Facts of the Case

Applicate IT Solutions Pvt Ltd challenged an order bearing No. 21/2024-25 dated 30.04.2024 passed under Section 74 of the CGST Act by the Superintendent of Central Excise and Central Tax, contending it was an ex parte order passed without any notice being served, and a consequential notice dated 24.02.2025 in Form GST DRC-13 issued to recover the demand. Pursuant to the impugned order, an amount of Rs 20,32,214/- (tax and penalty) was debited directly from the petitioner's bank account. The petitioner sought quashing of both, and a refund of the debited amount with interest without having to file a separate refund application. It was undisputed before the Court that no notice had in fact been served on the petitioner prior to the order.

Issues Involved

  1. Whether an ex parte Section 74 order, admittedly passed without notice to the taxpayer, can be sustained.
  2. Whether, once such an order is set aside, the amount already recovered from the taxpayer's bank account must be refunded in full, particularly where the taxpayer has since discontinued business and surrendered its registration.

Petitioner's Arguments

  • No notice was served on the petitioner before the impugned order was passed, depriving it of any opportunity to place its case on record.
  • Since the order is liable to be set aside for want of notice, the amount of Rs 20,32,214/- debited from its account pursuant to that order should be refunded with interest.

Respondent's Arguments

  • Did not dispute that notice was not served on the petitioner, but noted that the tax and penalty amount had already been recovered from the petitioner's bank account.

Court Order / Findings

  • There being no dispute that notice was not served, the impugned order was liable to be set aside and the matter remitted for fresh consideration.
  • However, since the petitioner had admittedly stopped business and surrendered its GST registration in October 2024, ordering a full refund pending fresh proceedings could prejudice the interest of the Revenue.
  • The Court therefore refrained from directing refund of the tax component but ordered refund of the penalty amount already debited, with the petitioner entitled to interest on the full amount debited if it eventually succeeds.
  • The impugned order was set aside, the petitioner's GST registration was restored, and the matter was relegated to the show cause notice stage, with the petitioner directed to appear before the officer on a fixed date without requirement of further notice.
  • The petitioner was also directed to pay a cost of Rs 25,000/- to the Karnataka State Legal Services Authority within two weeks.

Important Clarification

  • An admittedly notice-less Section 74 order will be set aside as a matter of course, but the consequential refund relief can be calibrated — courts may withhold refund of the tax component (while releasing the penalty) where the taxpayer has discontinued business, to protect the Revenue's ability to recover if it succeeds on remand.
  • Setting aside an order for want of notice restores the proceedings to the show cause notice stage rather than closing them altogether; the taxpayer must still respond to the original allegations.

Sections Involved

  • Section 74, CGST Act, 2017 — determination of tax involving fraud, wilful misstatement or suppression.
  • Form GST DRC-13 — notice for recovery from a third person/bank pursuant to a confirmed demand.

Decision – In Favour of

Disposed of with directions, in part in favour of the Assessee — the ex parte order is set aside and registration restored, but only the penalty component (not the tax) is refunded pending fresh proceedings.

Case Details

High Court of Karnataka at Bengaluru; Writ Petition No. 16970 of 2025 (T-RES); Coram: Hon'ble Mr. Justice Suraj Govindaraj; Order dated 09.07.2025.

Link to Download the Order

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