataka where replies and business records are allegedly overlooked, annual portal figures are treated as conclusive, fraud penalties are proposed without identifying the recipient’s conduct, and different wings proceed against apparently overlapping liabilities.

These reports require a departmental examination supported by actual case records. They should neither be dismissed as routine complaints nor exaggerated into a charge against every GST officer.

The question is straightforward: Is the taxpayer being assessed on evidence, or merely confronted with a departmental conclusion?

For example:

The anonymised intimation contains the following proposal:

Component	CGST	SGST	Total
Tax	₹93,70,828	₹93,70,828	₹1,87,41,656
Interest	₹25,30,124	₹25,30,124	₹50,60,248
Penalty	₹93,70,828	₹93,70,828	₹1,87,41,656
Aggregate	₹2,12,71,780	₹2,12,71,780	₹4,25,43,560

The date fixed for payment or submissions is 13 October 2026. The document dated 6 October therefore provides only a short interval to answer a substantial proposal.

The immediate questions are not complicated:

Which suppliers are involved?

Which invoices are disputed?

When were the cancellation orders passed?

From what dates did cancellation take effect?

Were the registrations shown as active when purchases occurred?

Were goods actually received and recorded?

Which statutory ITC condition allegedly failed?

What establishes fraud by the recipient?

How was interest calculated?

The supplied document does not answer these questions. Turnover and tax-rate fields are also shown as zero despite substantial tax being proposed. That may be a limitation of the form rather than proof of a wrong demand, but it makes a proper supporting computation essential.

If a separate annexure exists on the portal, it must be examined. The criticism here concerns the three pages available for review, not undisclosed material.

A taxpayer should not have to guess the case against him. Nor should he have to collect records for an entire financial year merely because the Department has not identified the particular transactions it disputes.

2. Portal data cannot adjudicate

The GST portal is indispensable. It records returns, invoices, credit information, and registration status. But information on a portal and a legally sustainable conclusion are not the same thing.

A discrepancy may justify an inquiry. A cancellation flag may require verification. Neither removes the need to identify the disputed transactions, examine the taxpayer’s answer, and explain the decision. Section 75 expressly requires a hearing in the circumstances specified in subsection (4), relevant facts and the basis of decision under subsection (6), and adherence to the amount and grounds of the notice under subsection (7).

The proper use of technology is to make scrutiny more accurate. Its improper use is to make assumptions easier to repeat.

The annual-total problem

Suppose a trader purchases from 40 suppliers during a year. The Department subsequently questions two suppliers.

The proper inquiry concerns the purchases and credit connected with those suppliers, together with any other independently identified defect. The existence of two suspect suppliers does not, without further grounds, explain rejection of the remaining purchases.

This is an illustration, not a finding about the notice. Its purpose is to show why an annual total cannot replace a transaction-wise explanation.

There may be grounds for disputing credit across a wider set of transactions. If so, those grounds must be stated and supported. The Department cannot leave the taxpayer to discover them after an order has been passed. Section 75(7) restricts confirmation to the amount and grounds specified in the notice.

Cancellation is not one factual situation

The words “cancelled before/after” conceal distinctions that matter.

Situation	Necessary examination
Cancellation effective before purchase	Eligibility and the facts surrounding the transaction require close scrutiny.
Prospective cancellation after purchase	The later cancellation does not, by itself, describe the status of an earlier transaction.
Later order cancelling registration retrospectively	The order date, effective date, contemporaneous portal status, actual supply, and statutory ITC conditions must be examined.
Supplier found absent during a later inspection	The timing and evidence must be considered before drawing conclusions about earlier supplies.

The taxpayer also has responsibilities. In State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd., In Gargo Traders, the Calcutta High Court required reconsideration of the taxpayer’s documents where retrospective cancellation had formed the basis of rejection. The decision supports an examination of actual transactions rather than automatic denial. It is persuasive authority in Karnataka, not an unconditional declaration that every affected purchaser must receive credit.

decided on 13 March 2023 under the Karnataka VAT Act, the Supreme Court emphasised proof of actual transactions and movement of goods. Invoices and cheque payments alone were insufficient.

Both principles must be respected. The taxpayer must substantiate the purchase. The officer must examine that evidence.

A speaking order must speak

A speaking order is not an order with many pages. It is an order that explains why the authority accepts or rejects the taxpayer’s case.

An order saying “reply is not satisfactory” leaves the real issue unanswered. Which explanation was unsatisfactory? Which document was unreliable? What contradictory evidence was found? Why was the transaction rejected?

Section 75(6) requires the officer to set out relevant facts and the basis of the decision. Section 75(4) requires an opportunity of hearing were requested in writing or where an adverse decision is contemplated. These are statutory obligations, not optional courtesies.

A reported Karnataka High Court decision illustrates the problem. The taxpayer had filed a reply, but the authority passed an order stating that no reply had been filed and did not provide a personal hearing. The Court set aside the order and directed fresh consideration.

Such a remand gives the taxpayer another opportunity. It does not reimburse every rupee spent, restore every lost working day, or erase the anxiety caused by the original order.

The Department should ask why the failure occurred and how to prevent its repetition. A court’s correction should become an administrative lesson.

Fraud requires particulars

A supplier’s default and a purchaser’s fraud are different allegations.

If the Department alleges collusion, it should identify the recipient’s involvement. If it alleges non-receipt of goods, it should examine transport, delivery, stock, and subsequent disposal. If it alleges supplier tax non-payment, it should identify the relevant statutory failure and supporting verification.

The officer issued intimation invokes section 74A (9) and proposes a penalty equal to tax, but the only stated ground in the supplied document concerns cancellation of suppliers’ registrations. No particular fraudulent act by the recipient is described there.

Section 74A distinguishes fraud-related and non-fraud penalty consequences. Its pre-notice settlement provision for fraud cases under subsection (9)(i) provides for tax, interest, and 15% penalty. A communication seeking payment before notice should clearly distinguish that option from a possible tax-equivalent adjudication penalty under subsection (5)(ii).

Likewise, interest on disputed ITC needs a calculation. Under section 50(3) and rule 88B(3), wrongful availment and utilisation, including the relevant period of utilisation, matter. A consolidated interest figure without its basis cannot meaningfully be checked by the taxpayer.

3. Repeated proceedings need control

One of the most serious practitioner-reported concerns is the apparent overlap between audit, enforcement, and jurisdictional proceedings.

A taxpayer may receive one notice from enforcement and another from an audit or jurisdictional officer. The years may overlap. The suppliers may overlap. Sometimes the tax amounts may also appear to overlap.

However, legal accuracy matters: the same financial year does not necessarily mean the same subject matter.

One proceeding may concern output tax; another may concern a distinct ITC defect. One may be an investigation, another an adjudication. A summons is not automatically equivalent to a demand proceeding.

In Armour Security (India) Ltd., the Supreme Court’s judgment of 14 August 2025 explains the distinction between investigative summons and proceedings on the same subject matter. The inquiry must focus on the actual liability or contravention and relief sought, not merely an overlap in years or background facts.

Centre–State duplication

Section 6(2)(b) provides an express protection concerning proceedings initiated by State and Central authorities on the same subject matter.

A reported Karnataka High Court decision demonstrates its practical significance. State notices dated 15 June 2023 and 19 February 2024 were followed by a Central notice dated 26 September 2025 and an adjudication order dated 25 February 2026. The Court quashed the later Central proceedings after finding that the State authorities had already initiated proceedings on the same subject matter.

The lesson is not that a second authority can never examine a taxpayer. The lesson is that the second authority must determine whether the liability it proposes to adjudicate is already the subject of the earlier proceeding.

Duplication within the State Department

Where both officers belong to the Karnataka State tax administration, section 6(2)(b) should not be presented as a universal answer. Its express Centre–State framework is different from internal overlap between two State officers.

Internal duplication calls for examination of:

The statutory function assigned to each officer.

The precise issue and transactions covered.

Whether an earlier proceeding or order already determines the liability.

Whether the later exercise is authorised by an applicable statutory mechanism.

Whether earlier payments, reversals, or demand entries have been accounted for.

“Proper officer” status depends on assignment of the relevant statutory function; it should not be assumed merely from an officer’s designation. Equally, it is unsafe to claim that every audit officer is legally prohibited from adjudicating. The applicable assignment and jurisdiction must be checked.

Administrative allocation cannot enlarge the Act. An instruction from a superior cannot substitute for the adjudicating officer’s reasons under section 75(6).

Illustrative duplicate-demand problem

Consider an illustration: enforcement proposes ₹60 lakh of ITC relating to specified suppliers for FY 2023–24. An audit-based order later confirms the same ₹60 lakh relating to the same invoices, without addressing the enforcement proceeding.

That is materially different from two notices concerning separate defects during the same year.

The taxpayer should place both proceedings side by side and identify the overlap precisely. “Same year” is too broad. Supplier GSTINs, invoice numbers, grounds, tax heads, and amounts provide the stronger comparison.

The Department should undertake the same exercise before issuing the second notice—not leave it to a small trader after two liabilities appear against his GSTIN.

Different years, different provisions

FY 2022–23 and FY 2023–24 ordinarily fall within the section 73/74 demand framework, depending on the nature of the allegation. Section 74A applies to FY 2024–25 onwards. The applicable provision must therefore be checked year by year.

A combined reference to “2022–23 to 2024–25” should not obscure the different statutory framework. Nor does an allegation of fraud become valid merely because it is repeated across several financial years.

4. Appeal should not bankrupt business

“File an appeal” is legally important advice. It is not a complete answer to defective adjudication.

A trader may possess records proving his purchases but lack the money required to challenge the order. Business turnover is not personal wealth. The value of goods passing through a trading concern does not reveal the proprietor’s savings or available cash.

Section 107 generally requires payment of admitted amounts and 10% of the remaining disputed tax for a first appeal. For a demand containing tax, interest, and penalty, the ordinary disputed-tax deposit is not 10% of the entire combined demand. The current CGST provision contains a ₹20 crore ceiling.

For this example, if the entire proposed tax of ₹1,87,41,656 were eventually confirmed and disputed, the ordinary 10% disputed-tax component would be approximately ₹18.74 lakh—not ₹42.54 lakh. This is only an illustration: DRC-01A itself is not the adjudication order against which that appeal would arise.

Even ₹18.74 lakh may be beyond a livelihood business.

Repeated orders can make the problem worse. If overlapping liabilities remain in separate orders, the taxpayer must urgently consider challenges to each; he cannot safely assume that correcting one will automatically dispose of the other.

What the taxpayer should do

Obtain the complete notice or order, not only the DRC summary, and record the date of communication.

Prepare an issue-wise reply identifying every disputed supplier, invoice, amount, and statutory objection.

Request relied-upon documents and workings where they have not been supplied.

Submit transport, delivery, stock, and payment evidence, with an indexed reconciliation.

Request a personal hearing expressly in writing.

Disclose earlier notices, orders, reversals, and payments, and identify any precise duplication.

Preserve filing acknowledgments and proof of each document submitted.

After an adverse order, obtain timely advice on appeal, rectification where available, or a jurisdictional/natural-justice challenge.

A first appeal is ordinarily due within three months of communication of the order; section 107 allows a further one month on sufficient cause. An administrative complaint should not be assumed to preserve or extend that deadline. Payment under section 107(6) brings the statutory deemed stay of recovery for the balance under subsection (7).

The High Court route

Article 226 remains important where there is a genuine jurisdictional defect, denial of natural justice, breach of fundamental rights, or a challenge to statutory validity. Radha Krishan Industries v. State of Himachal Pradesh explains recognised exceptions to the alternative-remedy rule.

But financial hardship alone should not be presented as an assured escape from mandatory pre-deposit. A writ petition is not an automatic substitute for appeal, and relief depends on the facts and the Court’s discretion.

Indeed, in the reported Karnataka parallel-proceedings case, reopening the State adjudications was made conditional on deposit of 10% of the tax demanded. Court intervention does not necessarily mean deposit-free relief.

The practical response is early action. Delay can turn a defensible case into a limitation dispute.

5. Karnataka needs an adjudication reset

The Department should not answer every complaint with an invitation to litigate. It should prevent avoidable litigation by improving the original decision.

The following are proposed reforms—not a claim that Karnataka presently lacks every corresponding system.

A common proceeding register

Create or strengthen a shared register connecting audit, enforcement, jurisdictional, State, and Central proceedings wherever information can lawfully be exchanged.

Before a demand notice is issued, the officer should record that earlier proceedings have been checked and identify any overlap. The register should capture GSTIN, period, issue, suppliers or invoices, tax heads, amount, stage, and responsible authority.

“One taxpayer, one visible case history” would not prevent legitimate scrutiny. It would prevent scrutiny from becoming uncoordinated repetition.

A transaction-wise demand standard

Every supplier-related ITC proposal should ordinarily contain a schedule showing the supplier GSTIN, invoice particulars, disputed credit, cancellation particulars where relevant, statutory ground, and computation.

Where the Department relies on a broader pattern rather than individual invoices, it should explain the pattern and the evidence supporting it.

The taxpayer should receive an answerable case, not an unexplained figure.

A reply-to-finding discipline

Require an adjudication matrix:

Notice issue	Taxpayer’s response	Evidence examined	Finding and reasons
Specific allegation	Relevant explanation	Identified documents and verification	Acceptance or rejection with reasons

This is a proposed administrative method for giving practical effect to section 75(6). It would make omissions visible and reduce the habit of reproducing the notice as the order.

Review high-value cases

Introduce a focused administrative quality check for proposals or orders above a suitable threshold, particularly those involving whole-year ITC rejection, fraud classification, or apparent duplication.

The review should test jurisdiction, disclosure, calculations, prior proceedings, hearing compliance, and consideration of evidence. It must not dictate the result or replace the adjudicating officer’s independent decision.

₹2 crore may be a useful policy threshold for discussion, but that is a reform proposal, not a presently established legal requirement.

Learn from remands

Maintain an anonymised record of orders set aside or remanded for:

Failure to consider a filed reply.

Denial of personal hearing.

Absence of reasons.

Jurisdictional overlap.

Unexplained computation.

Reliance on undisclosed material.

A remand should trigger correction and training. Repeated failures should trigger a lawful supervisory review, rather than disappear into the next round of proceedings.

Separate quality from quantum

The value of an officer’s work should not be measured simply by the amount demanded.

A large demand unsupported by evidence is not necessarily a revenue achievement. A smaller, properly reasoned demand that survives scrutiny may serve the State better.

Likewise, dropping an allegation after checking genuine records is not weakness. It is adjudication doing its job.

Examine pre-deposit hardship

The Karnataka Government can place documented cases of hardship before the GST Council and the appropriate legislative authorities for consideration of suitable safeguards.

This may include proposals concerning genuine inability to pay and the exceptional problem of demonstrably overlapping demands. Any relaxation of mandatory statutory conditions must come through competent legal measures or appropriate judicial relief; an administrative assurance cannot override section 107.

The department must answer

The complaint is not that GST officers should stop detecting evasion. False invoicing, fabricated supplies, and collusive credit claims deserve serious action.

The complaint is that detection and adjudication must remain different stages. A suspicion may start an inquiry. It cannot finish the decision.

The taxpayer’s records must be tested, not ignored. Supplier cancellation must be analysed, not used as a universal label. Earlier proceedings must be checked, not rediscovered after a second demand. A hearing must allow an answer, not merely complete a formality.

The officer issued intimation makes the concern concrete: ₹4,25,43,560 has been proposed in a document whose supplied pages give only a general supplier-cancellation ground. The Department should provide the underlying particulars and examine the taxpayer’s evidence before drawing adverse conclusions.

Karnataka does not need weaker enforcement. It needs enforcement that distinguishes a false transaction from a genuine one—and an adjudication system that can explain the difference.

An honest business should not have to purchase a hearing through litigation after its documents were never properly examined.

The governing standard should be simple: identify the transaction, disclose the material, hear the taxpayer, examine the records, prevent duplicate liability, and give reasons.

Anything less transfers the cost of administrative failure to the person least able to bear it.