Facts of the Case

M/s Navayuga Engineering Company Limited underwent a GST audit that culminated in an Audit Report dated 15.12.2023 in Form GST ADT-02, issued in the petitioner's favour after considering its reply to a Revised Audit Observation. Nearly ten months later, without any proceedings ever being initiated under Section 73 or Section 74 of the KGST Act, the Joint Commissioner of Commercial Taxes issued a revision notice dated 19.10.2024 and subsequently passed an impugned Order in Revision bearing No. JCCT(ADMN)/DGSTO-6/GST/SMR-03/2025-26 dated 14.05.2025, invoking the value-of-supply provisions of Section 15(2) of the CGST Act and levying interest and penalty under Sections 50 and 73(9). The petitioner challenged this revision order as being without jurisdiction.

Issues Involved

  1. Whether revisional proceedings under Section 108(1) of the CGST/KGST Act can be initiated against a favourable Audit Report without the proper officer first having initiated proceedings under Section 73 or Section 74.
  2. Whether Section 65(7) of the KGST Act, which channels audit findings of short-payment or wrongly-availed ITC into Section 73/74 proceedings, precludes a direct resort to revision under Section 108.
  3. Whether the impugned revision order is liable to be quashed for want of jurisdiction, while reserving liberty to the Department to initiate proceedings in accordance with law.

Petitioner's Arguments

  • The petitioner drew attention to the Revised Audit Observation dated 17.11.2023, its reply dated 24.11.2023, and the resulting Audit Report dated 15.12.2023 issued in its favour in Form GST ADT-02.
  • It was contended that having issued a favourable Audit Report, the respondent was not entitled to initiate revision proceedings under Section 108 of the KGST Act by a fresh notice dated 19.10.2024, especially since no proceedings under Section 73 or 74 had been initiated either prior to or after the audit.
  • The petitioner argued that the revision proceedings and the impugned order deserved to be quashed as being without jurisdiction and contrary to the statutory scheme under Section 65(7).

Respondent's Arguments

  • The learned AGA for the respondents submitted, on instructions, that there was no merit in the petition, but did not dispute the crucial fact that proceedings under Section 73 or Section 74 of the KGST Act had not been initiated by the respondent as on the date of hearing, and sought liberty to initiate such proceedings as permissible in law.

Court Order / Findings

  • The Court extracted Section 65(7) of the KGST Act, which mandates that where an audit detects unpaid or short-paid tax, erroneously refunded tax, or wrongly availed/utilised ITC, the proper officer must proceed under Section 73 or 74 of the Act.
  • Holding that a plain reading of Section 65(7) makes it incumbent on the authority to initiate action under Section 73 or 74 upon becoming aware of an Audit Report, the Court found it impermissible in law for the respondent to instead invoke revisional jurisdiction under Section 108 without ever having initiated such proceedings, either before or since — rendering the revision notice and impugned order illegal, arbitrary and without authority of law.
  • The Court allowed the petition, quashed the impugned Order in Revision dated 14.05.2025, and reserved liberty in favour of the respondent to initiate fresh proceedings against the petitioner in accordance with law, subject to all just exceptions and limitations permissible.

Important Clarification

  • Under Section 65(7) of the KGST Act, an audit finding of short-payment, wrongful refund or ineligible ITC must be pursued through Section 73 or Section 74 proceedings — it cannot be routed instead through revisional jurisdiction under Section 108 by bypassing the primary adjudicatory route.
  • A favourable Audit Report issued after due consideration of the taxpayer's reply cannot subsequently be reopened by invoking revisional powers on the same subject-matter without first exhausting the statutorily mandated Section 73/74 route.
  • Quashing on jurisdictional grounds does not bar the Department from initiating fresh, correctly-routed proceedings, subject to limitation and other statutory safeguards.

Sections Involved

  • Section 108(1) of the CGST/KGST Act, 2017 – confers revisional power on higher authorities, held to have been wrongly invoked here.
  • Section 65(7) of the KGST Act, 2017 – mandates channelling of audit findings into Section 73/74 proceedings, the core of the ruling.
  • Section 15(2) of the CGST Act, 2017 – governs inclusions in the value of supply, sought to be applied in the impugned revision order.

Decision – In Favour of

In favour of the assessee — the revision order was quashed for want of jurisdiction, though the Department retains liberty to initiate fresh, correctly-routed proceedings.

Case Details

Court: High Court of Karnataka at Bengaluru
Case No.: WP No. 26955 of 2025 (T-RES)
Coram: Hon'ble Mr. Justice S.R. Krishna Kumar
Date of Order: 18.11.2025

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