GST Audit Adjudication, Proper Officer Jurisdiction and Hearing Rights

Enforcement Notice, Audit Adjudication and Denial of Hearing under GST: A Legal Examination of Karnataka Proceedings

Summary: The article examines jurisdiction, notice, audit adjudication and denial of personal hearing in GST proceedings, particularly in Karnataka. A GST demand cannot rest merely on uploading FORM GST DRC-01 or displaying hearing dates on the portal; the proceedings must comply with the statutory requirements governing the proper officer, jurisdiction, notice, evidence, service, hearing and reasoned adjudication. Section 2(91) makes assignment of the particular statutory function central to determining the proper officer, while Section 6 permits Centre-State cross-empowerment but restricts parallel proceedings on the same subject matter. FORM GST DRC-01 under Rule 142 is a summary and does not substitute the factual and evidentiary foundation necessary for an effective defence. Section 75(4) requires personal hearing where requested or where an adverse decision is contemplated, while Section 75(7) restricts adjudication to the amount and grounds specified in the notice. The article also examines the natural-justice implications of the same officer participating in audit and adjudication, including the Karnataka High Court ruling in Sumukha Ventures, and explains that Section 74A governs determination for FY 2024-25 onwards while Sections 73 and 74 continue to govern earlier periods as applicable. It concludes with practical objections and a draft representation seeking disclosure of jurisdictional authority, relied-upon documents, independent adjudication and an effective personal hearing.

Introduction

The concerns raised are legally substantial. A GST demand cannot be sustained merely because a DRC-01 was generated on the portal or because three dates were displayed online. The notice, the adjudicating authority, the allocation of jurisdiction, the evidence relied upon, the statutory opportunity of personal hearing, and the reasons recorded in the final order must all satisfy the CGST/KGST Act and constitutional requirements of natural justice.

At the same time, the proposition needs to be stated with precision: a State Tax officer may, in an appropriate case, exercise powers under the CGST Act because of statutory cross-empowerment; therefore, an order does not become invalid merely because the taxable person is commonly described as being under “Central jurisdiction.” The decisive question is whether the particular officer was lawfully assigned the specific statutory function—investigation, issue of notice, adjudication, or audit—for that taxpayer, tax period, subject matter and monetary limit. Sections 6 of the CGST Act and corresponding State provisions prevent parallel proceedings on the same subject matter, but they do not authorise arbitrary transfer, predetermined adjudication, or adjudication without a real hearing.

The real controversy

In Karnataka, taxpayers have increasingly faced a pattern in which an Enforcement Officer initiates proceedings and causes a summary in FORM GST DRC-01 to be uploaded; the matter is thereafter placed before an Audit Officer or another State Tax officer for final adjudication. In several cases, the taxpayer alleges that:

• The alleged discrepancy is not supported by relied-upon documents, reconciliation workings, third-party material, or evidence.
• The notice consists only of a demand summary or vague allegation.
• The matter is shifted from Enforcement to Audit without disclosing the statutory assignment or transfer order.
• The officer deciding the case has not independently considered the taxpayer’s reply.
• The portal shows three hearing dates, but no effective notice, personal hearing, or communication reaches the registered person.
• The order is passed ex parte, mechanically, and often repeats the allegation in the notice.
• The order is issued under Section 74A without showing whether the ingredients of fraud, wilful misstatement, or suppression are even alleged and supported.
• Orders deal with transactions under CGST, KGST and IGST together, even where the question of Centre–State jurisdiction and parallel proceedings has not been considered.

These are not merely procedural complaints. They go to the root of the validity of the proceedings. GST administration is technology-enabled, but the GST portal cannot replace statutory compliance. Uploading a document in a portal tab, without meaningful service and an effective opportunity to respond, cannot convert an otherwise invalid proceeding into a lawful adjudication.

Statutory position

Proper officer is not a loose expression

Under Section 2(91) of the CGST Act, a “proper officer” means the Commissioner or the officer assigned that function by the Commissioner. The expression has legal significance. It requires ascertainment of:

• The officer’s designation.
• The source of power: statute, notification, order, or assignment.
• The territorial jurisdiction.
• The subject-matter jurisdiction.
• The period involved.
• The monetary limit, where applicable.
• The precise function assigned—investigation, audit, issuance of SCN, adjudication, recovery, appeal, etc.

An internal instruction may regulate departmental work, but it cannot override the Act or cure an absence of statutory assignment. Where jurisdiction is questioned, the department must be in a position to produce the notification, order, circular, or assignment under which the concerned officer acted.

The CBIC’s own framework distinguishes between issuance of show-cause notices and adjudication. Circular No. 31/05/2018-GST, as amended, provides a structured assignment of “proper officer” functions under Sections 73 and 74. In the Central Tax framework, officers of Audit Commissionerates and intelligence formations were assigned the role of issuing show-cause notices, while adjudication is placed with the competent executive officer in the prescribed manner. This reflects an important administrative principle: investigation or audit may generate the case, but adjudication must be carried out by the legally competent adjudicating authority.

The exact Karnataka departmental orders applicable to each matter must therefore be obtained and examined. A taxpayer should not accept a bare assertion that “the Commissioner has assigned the case.” The relevant order must show assignment of the particular adjudicatory function to the officer who passed the order.

Cross-empowerment is real, but not unlimited

Section 6(1) of the CGST Act authorises officers appointed under the SGST Act to act as proper officers for CGST purposes, subject to conditions prescribed by the Government. Correspondingly, the legal framework permits State Tax and Central Tax authorities to administer the dual GST structure in accordance with allocation and cross-empowerment.

However, this does not mean that every State Tax officer can pass every CGST order at will, or that an officer may be chosen after the event to validate a demand. Cross-empowerment has to be read with the statutory requirement of a “proper officer,” the relevant notification/assignment, and the anti-duplication rule.

Section 6(2)(b) contains a critical safeguard. Once proceedings on a subject matter have been initiated by a proper officer under one enactment, proceedings on the same subject matter should not be initiated by the officer under the other enactment. This provision seeks to prevent the taxpayer from being subjected to duplicate Centre–State proceedings for the same tax period and the same issue.

Therefore, the correct legal proposition is:

Situation	Legal position
State officer acts for a taxpayer administratively assigned to State Tax	Permissible, subject to proper statutory assignment and observance of procedure
State officer passes a combined CGST/KGST order under valid cross-empowerment	May be permissible, if the officer is the proper officer and no parallel proceeding exists
Enforcement Officer initiates proceedings and another officer adjudicates	Not automatically illegal; legality depends on the statute, assignment, transfer mechanism, and independent adjudication
Audit Officer who formed the audit objection also adjudicates without independent consideration	Vulnerable on jurisdiction and natural-justice grounds, particularly where the officer effectively acts as complainant and judge
Central and State authorities issue proceedings on the same issue and period	Strong objection under Section 6(2)(b), subject to the facts of initiation and subject matter
An officer adjudicates without a valid assignment order	Jurisdictional defect; the order is vulnerable to challenge
DRC-01 is uploaded but no meaningful hearing is granted	Violation of Section 75(4) and natural justice; the order is liable to be challenged

DRC-01 is not, by itself, a complete adjudication process

FORM GST DRC-01 is a statutory summary of the notice under Rule 142. It is not intended to replace the show-cause notice, material particulars, relied-upon documents, computation, and factual foundation required for an effective defence.

A lawful notice should make the taxpayer understand:

• The exact tax period.
• The statutory provision invoked.
• The nature of allegation: tax not paid, short paid, erroneous refund, wrongly availed ITC, or wrongly utilised ITC.
• Whether the department alleges fraud, wilful misstatement, or suppression.
• The calculation of tax, interest and penalty.
• The documents and data relied upon.
• The reconciliation basis—GSTR-1, GSTR-3B, GSTR-2B, e-way bills, books of account, annual return, financial statements, or third-party material.
• The reasons why the taxpayer’s records are said to be unacceptable.
• The proposed tax head—CGST, KGST/SGST, IGST, cess, if any.
• The adjudicating authority before whom the taxpayer must reply.

Section 75(7) makes the limits of adjudication clear: the order cannot demand an amount exceeding that specified in the notice, nor can demand be confirmed on grounds not contained in the notice. The Karnataka High Court has reportedly set aside an order where the final demand was expanded dramatically beyond what was proposed in the show-cause notice.

A proper officer cannot issue a vague DRC-01, collect a reply, conduct a fresh departmental verification behind the taxpayer’s back, and then confirm liability on a new basis in the final order. If the department discovers another issue, it must proceed through a proper notice for that issue.

Mandatory personal hearing

Section 75(4) is unambiguous. An opportunity of hearing shall be granted where:

1. The person chargeable with tax or penalty makes a written request; or

2. Any adverse decision is contemplated against that person.

The second limb is independently sufficient. Where the officer proposes to confirm tax, interest or penalty, an adverse decision is plainly contemplated. A personal hearing is therefore not a discretionary favour; it is a statutory obligation.

The departmental argument that “three opportunities were available on the GST portal” cannot by itself answer this legal requirement. The department must establish genuine and effective service of the hearing intimation, reasonable time to respond, proper identification of the matter, and a meaningful opportunity to make submissions and produce documents.

A hearing is not real if:

• The taxpayer was never informed through the registered e-mail or the portal communication system in a reasonably accessible manner.
• The hearing notice did not identify the issue, demand, documents required, or authority.
• The hearing date was fixed without adequate time after furnishing the relied-upon materials.
• The hearing was pre-fixed before the taxpayer received the show-cause notice.
• The order was passed before the taxpayer could use the statutory payment/response period.
• The hearing request was ignored.
• The order records “opportunity granted” without recording whether the taxpayer appeared, what was submitted, and why the submissions were rejected.
• The hearing dates were merely portal entries and no effective human hearing was afforded.

Courts have repeatedly treated a failure to provide hearing in adverse GST adjudication as a breach of Section 75(4). In a 2025 decision reported from the Karnataka High Court, an order under Section 73(9) passed without notice or hearing was set aside and the proceedings were restored to the show-cause stage. In another Karnataka matter, the High Court quashed a Section 74 order where the taxpayer was denied an opportunity to produce documents, directing fresh adjudication after reply, document production and hearing.

The Bombay High Court has also emphasised that Section 75 protects the taxpayer’s right to notice and personal hearing where an adverse order is proposed; a hearing in a different proceeding cannot substitute the hearing required in the present show-cause proceeding.

The practical conclusion is straightforward: three entries on the portal are not equivalent to three lawful opportunities of hearing unless the department proves meaningful communication and an effective opportunity to be heard.

Enforcement, audit and adjudication

The GST law recognises different departmental functions. Enforcement or intelligence action may involve inspection, search, inquiry, summons, seizure, verification of documents, and collection of evidence. Audit under Section 65 involves examination of records, returns and other documents. Adjudication under Sections 73, 74 or 74A involves judicial or quasi-judicial determination of tax liability after considering the notice, reply, evidence and hearing.

These functions may be connected, but they are not identical.

There is no universal rule that the officer who detects an issue can never participate in the proceedings. However, where the same officer conducts the audit, forms the allegation, rejects the explanation, and then adjudicates the very same issue without independent application of mind, the taxpayer has a strong objection based on the rule against bias—nemo judex in causa sua, meaning no person should be a judge in his or her own cause.

Recent Karnataka reporting indicates that the High Court, in Sumukha Ventures v. Joint Commissioner of Commercial Taxes (Admn.), W.P. No. 7772 of 2026, order dated 24 April 2026, treated the issue of an audit officer who subsequently passed the assessment/adjudication order as a serious natural-justice and jurisdictional concern. The order was set aside/remanded so that the objection concerning jurisdiction and the propriety of the same officer acting as auditor and adjudicator could be determined before proceeding on merits.

This is an important development for Karnataka taxpayers. The legal objection should be framed carefully. It should not merely say, “the Audit Officer cannot adjudicate.” Instead, it should say:

The impugned adjudication is vitiated because the officer who conducted/controlled the audit or enforcement exercise and formed the prima facie conclusions has himself/herself acted as the adjudicating authority, without an independently assigned proper officer considering the taxpayer’s reply and evidence. The process gives rise to a reasonable apprehension of prejudgment and violates the statutory requirement of fair adjudication and natural justice.

Where the case is transferred from Enforcement to Audit, the taxpayer should demand:

• The original initiation order or assignment.
• The transfer order.
• The provision under which the file was transferred.
• The exact officer authorised to issue DRC-01.
• The officer authorised to adjudicate.
• The document showing that the adjudicator independently applied his/her mind.
• The relied-upon documents and verification report.
• The date and mode of service of every notice and hearing communication.

Section 74A: common errors

Section 74A applies for tax periods beginning from Financial Year 2024-25 onward. The Finance Act, 2024 replaced the earlier separate framework of Sections 73 and 74 for the future period with the new Section 74A framework. Thus, Financial Year 2022-23 and Financial Year 2023-24 cases ordinarily require examination under the provisions applicable to those periods—principally Sections 73 or 74, as the case may be—not a casual or retrospective invocation of Section 74A. The statutory provision actually invoked must match the relevant tax period and the nature of allegation.

For FY 2022-23, an officer cannot simply label every mismatch, ITC dispute, or reconciliation difference as suppression or fraud. The notice must state the facts constituting fraud, wilful misstatement or suppression, and the order must deal with the taxpayer’s explanation. A mechanical invocation of extended-period provisions or penalty provisions is legally unsustainable.

For FY 2024-25 onwards, Section 74A also does not dispense with:

• Valid notice.
• Jurisdiction of proper officer.
• Disclosure of evidence.
• Adequate response period.
• Personal hearing under Section 75(4).
• A reasoned order.
• Determination limited to the allegations in the notice.

An officer must distinguish between a bona fide reconciliation issue and deliberate evasion. Mere difference between GSTR-1, GSTR-3B, GSTR-2B, e-way bill data, financial statements, or annual return figures does not automatically establish taxable liability. The taxpayer must be allowed to reconcile the difference with books, debit notes, credit notes, amendments, time-of-supply issues, exempt supplies, reverse-charge transactions, stock transfers, exports, and accounting adjustments.

Suggested objections in a taxpayer reply

A reply to DRC-01 or the show-cause notice should raise jurisdiction and natural justice at the beginning, without prejudicing a detailed reply on merits. The taxpayer should avoid relying only on technical objections; a complete reconciliation and evidence-based reply remains essential.

The following objections may be adopted according to the facts:

Preliminary objection on jurisdiction

The notice and proposed adjudication do not disclose the notification, assignment order, territorial jurisdiction, functional jurisdiction, and monetary authority by which the issuing/adjudicating officer has been designated as the “proper officer” for the present taxable person, tax period and subject matter. The taxpayer requests production of the same before further proceedings.

Objection regarding transfer of proceedings

The proceedings appear to have originated from an Enforcement formation and have subsequently been placed before an Audit/other authority. The legal basis, file-transfer order, assignment of adjudication function, and approval for such transfer have not been disclosed. Unless the adjudicating officer is independently vested with jurisdiction, the proposed adjudication is without authority of law.

Objection regarding Section 6 and parallel proceedings

The taxpayer requests confirmation that no proceedings on the same subject matter and tax period have been initiated by the Central Tax/State Tax counterpart authority. In the event of duplicate initiation, the proceedings are barred by Section 6(2)(b) of the CGST Act and the corresponding provision of the KGST Act.

Objection regarding defective show-cause notice

The notice does not set out complete facts, the legal basis, workings, relied-upon documents, third-party evidence, reconciliation methodology, and computation of tax, interest and penalty. A summary in DRC-01 cannot substitute a legally sufficient show-cause notice and supporting material.

Objection regarding hearing

No effective opportunity of personal hearing has been granted as mandated by Section 75(4). Mere display of dates on the portal, without effective service and reasonable opportunity to respond, does not constitute a valid personal hearing. The taxpayer specifically requests a physical/virtual personal hearing and supply of all relied-upon documents before such hearing.

Objection against predetermined adjudication

The taxpayer apprehends that the proposed order is being pursued on the basis of the earlier enforcement/audit conclusion without independent evaluation. The adjudicating authority must consider the reply and documentary evidence independently and pass a speaking order.

Objection regarding penalty

Penalty cannot be imposed mechanically. The notice must establish the statutory ingredients applicable to the relevant period. A bona fide interpretational issue, clerical mismatch, reconciliation difference, or disclosure in records does not by itself establish fraud, wilful misstatement or suppression.

Draft representation to Deputy Commissioner

To
The Deputy Commissioner of Commercial Taxes (Audit)
[Jurisdiction / Division]
Karnataka State Tax Department

Subject: Representation seeking disclosure of jurisdictional authority, supply of relied-upon documents, withdrawal of proposed ex parte adjudication and grant of effective personal hearing in GST proceedings

Reference:

1. FORM GST DRC-01 / Show Cause Notice No. dated

2. GSTIN:

3. Tax Period:

4. Proposed demand: ₹______

5. Order / hearing communication, if any:

Respected Sir/Madam,

We submit this representation in relation to the above proceedings. The taxpayer is a bona fide registered person engaged in lawful business and has regularly maintained books of account, filed statutory returns and made disclosures in the ordinary course of business. The present proceedings involve serious questions of jurisdiction, statutory procedure, evidence and denial of effective opportunity of hearing. We therefore request that these foundational issues be decided before any adverse order is passed.

At the outset, it is submitted that the proceedings appear to have originated from the Enforcement wing and have thereafter been placed before the Audit authority for adjudication. However, neither the notice nor the communications issued so far disclose the statutory notification, assignment order, transfer order, territorial jurisdiction, functional jurisdiction or monetary authority under which the present authority has been vested with the power to adjudicate the matter.

The expression “proper officer” under the CGST/KGST enactments is not a matter of administrative convenience. The officer proposing to issue notice or pass an adjudication order must be lawfully assigned the concerned statutory function. The taxpayer is entitled to know the exact source of jurisdiction of the issuing officer as well as the adjudicating officer. We therefore request that the following documents be furnished:

1. The order/notification assigning the issuing officer as proper officer for the present proceedings.

2. The order/notification assigning the adjudicating officer as proper officer for adjudication.

3. The order under which the case, if any, was transferred from Enforcement to Audit or any other formation.

4. The relevant jurisdictional order showing territorial, subject-matter and monetary jurisdiction.

5. Details of whether any Central Tax or State Tax proceeding has already been initiated on the same subject matter and tax period.

6. Copies of all relied-upon documents, statements, verification reports, third-party material, data analytics, reconciliation worksheets and internal reports forming the basis of the proposed demand.

The taxpayer further submits that a mere summary in FORM GST DRC-01 does not enable an effective defence unless the complete basis of the allegations, workings and relied-upon evidence are furnished. The present notice, to the extent it does not disclose the precise factual basis, computation, tax-head-wise workings and documentary material, is vague and incapable of being answered effectively.

Without prejudice to the above, the taxpayer specifically requests a complete reconciliation opportunity. Any mismatch between returns, books of account, GSTR-2B, e-way bills, annual return or other data cannot automatically result in a demand without permitting reconciliation with primary books, invoices, credit notes, debit notes, amendments, exempt supplies, reverse-charge transactions and other legally relevant adjustments.

The taxpayer also places on record that no effective opportunity of personal hearing has been granted. The fact that certain dates may have been reflected in the GST portal cannot by itself satisfy the mandatory requirement of Section 75(4), particularly when the taxpayer has not received effective communication, the relied-upon documents have not been supplied, and sufficient time has not been provided for a meaningful response. Since an adverse decision is contemplated, personal hearing is mandatory. The taxpayer hereby expressly requests a personal hearing through physical mode or virtual mode after supply of complete documents and after allowing reasonable time for filing a detailed reply.

It is respectfully submitted that the adjudication must be undertaken by an independent and legally competent proper officer. Where the officer who conducted or controlled the enforcement/audit exercise also proceeds to adjudicate the same allegations, a serious issue of prejudgment and violation of natural justice arises. The adjudicating authority is required to independently consider the taxpayer’s reply, documentary evidence and submissions and must pass a reasoned speaking order.

The taxpayer further submits that the provision invoked must correspond to the relevant tax period. If the tax period pertains to FY 2022-23 or FY 2023-24, the department may not mechanically invoke Section 74A, which applies prospectively to the new statutory regime for later tax periods. Equally, extended-period allegations or penalty cannot be sustained without specific facts establishing the applicable statutory ingredients. A routine mismatch or difference in reconciliation does not establish fraud, wilful misstatement or suppression.

In view of the above, it is respectfully requested that:

1. No adverse or ex parte order be passed until the jurisdictional objections are first considered and decided by a speaking order.

2. All relied-upon documents and complete demand workings be supplied.

3. The taxpayer be granted not less than reasonable time to file a detailed reply with reconciliations and evidence.

4. A meaningful personal hearing under Section 75(4) be granted after the above material is supplied.

5. The proceedings be adjudicated only by a duly assigned and independent proper officer.

6. The demand, if any, be confined strictly to the allegations, amount and grounds specified in a valid show-cause notice, in accordance with Section 75(7).

7. In case proceedings on the same subject matter have already been initiated by the counterpart Central/State authority, the present proceedings be dropped in accordance with Section 6(2)(b).

This representation is submitted without prejudice to all legal and equitable rights, remedies and contentions available to the taxpayer under the CGST Act, KGST Act, Rules, Constitution of India and other applicable law.

Yours faithfully,
For

Authorised Signatory / GST Practitioner

Date:
Place:

Important judicial principles

1. Hearing under Section 75(4) is mandatory

A recent decision reported from the Karnataka High Court involved a Section 73(9) order passed without notice or hearing. The Court set aside the order and remitted the matter to the show-cause stage, demonstrating that denial of hearing is not a minor defect where the taxpayer is exposed to tax, interest and penalty.

A Karnataka High Court ruling reported in W.P. No. 31478 of 2025, decided on 3 November 2025, similarly set aside a Section 74 order because the taxpayer was not given a chance to produce documents despite having filed a reply. The matter was remanded for fresh adjudication after granting reply, production of documents and personal hearing.

2. Same audit officer and adjudicating officer

In Sumukha Ventures v. Joint Commissioner of Commercial Taxes (Admn.), W.P. No. 7772 of 2026, order dated 24 April 2026, the Karnataka High Court reportedly treated the same-officer audit-and-adjudication process as raising serious issues of natural justice. The Court required the jurisdictional issue to be dealt with before merits. This authority should be cited cautiously and with a copy of the order attached in actual litigation, but it provides a strong Karnataka-specific basis to insist upon independent adjudication.

3. Order cannot exceed the SCN

Section 75(7) prevents confirmation beyond the amount and grounds stated in the show-cause notice. The reported Karnataka decision in M/s Prestige Nottinghill Investments is significant because the final demand was allegedly enlarged substantially beyond the demand proposed in the show-cause notice, leading to judicial intervention.

4. Portal communication cannot defeat natural justice

The broader judicial trend is that digital service does not remove the obligation of fair notice. Courts have intervened where notices or hearing information were placed in obscure portal locations and the taxpayer did not receive a practical opportunity to contest the demand. The essential test remains whether the taxpayer received real, reasonable and effective notice and hearing.

Conclusion

The department is entitled to conduct audit, enforcement inquiry and adjudication. Taxpayers are equally obliged to maintain records, file accurate returns and pay lawful tax. But GST administration cannot operate on the basis that every data mismatch is evasion, every DRC-01 is a complete show-cause notice, every portal entry is a hearing, and every departmental officer can adjudicate merely because an internal transfer was made.

The legal position may be stated firmly:

• An Enforcement Officer may initiate inquiry and gather material, but the statutory foundation for any notice and final adjudication must be disclosed.
• Transfer from Enforcement to Audit is not automatically invalid, but it must be supported by lawful assignment and should not result in a biased or predetermined decision.
• A State Tax officer can, in appropriate cases, pass an order covering Central tax because of statutory cross-empowerment; yet the officer must still be the duly assigned proper officer and cannot act in parallel with proceedings initiated on the same issue by the counterpart authority.
• Section 6(2)(b) is an important protection against duplicate Centre–State proceedings on the same subject matter.
• Section 75(4) makes a genuine personal hearing mandatory where an adverse order is contemplated.
• A portal display of three dates, without proper communication and an effective hearing, does not satisfy the Act.
• Section 74A cannot be casually invoked for periods to which it does not apply, and allegations of fraud, suppression or wilful misstatement must be specifically pleaded and supported.
• A final order must be reasoned, evidence-based, and confined to the allegations and amount stated in the show-cause notice under Section 75(7).

The taxpayer’s immediate strategy should be to file a detailed written objection on jurisdiction, demand complete relied-upon documents, request a personal hearing in writing, submit reconciliation on merits, preserve proof of non-service or defective service, and challenge an ex parte or non-speaking order promptly through statutory appeal or writ jurisdiction where the defect goes to jurisdiction or natural justice.