Facts of the Case

The petitioner, M/s Harihara Putra Bottle Supplies, approached the High Court of Karnataka under Articles 226 and 227 of the Constitution of India, challenging adjudication orders passed by the Commercial Tax Officer (Audit), Arasikere, under Section 73 of the GST Act.

The petitioner questioned the validity of adjudication orders relating to the relevant years, including the orders referred to as Annexures A, A1 and A2 for Assessment Year 2019-20, Annexures B1 and B2 for 2020-21, and Annexures C1 and C2 for 2021-22. The petitioner also challenged the corresponding orders-in-appeal at Annexures D, E and F.

The appellate orders had been dismissed solely on the preliminary ground that the appeals were filed beyond the prescribed period of limitation, without examining the disputes on merits.

The underlying proceedings had been initiated on allegations concerning:

  • variation in taxable turnover;
  • allegedly ineligible ITC claims;
  • discrepancy between GSTR-3B and GSTR-2A; and
  • the authorities’ observation that the suppliers did not exist, there was no actual supply, and the transactions were only on paper.

The petitioner stated that its GST registration had been cancelled, on the taxpayer’s own application, with effect from 26 April 2023. According to the petitioner, it therefore did not have notice of communications issued by the authorities after that date. The adjudication orders were consequently passed ex parte.

Issues Involved

The principal issues arising before the Karnataka High Court were:

  1. Whether the High Court could examine the validity of the original adjudication orders where the statutory appeals had been dismissed solely on the ground of limitation without any adjudication on merits.
  2. Whether dismissal of appeals on the preliminary issue of limitation resulted in merger of the original adjudication orders with the appellate orders.
  3. Whether ex parte adjudication orders under Section 73(9) of the KGST Act, 2017 should be set aside where the petitioner claimed that its GST registration had already been cancelled and it had no notice of subsequent departmental communications.
  4. Whether the petitioner should be granted a fresh opportunity to reply to the show-cause notices and provide reconciliation between GSTR-3B and GSTR-2A.
  5. Whether the alleged variation in taxable turnover, ineligible ITC claims, supplier-related concerns, absence of actual supply, and alleged paper transactions required fresh adjudication after giving the petitioner an opportunity to respond.
  6. Whether relief should be granted unconditionally or subject to monetary terms because the petitioner accepted a lapse in not replying to the notices.

Petitioner’s Arguments

The petitioner submitted that the GST registration had been cancelled on the taxpayer’s own application with effect from 26 April 2023.

On that basis, the petitioner contended that it did not have notice of communications issued by the authorities after the effective date of cancellation. Consequently, the adjudication proceedings culminated in ex parte orders.

The petitioner further submitted that, if the proceedings were reopened and a fresh opportunity was granted:

  • it would submit a proper reply;
  • it would place its explanation before the adjudicating authority; and
  • it would provide a reconciliation between GSTR-3B and GSTR-2A.

The petitioner thus sought reopening of the adjudication proceedings so that the substantive allegations concerning turnover variation, ITC eligibility and return discrepancies could be addressed on merits.

The petitioner’s case, in substance, was that the disputes should not remain concluded through ex parte adjudication without an effective opportunity to furnish replies and reconciliation.

Respondent’s Arguments

The respondents were represented by the learned High Court Government Pleader, who accepted notice for the respondent authorities.

The judgment does not separately record any elaborate detailed counter-arguments advanced by the respondents on the merits of each tax discrepancy. However, the departmental basis underlying the adjudication proceedings, as recorded by the Court, included allegations that:

  • there was variation in taxable turnover;
  • ITC claims were allegedly ineligible;
  • there was discrepancy between GSTR-3B and GSTR-2A;
  • the suppliers did not exist;
  • there was no actual supply; and
  • the transactions were only on paper.

Since the judgment does not reproduce a detailed independent respondent-wise argument beyond these recorded departmental grounds, no further submissions should be attributed to the Revenue beyond what is expressly reflected in the order.

Court Order / Findings

1. Appeals dismissed only on limitation did not result in merger on merits

The High Court observed that the orders-in-appeal had been dismissed solely because the appeals were filed beyond the period of limitation. The appellate authority had not entered into the merits of the dispute.

Accordingly, the Court held that there would be no merger of the original adjudication orders into the appellate orders in the circumstances recorded. The High Court therefore proceeded to examine the validity of the orders-in-original.

This is an important finding because the original adjudication orders remained open to judicial scrutiny where the appellate orders had decided only the preliminary issue of limitation and had not adjudicated the substantive merits.

2. Ex parte Section 73(9) adjudication orders set aside

The High Court noted that the adjudication orders were admittedly ex parte.

Taking note of the petitioner’s lapse in not replying to the notices, the Court nevertheless set aside the adjudication orders referred to as Annexures A1, B1 and C1, which were orders under Section 73(9) of the KGST Act, 2017.

3. Matter remitted for fresh consideration

The Court remitted the matter to Respondent No. 2, namely the Commercial Tax Officer (Audit), for fresh consideration.

4. Relief made conditional on payment of ₹10,000 for each year

Because there had been a lapse on the part of the petitioner, the High Court imposed terms and directed payment of ₹10,000 for each year forming the subject matter of adjudication.

The order identifies the relevant adjudication years while directing the year-wise payment. The final paragraph contains an apparent typographical expression regarding the middle year; read with the earlier part of the judgment, the challenged proceedings concern 2019-20, 2020-21 and 2021-22. This should be understood carefully without altering the operative text of the judicial order.

5. Petitioner directed to appear without further notice

The petitioner was directed to appear before Respondent No. 2 on 25 May 2026, without requiring any further notice.

6. Liberty granted to file reply to show-cause notice

The Court expressly granted liberty to the petitioner to file a reply to the show-cause notice, after which the matter was to proceed further.

7. All contentions kept open

The High Court specifically kept all contentions open, meaning that the substantive tax disputes were not finally adjudicated by the Court and remained available for consideration in the fresh proceedings.

Important Clarification

1. The High Court did not hold that the ITC claims were valid

The Court did not finally decide whether the petitioner’s ITC claims were eligible or ineligible. That issue remains open for fresh adjudication.

2. The GSTR-3B vs GSTR-2A discrepancy was not finally resolved

The High Court did not determine the reconciliation itself. The petitioner was granted an opportunity to furnish reconciliation before the adjudicating authority.

3. Allegations of non-existent suppliers and paper transactions were not rejected on merits

The Court recorded the authorities’ observations that suppliers did not exist, there was no supply, and transactions were only on paper. However, the Court did not finally hold those allegations to be either proved or disproved. The matter was remitted for fresh consideration.

4. Relief was granted despite dismissal of statutory appeals as time-barred

A particularly significant aspect of the judgment is that the appeals had been dismissed on limitation without entering into merits. The High Court observed that, in such circumstances, there was no merger of the orders in the manner that would prevent examination of the validity of the original adjudication orders.

5. The petitioner’s own lapse was expressly recognised

The relief was not unconditional. The Court accepted that there had been a lapse in failing to reply to the notices and therefore imposed a payment of ₹10,000 for each year under adjudication.

6. Fresh opportunity does not amount to cancellation of tax liability

Setting aside the ex parte orders does not mean that the tax demand, ITC allegations, turnover discrepancy, or supplier-related allegations have been decided in favour of the petitioner. The adjudicating authority must reconsider the matter after receiving the petitioner’s reply.

7. All merits contentions remain open

The express direction that “all contentions are kept open” preserves the rights of both sides in the fresh proceedings.

Sections / Legal Provisions Involved

·         Section 73 of the GST Act / KGST Act, 2017 — Provision governing determination of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilised in cases falling outside fraud, wilful misstatement or suppression-based proceedings.

·         Section 73(9) of the KGST Act, 2017 — Provision concerning determination of tax, interest and applicable penalty following consideration of representation, if any, and the material available in the proceedings.

·         Articles 226 and 227 of the Constitution of India — Constitutional jurisdiction of the High Court to exercise writ and supervisory powers.

·         Form GSTR-3B — Summary GST return relevant to reporting and discharge of tax liability and ITC claims.

·         Form GSTR-2A — Auto-generated inward supply statement relevant to supplier-reported invoice details and ITC reconciliation.

·         Form DRC-07 — Summary of the adjudication order reflecting the determined demand.

Link to download the order - https://mytaxexpert.co.in/uploads/1783676656_1488compressed.pdf

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