Facts of the Case

M/s Soma Enterprises Limited, a public limited company, filed its Returns of Turnover for the tax period July 2017 to March 2018, following which the department initiated proceedings under Section 73 of the CGST/KGST Act, 2017, issuing an intimation notice and subsequently a show cause notice in Form GST DRC-01 calling for an explanation regarding alleged ineligible Input Tax Credit. The petitioner filed a reply to the show cause notice, but the department proceeded to pass an Order-in-Original dated 25 October 2023 without considering that reply and without granting a personal hearing under Section 75(4). The subsequent first appeal was also dismissed by an order dated 31 May 2024, prompting the present challenge to both orders.

Issues Involved

  1. Whether an order under Section 73(9) can be sustained where the taxpayer's filed reply to the show cause notice was not considered and no personal hearing was granted despite Section 75(4).
  2. Whether the appellate order confirming such a flawed original order should also be set aside, or whether the matter can be remitted directly to the original authority.

Petitioner's Arguments

  • The petitioner had filed a reply to the show cause notice on the alleged ineligible Input Tax Credit issue, but the respondent proceeded to pass the impugned order without considering that reply and without granting an opportunity of personal hearing under Section 75(4), rendering both the original and appellate orders unsustainable and warranting a remand for reconsideration with a proper opportunity to produce documents.

Respondent's Arguments

  • The department opposed the petition, contending it lacked merit and was liable to be dismissed, particularly since the petitioner had not exercised due diligence in participating in the proceedings.

Court Order / Findings

  • The Court found it an undisputed fact, borne out by the record, that the petitioner had filed its reply to the show cause notice but that the impugned orders were passed without granting an opportunity to produce necessary documents or a proper hearing, notwithstanding the reply having been filed.
  • Adopting a justice-oriented approach to provide one further opportunity to the petitioner, it set aside both the original order dated 25.10.2023 and the appellate order dated 31.05.2024, remitting the matter back to the second respondent for reconsideration afresh.
  • The petitioner was directed to appear before the second respondent on a fixed date to submit its reply along with relevant documents, following which a reasonable opportunity of hearing was to be granted; failure to appear would result in automatic recall of the order without further directions.

Important Clarification

  • Where a taxpayer has actually filed a reply to a Section 73 show cause notice on an ineligible-ITC allegation, an order passed without considering that reply and without a personal hearing under Section 75(4) is liable to be set aside — and this defect is not cured merely because a subsequent appellate order also confirmed the demand without addressing it.
  • In such cases, courts may set aside both the original and appellate orders together and remit the matter directly to the original adjudicating authority, rather than sending it back through a fresh appellate round, to expedite a proper hearing on the ITC dispute.

Sections Involved

  • Section 73, CGST/KGST Act, 2017 – determination of tax demand not involving fraud, sub-section (9) covering confirmation of the order.
  • Section 75(4), CGST/KGST Act, 2017 – mandates an opportunity of personal hearing before an adverse decision.
  • Section 107(11), CGST/KGST Act, 2017 – governs the first appellate authority's powers, whose confirming order was also set aside here.

Decision – In Favour of

The decision is in favour of the assessee, with both the original demand order and the appellate order set aside and the matter remanded for fresh adjudication with a proper opportunity of hearing.

Case Details

Court: High Court of Karnataka at Bengaluru. Case No.: Writ Petition No. 31399 of 2024 (T-RES). Coram: Hon'ble Mr. Justice S.R. Krishna Kumar. Date of Order: 3 November 2025.

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