Facts of the Case

The petitioner, a builder and developer, was issued an audit observation dated 20.03.2023 by the Deputy Commissioner of Commercial Taxes (Audit)-3, to which it replied on 28.03.2023. The very same officer thereafter issued a show-cause notice dated 15.07.2023 in Form GST DRC-01 under Section 73(1) of the Karnataka GST/CGST Act, 2017, demanding GST, interest and penalty on the sale of a completed immovable property for FY 2017-18. The petitioner, due to bona fide reasons, could not reply to this second notice, and the same officer passed an ex parte Order-in-Original dated 23.12.2023 confirming the demand, followed by recovery proceedings before the JMFC Mangaluru.

Issues Involved

  1. Whether the sale of a completed immovable property after issuance of a completion certificate constitutes a 'supply' liable to GST at all, in view of Entry 5 of Schedule III to the CGST/KGST Act.
  2. Whether it was permissible for the very officer who had earlier examined the transaction as an audit observation, and received the petitioner's reply to it, to himself issue the show-cause notice and adjudicate the matter.

Petitioner's Arguments

  • Due to bona fide reasons and unavoidable circumstances, the petitioner could not reply to the show-cause notice, and the ex parte order deserved to be set aside and the matter remitted for fresh consideration.
  • Having already issued an audit observation on 20.03.2023 and received the petitioner's reply on 28.03.2023, it was impermissible for the same officer to thereafter issue the impugned show-cause notice and adjudicate the matter -- the notice and consequent order were without jurisdiction on this ground alone.
  • The sale of a completed immovable property after a completion certificate does not amount to a 'supply' under Section 7, in view of Entry 5 of Schedule III to the KGST/CGST Act, and is not liable to GST at all.

Respondent's Arguments

  • If the ex parte order is set aside and the matter remitted to the stage of reply, the Department was agreeable to having the proceedings conducted by an officer other than the one who had issued the audit observation and passed the impugned order, to be authorised by the Joint Commissioner.

Court Order / Findings

  • The Court accepted the Department's own concession that reconsideration should be entrusted to an officer other than the one who had earlier examined the transaction at the audit stage, effectively recognising the force of the petitioner's objection to the same officer adjudicating a matter he had already looked into as auditor.
  • The impugned Order-in-Original and the consequential recovery proceedings before the JMFC were set aside, and the Joint Commissioner for Commercial Taxes was directed to assign the matter to a proper officer other than the one who had passed the impugned order.
  • The matter was remitted to the stage of filing a reply to the show-cause notice, with liberty reserved to the petitioner to raise all contentions, including the Schedule III/completed-property argument and the audit-report objection, before the newly assigned officer.

Important Clarification

  • Where the same officer has earlier examined a transaction as an audit observation and received the taxpayer's reply to it, propriety requires that a subsequent show-cause notice and adjudication on the identical transaction be entrusted to a different officer, to avoid the appearance of pre-judgment.
  • The question whether sale of a completed immovable property (post completion certificate) is excluded from 'supply' under Entry 5, Schedule III of the CGST/KGST Act remains available to be argued afresh before the properly constituted adjudicating officer.

Sections Involved

  • Section 73(1), Karnataka GST/CGST Act, 2017 -- determination of tax not paid, other than by reason of fraud.
  • Section 7, CGST Act, 2017 read with Entry 5, Schedule III -- scope of 'supply' and exclusion of sale of building after completion certificate.
  • Sections 50 and 122, CGST Act, 2017 -- interest and penalty provisions.
  • Form GST DRC-01 and DRC-07 -- show-cause notice and summary of order.

Decision – In Favour of

Assessee (procedurally). The ex parte order and recovery proceedings were set aside and the matter remitted to a different officer, with all substantive contentions, including on Schedule III, kept open.

Case Details

High Court of Karnataka at Bengaluru; Writ Petition No. 28539 of 2025 (T-RES); Coram: Justice S.R. Krishna Kumar; Order dated 10.11.2025.

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