Facts of the Case

The petitioner, NCS Pearson Inc., a US-based corporation operating through its 'Pearson Vue' division which conducts GMAT tests on behalf of GMAC, challenged a Show Cause Notice dated 12.02.2024 issued by the Joint Director, DGGI Chennai Zonal Unit, under Section 74 of the CGST Act, demanding GST for July 2017 to June 2021 on the ground that its Type-III tests qualified as Online Information Database Access and Retrieval (OIDAR) services and had been wilfully suppressed. The classification issue had a chequered history: the Authority for Advance Rulings (AAR) had, on 22.05.2020, ruled that Type-III tests were outside the ambit of OIDAR, but this was reversed by the Appellate Authority for Advance Ruling (AAAR) on 13.11.2020, which held Type-III tests to be OIDAR services. The petitioner's challenge to the AAAR ruling was pending before a Division Bench of the same High Court (W.P.No.3555/2021), with interim protection against coercive recovery. The petitioner also challenged several notifications and a circular defining 'proper officer' and 'OIDAR' as ultra vires the CGST Act.

Issues Involved

  1. Whether the jurisdictional fact of 'wilful suppression' necessary to invoke the extended period of limitation under Section 74 of the CGST Act was satisfied, where the Revenue itself had participated in and possessed full knowledge of the relevant facts through the AAR and AAAR proceedings.
  2. Whether the Show Cause Notice could be sustained while the very question of classification of Type-III tests as OIDAR services remained sub judice before a Division Bench of the same Court.

Petitioner's Arguments

  • The Show Cause Notice was wholly without jurisdiction as the foundational jurisdictional fact to invoke Section 74 — existence of wilful suppression to evade GST — was not satisfied, since the Revenue itself had participated in the AAR and AAAR proceedings and possessed complete knowledge of the modalities of Type-III tests since 2020.
  • The adjudicating authority (3rd respondent) was not vested with powers of adjudication of a notice issued by DGGI, as it had not been conferred such powers under Table-V of Notification No.2/2017-Central Tax, and the 2nd respondent (Joint Director, DGGI) was not the 'proper officer' for issuing notices under Section 74, since Notification No.14/2017-Central Tax read with Circular No.3/2017-GST was ultra vires the CGST Act.
  • Various notifications and the circular defining OIDAR/proper officer were assailed as ultra vires Sections 2(91), 3 and 5 of the CGST Act, relying on Canon India Pvt. Ltd. v. Commissioner of Customs and a host of other authorities on jurisdictional fact and extended limitation.

Respondent's Arguments

  • The Revenue reiterated the contentions in its statement of objections, submitting that the petitioner failed to declare correct values in its GSTR-5A returns and apply the correct GST rate for Type-III tests, and had, with intention to evade GST, suppressed such facts; it was submitted that there was no merit in the petition and it was liable to be dismissed.

Court Order / Findings

  • The Court held that Explanation 2 to Section 74 of the CGST Act defines 'suppression' as non-declaration of facts a taxable person is required to declare, or failure to furnish information sought in writing — and that the sine qua non for invoking Section 74 is such wilful, positive, deliberate non-disclosure with intent to evade tax.
  • Since the Revenue Department had itself participated as a contesting party before both the AAR and the AAAR in proceedings concerning the very classification and taxability of Type-III tests since January 2020, it could not be said that the petitioner had failed to disclose facts or information already within the Revenue's knowledge; relying on Cosmic Dye Chemical, Anand Nishikawa, Pushpam Pharmaceuticals and Easland Combines, the Court reiterated that mere omission does not amount to wilful suppression where facts are already known to both parties.
  • The question of limitation involves a jurisdictional fact, and an authority cannot clothe itself with jurisdiction by deciding that jurisdictional fact wrongly (Carona Ltd. v. Parvathy Swaminathan & Sons; Raza Textiles Ltd. v. ITO; ITW Signode India Ltd.); on the material on record, the 2nd respondent had erroneously assumed jurisdiction under Section 74 by wrongly deciding the jurisdictional fact of wilful suppression.
  • The Show Cause Notice also failed to account for the fact that the classification issue itself remained sub judice before the Division Bench in W.P.No.3555/2021, with interim protection in the petitioner's favour, further undermining any claim of a settled, suppressed liability.
  • The impugned Show Cause Notice dated 12.02.2024 was quashed, being illegal, arbitrary and without jurisdiction, but the Court expressly kept open all other contentions (regarding the adjudicating authority's competence and the vires of the impugned notifications/circular) to be decided in an appropriate case.

Important Clarification

  • Where the Revenue Department has itself actively participated in earlier proceedings (such as before the Authority/Appellate Authority for Advance Ruling) and thereby possessed complete knowledge of a taxpayer's transactions and their classification, it cannot subsequently invoke the extended period of limitation under Section 74 of the CGST Act by alleging 'wilful suppression' of the very same facts — the jurisdictional fact of suppression simply does not exist in such circumstances.
  • The existence of jurisdictional fact is a condition precedent to the assumption of jurisdiction; if an authority erroneously decides that jurisdictional fact (here, existence of wilful suppression) in order to invoke Section 74, the resultant notice is amenable to being quashed in writ jurisdiction regardless of the underlying tax dispute's merits, which remain open for adjudication through the appropriate remedy.

Sections Involved

  • Section 74, CGST Act, 2017 – demand and recovery machinery applicable only where fraud, wilful misstatement or suppression of facts to evade tax is made out; the central provision under which the notice was quashed.
  • Explanation 2 to Section 74, CGST Act, 2017 – defines 'suppression' as non-declaration of information required to be declared, or failure to furnish information sought in writing.
  • OIDAR (Online Information Database Access and Retrieval) classification, CGST Act, 2017 – the substantive classification dispute underlying the notice, which remained sub judice before a Division Bench.
  • Notification No. 2/2017-Central Tax and Notification No.14/2017-Central Tax – notifications governing adjudicating authority jurisdiction and the 'proper officer' for DGGI-issued notices, vires of which were challenged but left open.

Decision – In Favour of

The petition is partly allowed in favour of the Assessee. The impugned Section 74 show cause notice is quashed for want of jurisdiction, while all other contentions (including on the vires of the notifications) are left open for an appropriate case.

Case Details

  • Court: High Court of Karnataka at Bengaluru (Dharwad Bench)
  • Case No.: Writ Petition No. 7635 of 2024 (T-RES)
  • Neutral Citation: NC: 2025:KHC:35242
  • Coram: Hon'ble Mr. Justice S.R. Krishna Kumar
  • Date of Order: 16.07.2025 (reserved on 25.04.2025)

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