Facts of the Case

  • Nature of Business: The Petitioner, M/s S Balan Building Division, is a business entity engaged in the construction sector.
  • Impugned Adjudication Order: The respondent authority (Assistant Commissioner of Commercial Taxes, LGSTO-040) issued an Adjudication Order dated December 23, 2025, bearing reference number ZD2912251786043, under Section 73 of the CGST/KGST Act, 2017. This order raised a total demand of ₹28,22,530/- comprising tax, interest, and penalty for the financial tax period spanning April 2021 to March 2022.
  • Filing of Multiple Replies: In response to the department's notices, the petitioner filed comprehensive replies on three distinct occasions: November 5, 2025, December 8, 2025, and December 17, 2025.
  • System Discrepancy: The petitioner initially approached the High Court pointing out that the department had merely uploaded a summary of the order on the GST portal without uploading the actual detailed, reasoned order. While the Revenue placed documents to assert that a detailed order was passed and uploaded, the court proceeded to evaluate the core validity of the adjudication independent of this portal controversy.
  • Selective Cognizance by Authority: Upon review, it was revealed that the adjudicating authority referred only to a reply dated December 6, 2025 (while actually extracting the text of the November 5, 2025 reply) and entirely ignored the other two detailed replies submitted by the petitioner.

Issues Involved

  1. Whether the impugned Adjudication Order passed under Section 73 of the GST Act, 2017 suffers from a patent lack of application of mind and violation of natural justice due to the non-consideration of multiple replies filed by the taxpayer.
  2. Whether the department can legally sustain an assessment order where the authority merely records the defenses raised by the taxpayer without providing independent, objective reasons for rejecting those contentions.
  3. Whether the petitioner can bypass the statutory appellate remedy and invoke the writ jurisdiction under Article 226 of the Constitution of India in cases showcasing a manifest error of law and gross institutional arbitrariness.

Petitioner’s Arguments

  • Ignored Submissions: The petitioner argued that out of the three distinct replies submitted to the department (dated November 5, 2025, December 8, 2025, and December 17, 2025), the respondent failed to actively consider or evaluate the substantive defenses raised across these submissions.
  • Absence of Real-Estate Advances: It was strongly contended that the petitioner constructs projects entirely on its own account and does not undertake construction work for or on behalf of any potential buyers; hence, no advance payments are received during the construction phase.
  • Sale Post-Occupancy Certificate (OC): The constructed units are exclusively sold as immovable property only after the competent authorities have formally issued the Occupancy Certificates (OC), which falls outside the ambit of GST supply.
  • Systematic Reversal of ITC: To address the unlikely contingency of selling units mid-construction, the petitioner initially claims Input Tax Credit (ITC) via GSTR-3B filings. However, once construction concludes and units are earmarked for post-OC sale, the corresponding ITC entries are systematically reversed.
  • Mechanical Recording: The petitioner argued that the respondent merely copied/recorded the taxpayer's arguments without executing the basic legal duty of detailing why such established commercial practices and law were unacceptable.

Respondent’s Arguments

  • Existence of Adjudication Order: The High Court Government Pleader (HCGP) presented internal records to argue that a detailed Adjudication Order was indeed drawn up on December 23, 2025, and asserted that it was duly uploaded onto the GST portal system.
  • Reference to Reply: The respondent pointed out that the department did not completely ignore the taxpayer, as the order made a formal reference to the reply dated December 6, 2025.
  • Alternative Statutory Remedy: The Revenue faintly suggested that the petitioner ought to have approached the appellate authority by way of a regular statutory appeal instead of filing a writ petition under Article 226, raising concerns that the taxpayer might use this route to bypass limitation periods.

Court Order / Findings

  • Writ Writ Large: The Single-Bench judge, Hon’ble Mr. Justice B M Shyam Prasad, explicitly observed that "lack of application of mind is writ large" on the face of the impugned order.
  • Failure to Apply Judicial Mind: The High Court confirmed that the respondent authority merely extracted portions of the early reply and failed to provide any rationale or legal reasoning regarding the petitioner's standard business practice of ITC reversal and post-OC sales.
  • Quashing of the Order: Exercising its powers under Article 226 of the Constitution of India, the High Court allowed the writ petition in part and officially quashed the Adjudication Order dated December 23, 2025.
  • Remand Back for De Novo Adjudication: The entire matter was restored and remanded back to the respondent authority for fresh, due adjudication. The court directed the petitioner to submit copies of all previous replies along with a certified copy of the court's order within two weeks.
  • Concession on Limitation: Noting the petitioner's explicit statement that they are confident on merits and will not raise the technical plea of limitation, the court ordered that the respondent must pass a fresh, reasoned order without the petitioner being entitled to raise limitation blocks.
  • Protection from Coercive Action: The court explicitly ordered that no precipitous or coercive recovery action shall be taken against the petitioner unless a fresh adjudication is concluded and duly communicated to the taxpayer’s address.

Important Clarification

Key Legal Takeaway: Adjudicating authorities cannot pass valid orders under Section 73 of the GST Act by acting as simple copy-paste machines that merely register a taxpayer's submissions. An order is legally void and unsustainable if it does not contain independent analysis and clear reasons detailing why the taxpayer's arguments are being accepted or rejected. Furthermore, a systematic accounting method of claiming ITC during construction and subsequently reversing it upon obtaining an Occupancy Certificate requires deep factual examination rather than mechanical tax demands.

Sections Involved

  • Section 73 of the Central Goods and Services Tax (CGST) Act, 2017 / Karnataka Goods and Services Tax (KGST) Act, 2017 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful-misstatement or suppression of facts).
  • Article 226 of the Constitution of India (Power of High Courts to issue certain writs).

Link to download the order - https://mytaxexpert.co.in/uploads/1783058744_311compressed.pdf

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