Facts of the Case

The petitioner, M/S. Sri. Nanjundeshwara Traders, a proprietorship concern, challenged an adjudication order dated 26.08.2024 passed under Section 73(9) of the KGST/CGST Act, 2017 for the tax periods April 2019 to March 2020, along with the summary order in Form GST-A.O.73-32. The dispute centred on the petitioner's claim that Input Tax Credit for the year 2018-19 had actually been claimed in the year 2019-20, on a Reverse Charge Mechanism (RCM) basis, a fact the petitioner contended the assessing authority had failed to consider.

Issues Involved

  1. Whether an assessing authority can confirm a demand disallowing ITC without reconciling annual returns where the assessee's case is that the credit was claimed, on an RCM basis, in a subsequent financial year.
  2. Whether failure to reply to the show cause notice disentitles the assessee from having such reconciliation carried out using records already available with the department.

Petitioner's Arguments

  • ITC for the year 2018-19 had in fact been claimed in the year 2019-20 on a Reverse Charge Mechanism basis, and this had not been considered by the respondents while passing the impugned order.
  • The issue was identical to one already decided that very day by the same Court in M/S NL Tile Art Pvt Ltd vs. Commissioner of Commercial Taxes, Karnataka, WP No. 20196/2025.

Respondent's Arguments

  • The show-cause notice had not been replied to by the petitioner, and therefore the contentions regarding cross-year ITC claims could not have been considered by the assessing authority at that stage.

Court Order / Findings

  • Following its own ruling the same day in NL Tile Art Pvt Ltd, the Court held that where the dispute concerns ITC not claimed in one year but claimed in a subsequent year, the annual returns must be taken into consideration and reconciliation carried out accordingly.
  • The Court held that this reconciliation does not require the assessee's reply or explanation, since all necessary details and records — including the annual returns — are already available with the respondents irrespective of whether the show-cause notice was answered.
  • The impugned adjudication order dated 26.08.2024 and the summary order were quashed, and the writ petition was allowed.
  • The matter was remitted to the assessing authority for fresh consideration in terms of the observations made in the present order and in NL Tile Art Pvt Ltd, with a direction that the petitioner appear on 21.08.2025 without requiring any further notice and submit a reply to the show-cause notice.

Important Clarification

  • Where an assessee's defence to an ITC demand is that the credit was claimed, on a Reverse Charge Mechanism basis, in a financial year subsequent to the one under scrutiny, the assessing authority cannot dispose of the matter without cross-referencing the annual returns already on its own record.
  • Non-filing of a reply to the show-cause notice does not excuse the department from carrying out this reconciliation, since the relevant records are independently available with the department and do not depend on the assessee's explanation.

Sections Involved

  • Section 73(9), CGST/KGST Act, 2017 – determination and confirmation of tax demand following adjudication of a show-cause notice.
  • Reverse Charge Mechanism (RCM) under the CGST/KGST framework, and the annual return as the reconciliation document for cross-year ITC claims.

Decision – In Favour of

Allowed in favour of the Assessee — the Section 73(9) order was quashed and the matter remitted for fresh consideration after reconciliation of annual returns.

Case Details

  • Court: High Court of Karnataka at Bengaluru
  • Case No.: Writ Petition No. 20240 of 2025 (T-RES)
  • Neutral Citation: NC: 2025:KHC:28048
  • Coram: Hon'ble Mr. Justice Suraj Govindaraj
  • Date of Order: 23 July 2025

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