Rajapur Minerals Vs Deputy Commissioner of Commercial Taxes (Karnataka High Court)
The Karnataka High Court allowed the writ petition filed by Rajapur Minerals challenging a series of proceedings under the Karnataka Goods and Services Tax Act, 2017, including the audit report in Form GST ADT-02 dated 13.12.2023, intimation in Form GST DRC-01A dated 14.12.2023, show cause notice dated 23.12.2023, summary in Form GST DRC-01, Order-in-Original dated 20.03.2024, consequential Form GST DRC-07, proceedings/authorization under Section 78, Order-in-Appeal dated 27.06.2025, garnishee notice in Form GST DRC-13 dated 04.10.2025 and Form DRC-09 dated 03.12.2025. Alternatively, the petitioner sought remand of the matter to the stage of hearing on the show cause notice.
The principal challenge was founded on the fact that respondent No.1, the Deputy Commissioner of Commercial Taxes (Audit)-2, had conducted the audit proceedings under Section 65(6) of the KGST Act and thereafter the very same officer issued the show cause notice under Section 73(1) read with Sections 50 and 122 and ultimately passed the Order-in-Original. The petitioner contended that combining these functions in the same officer was impermissible and created a reasonable apprehension of bias, thereby vitiating the adjudication for violation of the principles of natural justice.
The petitioner relied upon M/s. Presidency Builders and Developers Vs. The Deputy Commissioner of Commercial Taxes and Another. In that matter, the audit report, show cause notice and final order had similarly been issued by the same officer. The Coordinate Bench had set aside the impugned order and recovery proceedings and directed that the matter be assigned to another proper officer for fresh consideration from the stage of reply to the show cause notice.
The State opposed the petition on the ground that although the audit report, show cause notice and Order-in-Original had been issued by the same officer, the officer had acted in different capacities contemplated under the statute. It was argued that there were no specific allegations of mala fides or perversity and that principles of natural justice had been followed. According to the State, the proceedings could not automatically be invalidated merely because the same officer had performed the audit and adjudicatory functions.
The High Court found it undisputed that respondent No.1 had conducted the audit proceedings, issued the audit report, issued the show cause notice and passed the Order-in-Original confirming the demand. The Court observed that although the statute may not expressly prohibit such an exercise, principles of natural justice require adjudication to be free from a reasonable apprehension of bias. An officer conducting the audit and formulating audit objections may already have formed a prima facie opinion on the issues. If that same officer thereafter adjudicates the very allegations arising from those objections, a reasonable apprehension may arise that the decision-making process is not entirely independent.
The Court followed the Coordinate Bench decision in Presidency Builders and Developers. In that case, the recovery proceedings had been set aside and the matter remanded for fresh consideration from the stage of reply to the show cause notice. The Joint Commissioner for Commercial Taxes had been directed to assign the matter to a proper officer other than the officer who had passed the impugned order. Liberty had also been granted to raise all contentions and submit replies, documents and other material before the newly assigned officer.
The High Court observed that the respondent-State had not demonstrated any distinguishing factual or legal feature warranting a different view. It therefore concluded that the Order-in-Original could not be sustained and that the consequential recovery proceedings also could not survive.
Accordingly, the writ petition was allowed. The Order-in-Original dated 20.03.2024 was set aside. The garnishee notice dated 04.10.2025 and Form DRC-09 dated 03.12.2025 were quashed, and the appellate order dated 27.06.2025 was also set aside. The matter was remitted to the Joint Commissioner of Commercial Tax (Administration), who was directed to assign it to a proper officer other than respondent No.1 for fresh adjudication under Section 73 of the KGST Act. Reconsideration was directed from the stage of the petitioner’s reply to the show cause notice. Liberty was reserved to file an additional reply, documents and written submissions, and the concerned officer was directed to afford a reasonable opportunity of hearing and pass a reasoned order in accordance with law. The petitioner was directed to appear before respondent No.3 on 10.03.2026 without awaiting further notice, failing which the order would stand automatically recalled.
Cases Discussed
- M/s. Presidency Builders and Developers Vs. The Deputy Commissioner of Commercial Taxes and Another, W.P. No. 28539 of 2025, disposed of on 10.11.2025 (Karnataka High Court) — Followed on an identical issue where the audit report, show cause notice and final order were issued by the same officer. The earlier decision set aside the impugned proceedings and directed fresh consideration by a proper officer other than the officer who had undertaken the earlier exercise.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
1. The petitioner has approached this Court seeking the following reliefs:
I. Issue a writ of Certiorari, to quash and set aside the impugned audit report issued in form GST ADT-02 dated 13.12.2023 bearing No.DCCT(A)- 2/BLY/GST ADT/2023-24/1-377 issued by the Respondent No. 1 (ANNEXURE-B);
II. Issue a writ of Certiorari, to quash and set aside the impugned intimation of tax ascertained in form GST DRC-01A dated 14.12.2023 bearing No. ZD291223034647A issued by the respondent No.1 (ANNEXURE-C);
III. Issue a writ of Certiorari, to quash and set aside the impugned Show Cause notice issued by the Respondent No.1 dated 23.12.2023 bearing no. DCCT(A)-2/BLY/GST SCN/2023-24/T (ANNEXURE- D);
IV. Issue a writ of Certiorari to quash and set aside the impugned summary to the show cause notice issued in FORM GST DRC-01 issued by the Respondent No.1 dated 23.12.2023 bearing reference No. ZD291223071105N (ANNEXURE – D1);
V. Issue a writ of Certiorari, to quash and set aside the impugned order-in-original dated 20.03.2024 bearing no. DCCT (A)-2/BLY/GST ADJN/2023-
HC-KAR
24/T-, passed by the Respondent No.1 (ANNEXURE-E);
VI. Issue a writ of Certiorari to quash and set aside the impugned summary of the order issued in FORM GST DRC-07 dated 20.03.2024 bearing Reference No. ZD290324051245I (ANNEXURE – E1);
VII. Issue a writ of Certiorari, to quash and set aside the impugned proceedings/authorization passed under section 78 of the KGST Act, 2017 by the Respondent No.1, dated 20.03.2024 bearing No. DCCT(A)-2/BLY/GST ADJ/2023-24/T- (ANNEXURE – E2);
VIII. Issue a writ of Certiorari, to quash and set aside Order-In-Appeal dated 27.06.2025 bearing appeal order no. ZD2906251080985, passed by the Respondent No.2 (ANNEXURE – J);
IX. Issue a writ of certiorari, to quash and set aside the impugned garnishee notice in FORM GST DRC- 13 bearing No. DCCT(A)-2/BLY/GST RECY/2025- 26/T-549 dated 04.10.2025 issued by the Respondent No.1(ANNEXURE – K);
X. Issue a writ of Certiorari, to quash and set aside the impugned FORM DRC-09 dated 03.12.2025 bearing No. DCCT(A)-2/GST/BLY/2025-26/T-653 issued by the Respondent No.1 (ANNEXURE- L);
XI. Alternatively, remand the matter to the stage of hearing on the impugned Show Cause Notice issued by the respondent no. 1 dated 23.12.2023 bearing no. DCCT(A)-2/BLY/GST SCN/2023-24/T-
HC-KAR
(ANNEXURE – D), keeping all contentions open and the remand proceedings to be conducted in accordance with law in a time-bound manner in such period as this Hon’ble court may deem fit and;
XII. Grant any other orders that this Hon’ble Court deems fit and proper in the interest of justice.
2. Heard the learned counsel appearing for the petitioner and the learned Addl. Government Advocate appearing for the respondents.
3. Learned counsel for the petitioner submits that, respondent No.1 – Deputy Commissioner of Commercial Taxes (Audit)-2, has conducted audit proceedings under Section 65(6) of the KGST Act, 2017, and the very same officer has issued the impugned show cause notice under Section 73(1) read with Section 50 and 122 of the KGST Act, 2017, and has passed the impugned order-in-original, such exercise is impermissible in law and gives rise to a reasonable apprehension of bias. It is submitted that
HC-KAR adjudication is vitiated by violation of principles of natural justice.
4. In support of her contention, reliance is placed on the decision of this Court in M/s.Presidency Builders and Developers Vs. The Deputy Commissioner of Commercial Taxes and Another ( M/s.Presidency Builders), wherein in similar circumstances, where the audit report, show cause notice, and final order were issued by the same officer, the impugned order was set aside and the matter was remanded for fresh consideration.
5. Per contra, learned Addl. Government Advocate appearing for the respondents-State submits that, though audit report, show cause notice, and order-in- original were issued by the same officer, the proceedings were undertaken in different capacities as contemplated under the Act. It is contended that W.P.No.28539 of 2025 disposed of on 10.11.2025 there is no specific allegations of mala fides or perversity and that the principles of natural justice have been duly followed. Merely because the same officer issued the audit report, show cause notice, and passed the impugned order-in-original, the same cannot be set aside in the absence of any specific allegation of illegality or perversity in the order passed by respondent No.1 and the proceedings cannot be automatically vitiated.
6. This Court has carefully considered the rival submissions and perused the material on record.
7. It is not in dispute that respondent No.1 has:
i. Conducted the audit proceedings,
ii. Issued the audit report,
iii. Issued the show cause notice and,
iv. Passed the order-in-original confirming the demand.
While the statute may not expressly prohibit such exercise, the principles of natural justice required the adjudication must be free from reasonable apprehension of bias. As rightly contended by the learned counsel for the petitioner, that an officer who conducts audit and formulates audit objections may be said to have already framed a prima facie opinion on the issues, if the same officer thereafter adjudicates the very same allegations, it may give rise to reasonable apprehension that the decision making process is not entirely independent.
8. A Coordinate Bench of this Court, in an identical issue in M/s.Presidency Builders (supra), has set aside the recovery proceedings and remanded the matter for fresh consideration from the stage of reply to the show cause notice. In paragraph No.5 of the said judgment, it has been held as under: “5. In the result, I pass the following:
ORDER
(i) The petition is allowed.
(ii) The impugned order at Annexures-G1 and G2, both dated 23.12.2023 issued by respondent No.1 and recovery proceedings at Annexures-M1 and M2 are hereby set aside.
(iii) The Joint Commissioner for Commercial Taxes is directed to assign the matter to any person/any proper Officer other than respondent No.1, who has passed the impugned order.
(iv) The matter is remitted back to the concerned respondent for reconsideration afresh from the stage of submitting reply to the show cause notice and summary of show cause notice at Annexures-G1 and F2, both dated 15.07.2023, in accordance with law.
(v) Liberty is reserved in favour of the petitioner to raise all contentions including the contentions as regards audit report, which shall be considered by a proper officer, who shall proceed further, in accordance with law.
(vi) The petitioner shall appear before the concerned officer on 08.12.2025 without awaiting further notice from the respondent, failing which the present order shall stand recalled automatically, without further reference to the Bench and without further orders.
(vii) Liberty is reserved in favour of the petitioner to submit replies, responses, pleadings, documents etc., which shall be considered by the respondent, who shall provide sufficient and reasonable opportunity to the petitioner, hear him and proceed further, in accordance with law.
9. The respondent-State has not demonstrated any distinguishing factual or legal feature to take a different view. In view of the above, this Court is of the considered opinion that the order-in-original cannot be sustained and consequential recovery proceedings thereto.
10. Accordingly, this Court pass the following:
ORDER
i. The writ petition is allowed.
ii. The impugned Order-in-Original dated 20.03.2024 passed by respondent No.1 (Annexure-E series) is hereby set aside.
iii. Consequently, impugned garnishee notice dated 04.10.2025 (Annexure-K) and impugned Form DRC-09 dated 0312.2025 (Annexure-L) are also quashed.
iv. The impugned order in appeal dated 27.06.2025 (Annexure-J) is also set aside.
v. The matter is remitted to the Joint Commissioner of Commercial Tax (Administration)-respondent No.3, who shall assign the matter to the proper officer other than respondent No.1 for fresh adjudication under Section 73 of the KGST Act.
vi. The matter shall be reconsidered from the stage of the reply submitted by the petitioner to the show cause notice.
vii. Liberty is reserved to the petitioner to file additional reply, documents and written submission.
viii. The concerned officer shall afford reasonable opportunity of hearing and pass a reasoned order in accordance with law.
ix. The petitioner shall appear before respondent No.3 on 10.03.2026 without waiting for any further notice. Failure to appear on the said date, shall result in automatic recall of this order.
