M/S KUNAL TRADERS vs THE STATE OF KARNATAKA
- Court
- Karnataka High Court
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HC-KAR
NC: 2026:KHC-D:16645-DB
WA No. 100484 of 2026
CNR: KAHC020143552026
IN THE HIGH COURT OF KARNATAKA AT DHARWAD
TH
DATED THIS THE 7 DAY OF OCTOBER, 2026
R
PRESENT
THE HON'BLE MR. JUSTICE M.NAGAPRASANNA
AND
THE HON'BLE MRS JUSTICE HEMA KULKARNI
WRIT APPEAL NO.100484 OF 2026 (T-RES)
BETWEEN:
M/S. KUNAL TRADERS
REP. BY ITS PROPRIETOR,
MR. KUNAL HUMBARARAWADI,
S/O. VISHWANATH HUMBARARAWADI,
AGED ABOUT 40 YEARS,
OFFCE AT: B 24 S.NO.681/1A AND B,
ANGOL INDUSTRIAL ESTATE,
UDYAMBAG, BELAGAVI-590008,
GSTIN- 29ADXPH4269C1Z4.
…APPELLANT
(BY SRI.GANESH VISHWANATH SHANDAGE, ADVOCATE FOR
SRI.SHASHANK S.HEGDE, ADVOCATE)
AND:
1. THE STATE OF KARNATAKA
REPRESENTED BY CHIEF SECRETARY TO THE
GOVERNMENT OF KARNATAKA,
VIDHANA SOUDHA, BENGALURU-560009.
2. THE COMMISSIONER OF
COMMERCIAL TAXES,
COMMERCIAL TAX DEPARTMENT,
GOVERNMENT OF KARNATAKA,
COMMERCIAL TAX OFFICE-1,
FIRST MAIN ROAD, GANDHI NAGAR,
Digitally signed by
PRATIBHA M
PATIL
Location: HIGH
COURT OF
KARNATAKA
DHARWAD
BENCH
Date: 2026.11.12
12:29:44 +0530
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BENGALURU-560009.
3. THE JOINT COMMISSIONER OF
COMMERCIAL TAXES,
(ADMINISTRATION), DGSTO,
BELAGAVI SUMOULYA SOUDHA,
CLUB ROAD, BELAGAVI-590001.
4. THE ASSISTANT COMMISSIONER
OF COMMERCIAL TAXES,
LOCAL GOODS AND SERVICE TAX OFFICE-380,
SUMOULYA SOUDHA, CLUB ROAD,
BELAGAVI-590001.
5. THE COMMERCIAL TAX OFFICER
(ENF)-02, BELAGAVI, SUMOULYA SOUDHA,
CLUB ROAD, BELAGAVI-590001.
…RESPONDENTS
(BY SRI.RAKESH M.BILKI, GOVT. ADVOCATE)
THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF
KARNATAKA HIGH COURT ACT, 1961, PRAYING TO SET ASIDE THE
ORDER PASSED BY THE LEARNED SINGLE JUDGE IN WRIT PETITION
IN WP NO.105869/2026 DATED 23.07.2026 (ANNEXURE-J) AND
CONSEQUENTLY GRANT THE RELIEFS AS PRAYED FOR IN THE WRIT
PETITION; QUASH AND SET ASIDE ORDER-IN-ORIGINAL BEARING
NO. NULL DATED 27.03.2026 (ANNEXURE A) PASSED BY
RESPONDENT NO. 04, ALONG WITH ITS SUMMARY IN FORM GST
DRC-07 BEARING REFERENCE NO.ZD2903261611099 DATED
27.03.2026 (ANNEXURE A1) PASSED BY RESPONDENT NO.4 UNDER
SECTION 74(9) OF GST ACT, 2017; AND ETC.
THIS WRIT APPEAL COMING ON FOR PRELIMINARY HEARING
THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE M.NAGAPRASANNA
AND
HON'BLE MRS JUSTICE HEMA KULKARNI
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ORAL JUDGMENT
(PER: HON'BLE MR. JUSTICE M.NAGAPRASANNA )
The appellant stands before us calling in question the
order dated 23.07.2026 passed in W.P.No.105869/2026,
whereby the learned Single Judge declines to interfere with the
order impugned therein, on the score that the appellant has a
statutory and efficacious remedy of filing an appeal before the
Appellant Authority under Section 107 of the Karnataka Goods
and Services Tax Act, 2017 (hereinafter referred to as the ‘GST
Act’).
2. Heard Sri. Ganesh Vishwanath Shandage for Sri.
Shashank S. Hegde appearing for the appellant and the learned
Government Advocate Sri. Rakesh M. Bilki appearing for the
respondents.
3. Facts adumbrated are as follows:
3.1. The appellant is a proprietorship firm engaged in
the business of supply of cast iron scrap and cast iron borings
and is said to be registered under the GST Act, bearing a
particular registration number. It is said to be falling within the
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jurisdiction of the Assistant Commissioner, LGSTO-380,
Belagavi. The genesis of the dispute is when the scrutiny
returns of the appellant are taken up and a preliminary
intimation dated 17.04.2023, alleging discrepancy, is
communicated to the appellant. The discrepancy, as could be
observed in the notice, is not with regard to any fraud or
misrepresentation by the appellant, but by the suppliers of the
appellant. This becomes the fulcrum of the show-cause notice
first issued to the appellant on 17.04.2023, directing the
appellant to produce the supporting material or pay a sum of
₹11,76,252/- along with interest and penalty on the alleged
escaped GST amount. The appellant is said to have submitted a
detailed reply on 04.05.2023, claiming to be demonstrating
that the Input Tax Credit availed was in strict compliance with
Section 16 of the GST Act.
3.2. It is averred in the appeal memorandum that it was
duly supported by valid tax invoices issued by the supplier and
with a clarification that no transactions were undertaken with
the supplier post financial year 2019-20. As the entire
allegations that are made are of the supplies contained to
2019-20, it was opined that the appellant has not furnished any
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explanation or reply to the show-cause notice resulting in
another show-cause notice. Show-cause notices galore against
the appellant on the score that he has failed to submit
explanation or submit any reply to those notices. It is then the
authority passes an Order-in-Original. The Order-in-Original
was imposing tax as well as penalty upon the appellant. This
was called in question before the learned Single Judge in
W.P.No.105869/2026.
3.3. The learned Single Judge, owing to the fact that the
appellant has a remedy of filing an appeal under Section 107 of
the GST Act, declines to interfere with the Order-in-Original. It
is this that has driven the appellant before us in the subject
writ appeal.
4. Learned counsel appearing for the appellant takes
this Court through the documents appended to the
memorandum of the appeal to demonstrate that at every point
in time, the show-cause notice was issued and a reply was
submitted. The subsequent show-cause notice comes about
observing that the appellant has not furnished any reply to the
show-cause notice. This, according to the learned counsel, is in
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blatant violation of principles of natural justice. The learned
counsel would submit that at the very inception, the
show-cause notice runs counter to law as there is no
foundational fact narrated in the show-cause notice for
submission of a reply. It is another fact that the appellant has
replied to the notice and the notice is taken forward till the
passing of the order in original by the authority. He would
submit that the issue stands completely answered by a plethora
of judgments rendered by the Apex Court that unless the
foundational facts are found in the show-cause notice with
regard to fraud or willful misrepresentation it would be a notice
without jurisdiction.
5. Learned Government Advocate appearing for the
State would however defend the order of the learned Single
Judge contending that the appellant may very well produce all
this before the Appellate Authority and the Appellate Authority
be directed to consider the appeal within a time frame and
would seek dismissal of the appeal solely on the score that the
appellate remedy being available under Section 107 of the GST
Act should not lead this Court to entertain the appeal.
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6. We have given our anxious consideration to the
submissions made by the respective learned counsel and have
perused the material on record.
7. The afore-narrated facts, dates, link in the chain of
events are all a matter of record. The appellant being a trader
in cast iron scrap and cast iron borings is admittedly registered
to the GST regime from the year 2017. The issue springs when
a preliminary intimation is issued to the appellant on
17.04.2023. The preliminary intimation is on the score that on
scrutiny of returns, it is found that the appellant's supplier is
engaged in circular or bill trading, which was fraudulent
according to the respondents. The intimation communicated to
the appellant is as follows:
“GOVERNMENT OF KARNATAKA
(Department of Commercial Taxes)
PROCEEDINGS OF THE ASSISTANT C OMMISSIONER OF
COMMERCIAL TAXESL GSTO- 380, BELAGAVI
B-5685 DATE:27.03.2026
PRESENT: P. J. KALIKERI
1 Name & address of the taxpayer Kunal Traders
B 24 S No. 681/1 A And B.
Kunal Traders, Anagol
Industrial Estate, Udyambag,
– .
Belagavi 590 008
2.
GSTIN 29ADXPH4269C1Z4
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3. Nature of Business Wholesale Business
4.
Status of the taxpayer Proprietorship
5. Contact No. / E-mail 9739304567 / kunalhumbarage.com
6.
Financial Year 2019-20
7. Issue Involved BOGUS ITC CLAIMED
TAXPAYER
8. Records relied upon Direct Assignment U/s 74
ACCT/LGSTO-380/46/2025-26
dated: 24.09.2025
DRC-01A dated: 24-09-2025 &
DRC-01 dated: 29-09-2025
1. PH dated: 16-02-2026
2. PH dated: 24-02-2026
3. PH dated: 04-03-2026
9.
Assignment No. and date issued by ACCT/LGSTO-380/46/2025-26
DGSTO Belagavi
dated 24.09.2025
ORDER U/S 74(9) READ WITH RULE 142(5)OF THE
KGST/CGST ACT, 2017
Kunal Traders with GSTIN. 29ADXPH4269C1Z4
(LGSTO-380- Belagavi) having place of business at B 24 S
No. 681/1 A And B, Kunal Traders, Anagol Industrial Estate.
Udyambag, Belagavi – 590 008, is a registered taxable
person under the provisions of th e KGST/CG ST Act, 2017 and
engaged in Wholesale Business of Iron And Steel.
During the Scrutiny of the return for the Tax period
referred the above, the RIP has fraudulently BOGUS ITC
CLAIMED TAXPAYER. The details as under
Sl.
No.
Suppliers GSTIN
with trade name
(Bogus TP) Involved
Taxable
IGST
CGST
SGST
TOTAL
Value
in Bill trading or
Circular Trading
1
29BGYPS9824H1Z6
6534732
0
588126
588126
1176252
M/SLAXMI
ENTERPRISES
TOTAL 6534732 0 588126
588126
1176252
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Accordingly this office has obtained authorization
from the joint Commissioner o f Commercial taxes, DGSTO
Belagavi vide Assignment No: ACCT/LGSTO-380/46/2025-
26 dated: 24.09.2025. In pursuance to the assignment
issued, Pre-intimation notice inform DRC-01A dated: 16-02-
2026 was issued. Wherein the tax payer was informed to
discharge the above tax liability along with interest u/s 50
and penalty U/s 74(5) of the KGST Act 2017 OR file the
explanation/Reply it any to the above DRC-01A. The
taxpayer not responded to the DRC-01 A issued. Therefore
this office has issued show cause notice (SCN) in form DRC-
01 dated:04-03-2026 u/s 74 (1) of the KGST Act 2017
Wherein the taxpayer was informed to pay the above
mentioned tax along with interest u/s 50 and penalty U/s
74(5) of the KGST Act within 30 days from the show cause
notice (SCN) issued OR show cause within 30 days from
issue of SCN as to why tax, inte rest and penalty should not be
levied. Further it is also informed that if t he tax payer not paid
above tax liability along with interest, within 30 days, the
penalty @ 100% of the tax due shall be levied. The details
of SCN as under-
Sl.
No.
Suppliers GSTIN
with trade name
(Bogus TP) Involved
Taxable
IGST
CGST
SGST
TOTAL
Value
in Bill trading or
Circular Trading
1
29BGYPS9824H1Z6
6534732
0
588126
588126
1176252
M/SLAXMI
ENTERPRISES
TOTAL 6534732 0
588126
588126
1176252
1) If you paid the tax along with interest within 30 days
penalty shall be levied at 25%
2) If you paid tax along with interest within 30 days
from the date of order is at 50%
3) If you paid tax after 30 days from the date of order
penalty shall be levied at 100%
In response to the show cause notice, the taxpayer
has filed reply on 30-10-2025 stating tha t they have already
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filed reply for DRC-01A . They also stated th at they have
submitted hard copi es of bank statement, weighment slip,
purchases invoices, sale invoices i ssued to Ashok Iron Works
Before passing any adverse order they have requested to
provide personal hearing to meet the ends of justice.
Accordingly this office has provided personal hearing, hence
issued endorsement for personal hearing Dated. 16- 02-2026,
24-02-2026 & 03-03-2026 & once more corrected personal
hearing on 17-03-2026 . In response to the personal hearing
the taxpayer appeared before the undersigned on 24-03-
2026 & filed the reply stating that, the purchases effected
from M/s. Laxmi Enterprises are genuine. Further they have
also stated that 74(1) of KGST Act-2017 can be invoked
only in cases involving in fraud, wilful misstatement or
suppression of facts with intend to evade tax .
In the present case
1. All transactions were duly recorded in books of accounts .
2 Payment were made through banking channel.
3. Purchases were reflected in return filed.
4. There was no suppression or misstatement on part of
taxpayer
Merely on this basis of inspection conducted at the
supplier's premises, the proceedings U/s74(1) of KGST
Act-2017 have been initiated without esta blishment any
element of fraud or
collusion on the part of taxpayer. They
also contented that to prove the goods are supplied by
the supplier & also substantiated actual movement of
goods they enclosed
1 . weighment slips for supply made by M/s. Laxmi
Enterprises during impugned period
2. Copies of bank statement.
3. Purchases invoices
The taxpayer has requested that there is no case of
fraud or will misstatement & requested to drop the
proceeding initiated U/s 74(1) of KGST Act-2017 .
The reply & the statement at the time of personal
hearing are verified & observed that, the taxpayer stated
that they have submitted the weighment slip for
weighment made by the M/s . Kunal traders but the
taxpayer not submitted the weighnment slip issued by the
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M/s. Laxmi enterprises & also not furnished the LR copies
& details of payment made to the Lorry owners Further
the Commercial Tax Officer (Enf)-02 Belagavi inspected
the business premises & reported that the said dealer was
involved in bill trading & the Enforcement Authority has
passed the order U/s.74(9) of KGST Act-2017 for the year
2017-18 & 2018-19. The taxpayer intentionally not
produced the LR copies & weighment slip related to M/s.
Laxmi Enterprises. Without weighment slip the M/s. Laxmi
Enterprises cannot issued sales invoices weighment is
very much required. LR copies are very important
documents for proving movements of goods. In the
absence of LR copies it is not possible to ascertain
whether goods are transported from M/s. Laxmi
Enterprises to M/s. Kunal Traders.
From the above, it is clear that the taxpayer not
received the goods from M/s Laxmi Enterprises. Thus the
taxpayer violated the provisions of section 16(2) (b) of
KGST Act-2017 & not eligible for claim of ITC. Therefore
the ITC claimed in respect of M/s. Laxmi Enterprises
GSTIN 29BGYP S 9824H1Z6 in not considered.
Hence, the undersigned has proceeded to pass the
adjudication order U/s 74(9) of KGST/CGST Act, 2017,
with the following demand of tax, Interest and Penalty as
under :-
2019-20 IGST CGST SGST TOTAL
BOGUS ITC
CLAIMED
TAXPAYER
0 588126 588126 1176252
Add: Interest
(1.5%) for 72
months
0 635176 635176 1270352
Penalty (100%) 0 588126 588126 1176252
Total Payable 0 1811428 1811428 3622856
The RTP is here by directed to discharge the
statutory liabilities as stated above within 90 days from
the date of issue of this order, failing which recovery
action will be initiated as per section 74(9) of KGST/CGST
Act, 2017.
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Sd/-
Asst. Commissio ner co mmercial Taxes,
Assistant Commissioner of
Commercial Taxes
LGSTO-380, Belagavi
Issue DRC-07 and upload in the common portal.
To,
Kunal Traders
B 24 S No. 681/1 A And B, Kunal Traders,
Anagol Industrial Estate,
Udyambag, Belagavi - 590008.”
This results in the issuance of a show-cause notice on
29.09.2025 invoking Section 74 of the GST Act. The
show-cause notice reads as follows:
“GOVERNMENT OF KARNATAKA
DEPARTMENT OF COMMERCIAL TAXES
OFFICE OF THE
ASST. COMMISSIONER OF COMMERCIAL TAXES,
LGSTO-380, SUMQULYA SOUDA, BELGAUM.
Phone No: 0831-2407388.
FORM GST DRC-01
[See rule 142(LA)]
:SHOW CAUSE NOTICE UNDER SECTION. 74 (1) OF THE
KGST ACT 2017:
Reference No.:ACCT/LGSTO-380/BGV/2025-26/B-
Date: 29-09-2025
To:
G STIN : 29ADXPH4269CIZA
Trade Name : Kurnal Traders
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WA No. 100484 of 2026
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Address : B 24 S No. 681/1 A And B, Kunal
Traders, An agol, Industrial
Estate, Udyambag, Belagavi -
590 008.
E-Mail : [email protected]
:
Tax Periods 2019-20
Tax Period : April-2019 to March-2020
Form GST DRC-01A and date: ACCT/LGSTO-
380/BGV/46/2025-26/B-3190
Dt 24-09-2025
WHEREAS Kunal Traders having your place of business
at NB 24 S No. 681/1 A And B, Kunal Traders, Anagol
Industrial Estate, Udyambag, Belagavi -590 008, is an
individual/firm/company and registered with GSTIN No:
29ADXPH4269C1Z4 under the jurisdiction of Assist.
Commissioner of Commercial Taxes, LGSTO-380, Belagavi,
Karnataka GST authority .
WHEREAS you have received inward supply of Goods
& Services from Bogus tax payers who are involved in bill
trading and Circular trading. In view of this, the ITC claimed
by you from the following tax payers is not genuine ITC as
per the Provision of Section 16 of KGST/CGST Act-2017. The
details of inwards supply from the Bogus dealer as under
Sl.
No.
Suppliers GSTIN with
Taxable
IGST
CGST
SGST
TOTAL
trade name (Bogus
Value
TP) Involved in Bill
trading or Circular
Trading
1
29BGYPS9824H1Z6
6534732
0
588126
588126
1176252
M/SLAXMI
ENTERPRISES
TOTAL
1176252
In this connection you have been issued in Form GST
ASMT-10 see Rule 99(1) of the KGST Act-2017 Dtd: 17-04-
2023. Therefore the undersigned initiated adjudication
proceedings U/s, 74 of the KGST Act 2017 and obtained
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authorization from the JCCT (Admn) DGSTO Belagavi vide
assignment No. ACCT/LGSTO-380/46/2025-26 Dated: 24-
09-2025.
As per Section 74(1) read with Rule 142 Notice and
order for demand of amounts payable under the Act-
*(1) a proper officer shall serve along with the
*(1)(a) reads as notice under subsection (1) of
section 73 or sub section (1) of Section 74 or sub
section (2) of section. 76, a summary thereof
electronically in
FORM GST DRC-01.
and the undersigned is designated as the proper
officer in your case being empowered under Section 74 of
the KGST-217.
WHEREAS, any tax has not been paid or short paid,
Wrong Claim of ITC is liable to be demanded under section
24 of the CGST Act, 2017/ KUST Act, 2017, you are hereby
intimated that the following amounts are required to be paid
under section 74 along with applicable interest under section
50 and penalty of @15% tax dues or Rs.10,000/-under each
Act whichever higher.
Therefore undersigned issued intimation of tax liability
U/s 74(5) of the KGST Act 2017 in form DRC-01A Dated:24-
09-2025. You were informed to pay the above mentioned
Tax and Interest & Penalty @ 15% of the tax due or file
objections if any within 15 days from receipt of DRC-01A.
In response to the DRC-01A, the tax payer neither
paid above mentioned Tax, Interest & Penalty nor filed
abjections. Therefore, the undersigned issued Show cause
Notice Under Section 74(1) of the KGST Act-2017 as under.
Sl.
No.
Suppliers GSTIN with
Taxable
IGST
CGST
SGST
TOTAL
trade name (Bogus
Value
TP) Involved in Bill
trading or Circular
Trading
1
29BGYPS9824H1Z6
6534732
0
588126
588126
1176252
M/SLAXMI
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ENTERPRISES
TOTAL
1176252
You are informed to pay the above mentioned tax &
interest Under Section 50 @ 1.5% per month and Penalty of
25% of tax due within thirty days from the date of issue of
Show cause notice in Form GST DRC-01 or you are informed
to show cause within thirty days as to why above mentioned
tax & interest along with penalty @100% of the tax payable
or Rs.20,000-00 (KGST-Rs.10000/- & CGST Rs. 10000/-)
whichever is higher should not be demanded. Failing which
tax, interest & penalty shall be levied U/s. 74(9) of the KGST
Act-2017 and proceedings in accordance with law may be
initiated against you and recovered above liabilities U/S. 79
of the KGST Act-2017 without any further reference.”
Notwithstanding the same, the appellant submits the reply. The
reply reads as follows:
“FORM GST DRC-06
[See rule 142(4)]
Reply to Show Cause Notice
1. GSTIN 29ADXPH4269C1Z4
2. Name Kunal Traders
3. Address
B 24 S No. 681/1 A and R. Anagol
Industrial Estate. Udyambag,
Karnataka-590008
4. Details of the SCN Ref No: ZD290925212987N dated
29.09.2025
5. Financial Year 2019-20
6. Reply to the Discrepancies:
At the outset, we wish to bring to your kind attention that the
Noticee has filed a reply in Part B Form GST DRC-01A on the
GST Portal on 27.09.202 5 bearing ref no ZD290925168919B
a gainst your intimation in Form GST DRC-01A dated
24.09.2025 We hereby enclose the copy of the submissions
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along with Portal Acknowledgement copy for your ready
reference and verification.
Further, we will submit the hard copies of Bank Statements,
Weighment Slips, Purchase Invoices and Sales Invoices
issued to Ashok Iron Works only at your good office on
30.10.2025 for your verification.
We request your goodself to treat the Reply filed in Part B of
Form GST DRC-01A dated 27.09.2025 as our reply against
the impugned Show Cause Notice dated 29.09.2025.
Notwithstanding this reply filed by the Authorized
Representative, if your good self is to proceed to pass an
order to the contrary which may have an adverse effect on
the Noticee, in such an event, the Noticee prays that your
good self be pleased to grant a reasonable opportunity of
being heard in person which shall not be less than 7 days
before any order is passed enabling the Noticee to
substantiate his pleas. This, in the respectful submission of
the Noticee, would meet the ends of justice, and the Noticee
reserves the liberty to add, amend, delete or urge any
additional grounds at the time of hearing.
7. Documents enclosed:
(a) Reply filed in Part B of Form GST DRC-01A dated
27.09.2025
(b) Portal Acknowledgement of the reply filed on 27.09.2025
8. Option for Personal
Hearing
Yes
9. Verification
I hereby solemnly affirm and declare that the information given
hereinabove is true and correct to the best of my knowledge
and belief and nothing has been concealed there from.
SD/-
Signature of the Authorized Signatory
Name: CA Laxmikant Pasari
Designation: Authorised Representative
Date: 29-10-2025
Place: Belagavi.”
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This results in another show-cause notice being issued. The
notice reads as under:
“GOVERNMENT OF KARNATAKA
(COMMERCIAL TAX DEPARTMENT)
o.: ACCT/LGSTO-380/BGV/2025-26/B
N -3190
Office of the
Asst. Commissioner of Commercial Taxes,
LGSTO-380, Sumoulya Soudha, Belagavi.
Email: [email protected] .
Tel. No: 0831-2951019,
Dated: 24-09-2025
FORM GST DRC-01A
[See rule 142(14) ]
To,
GSTIN : 29ADXPH4269C124
Trade Name : Kunal Traders
Ad dress: B 24 5 No. 681/1 A And B, Kunal
Tra ders, Anagol Industrial Estate,
Udyambag , Belagavi-590008.
E-Mail : [email protected]
Tax Periods : 019-20
PRE-INTIMATION
Assignment No. and date : ACCT/LGSTO-380/46/2025-
26. Dated:24-09-2025
From GST ASMT-10 No. : ACCT/LGSTO-380/ASMT-
10/2023-24/8-111
Date: 17-04-2023.
Tax Period : 2019-20
WHEREAS Kunal Traders having your place of
business at N B 24 5 No. 681/1 A And B, Kunal Traders,
Anagol Industrial Estate, Udyambag, Belagavi 590008, is an
individual/firm/company and registered with GSTIN No:
29ADXPH4269C1Z4 under the jurisdiction of Assist.
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Commissioner of Commercial Taxes, LGSTO-380, Belagavi,
Karnataka GST authority.
WHEREAS you received inward supplies from bogus
taxpayers who are involved either in bill trading/Circular
trading. In view of this, the ITC claimed by you is not
genuine ITC as per Sec. 16 of the CGST/KGST Act. The
details of such inward supplies received by you from the
Bogus Taxpayers who were engaged in bill trading. Thus you
have availed or utilized input tax credit by reason of fraud or
any willful misstatement.
Sl.
No.
Suppliers GSTIN with
Taxable
IGST
CGST
SGST
TOTAL
trade name (Bogus
Value
TP) Involved in Bill
trading or Circular
Trading
1
29BGYPS9824H1Z6
6534732
0
588126
588126
1176252
M/SLAXMI
ENTERPRISES
TOTAL 1176252
In the connection, you have been bed ASMT-10 on
17.04.2023 for discrepancies in this returns by post and
through mail, wherein explanation is sought from you for
the above discrepancy with 30 days. You have not reply so
far.
Therefore, it is decided to initiate proceedings U/s
78 of the KGST/CGST Act 2017. According an assignment
U/s 74 of the KGST Act 2017 is obtained from the Joint
Commissioner of Commercial Taxes (Admn), Belagavi for
initiating adjudication proceedings under the Act.
WHEREAS Section 74 of the Karnataka GST Act and
Central GST Act, prescribes that:
Determination of tax not paid or Short paid or
erroneously refunded or input tax credit wrongly availed or
utilized by reason of fraud or any willful misstatement or
any willful misstatement or suppression of facts,
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As per Section 74 read with Rule 142-Notice and
order for demand of amounts payable under the Act-
*(1) a proper officer shall serve along with the-
*[2] [a] reads as notice under sub section (1) of
section 74 or sub section 76, a summary thereof
electronically in FORM GST DRC-01
And the undersigned is designated as the proper
officer in your case empowered under Section 74 of the
KGST Act 2017.
WHEREAS, any tax has not been paid or short paid
or wrongly availed the ITC is liable to be demanded under
Section 74 of the CGST Act 2017/KGST Act, 2017 you are
hereby intimated that the amounts are required to be paid
under section 74 along with applicable interest under
section 50 and penalty for tax not paid or short paid or
input tax credit wrongly availed or utilized contrary to law
under section 122(2) (b) of Karnataka GST and Central
GST Act. Therefore you are here by informed pay Tax,
Interest u/s 50 and Penalty 15% of tax u/s 74 of the KGST
Act-2017 within (03) Days from the Service of Notice.
OR
If any objections to the said notice, you are hereby
called upon to file the objections for the above said notice
may be filed within Three (03) days from the receipt of
this intimation in PART-B of this Form
If feiled to file any objections, action deemed fit will
be initiated in accordance with the CGST Act2017/KGST
2017.
Sd/-
Assistant Commissioner of Commercial Taxes
LGSTO-380, BELAGAVI
Assistant Commissioner of
Commercial Taxes
LGSTO-380, Belagavi”
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In the said notice, it is indicated that the appellant – assessee
has not submitted his explanation nor produced any
documents. Notwithstanding the fact that the documents and
the reply was already in place on 04.05.2023 and this
observation comes about on 24.09.2025. The same is repeated
yet again. On 27.09.2025 when the notice again is issued, the
appellant – assessee submits a reply. The reply again meets
with the same observation that the appellant has not filed his
explanation nor submitted any reply. This results in a personal
hearing being granted to the appellant prior to passing of the
Order-in-Original. The endorsement for personal hearing is also
appended to the memorandum of appeal. The endorsement
clearly indicates that all the documents were produced by the
appellant at the time of reply to the show cause notice.
Notwithstanding all these, it results in the Order-in-Original
imposition of penalty against the petitioner.
8. The Order-in-Original is called in question before
the learned Single Judge in the subject writ petition. The
learned Single Judge, by the order dated 23.07.2026, disposes
the said petition on the score that the appellant – petitioner has
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a remedy of appeal under Section 107 of the GST Act. The
order of the learned Single Judge reads as follows:
“…. …. ….
The present writ petition is filed seeking for the
following reliefs:
“(a) Issue a Writ of Certiorari, or such other Writ,
Order or direction in the nature of a Writ of
Certiorari, quashing the impugned Order-
inOriginal bearing No. Null dated 27.03.2026
(Annexure A) passed by Respondent No. 04,
along with its summary in Form GST DRC-07
bearing Reference No. ZD2903261611099 dated
27.03.2026 (Annexure A1) passed by
Respondent No. 04 under Section 74(9) of GST
Act, 2017;
(b) Issue a Writ of Certiorari, or such other Writ,
Order or direction in the nature of a Writ of
Certiorari, quashing the impugned show cause
notice bearing No. ACCT/LGSTO-380/BGV/2025-
26/B- dated 29.09.2025 (Annexure B) issued by
Respondent No. 04, along with its summary in
Form GST DRC-01 bearing Reference No.
ZD290925212987N dated 29.09.2025 (Annexure
B1) issued by Respondent No. 04 under Section
74(1) of GST Act, 2017; and
(c) Pass such other or further orders as this
Honourable Court may deem fit and proper in the
facts and circumstances of the case, and in the
interests of justice and equity, including the costs
of this writ petition.”
2. It is the contention of the petitioner that the
notice dated 17.04.2023 (Annexure-C to the writ petition)
has been responded to vide reply dated 04.05.2023
(Annexure-C1 to the writ petition). However, that said
reply has not been taken into consideration by the
concerned authorities. Further, pursuant to the notice
dated 24.09.2025 (Annexure-D to the writ petition), the
petitioner has furnished his reply dated 27.09.2025
(Annexure-D2 to the writ petition). Despite the same, the
said reply has not been taken into consideration, which
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aspect is clear from the reading of the show cause notice
dated 29.09.2025 (Annexure-B to the writ petition).
Subsequent to the said show cause notice dated
29.09.2025, the petitioner has furnished his reply and an
opportunity for personal hearing has also been afforded,
consequent to which, the order dated 27.03.2026
(Annexure-A to the writ petition) has been passed under
Section 74(9) of the Goods and Services Tax Act, 2017.
Being aggrieved by the same, the present writ petition is
filed.
3. It is forthcoming that a remedy of appeal is
available to the petitioner under Section 107 of the Act.
4. Although, it is the vehement contention of the
learned counsel for the petitioner that the notice dated
27.03.2026, does not indicate that any allegation of
fraud, willful misstatement or suppression of facts and
hence, the impugned order dated 27.03.2026 is one
without jurisdiction, the said contention cannot be
accepted in view of the averment made in the show cause
notice dated 29.09.2025, that the petitioner has received
inward supply of goods and services from bogus
taxpayers.
5. In view of the aforementioned, the present
petition is disposed of reserving liberty to the petitioner
to avail the remedy of filing an appeal as contemplated
under Section 107 of the Act. In the event, the said
remedy is availed within two weeks from date, the
appellate authority shall consider the same on merits
without raising the objection of delay.”
9. In the light of the show cause notice being issued
under Section 74 of the GST Act, we deem it appropriate to
notice Section 74. Section 74 of the GST Act reads as follows:
“ 74. Determination of tax pertaining to the
period up to Financial Year 2023-24 not paid or
short paid or erroneously refunded or input tax
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credit wrongly availed or utilised by reason of fraud
or any wilful misstatement or suppression of
facts .—(1) Where it appears to the proper officer that
any tax has not been paid or short paid or erroneously
refunded or where input tax credit has been wrongly
availed or utilised by reason of fraud, or any wilful
misstatement or suppression of facts to evade tax, he
shall serve notice on the person chargeable with tax
which has not been so paid or which has been so short
paid or to whom the refund has erroneously been made,
or who has wrongly availed or utilised input tax credit,
requiring him to show cause as to why he should not pay
the amount specified in the notice along with interest
payable thereon under Section 50 and a penalty
equivalent to the tax specified in the notice.
(2) The proper officer shall issue the notice under
sub-section (1) at least six months prior to the time limit
specified in sub-section (10) for issuance of order.
(3) Where a notice has been issued for any period
under sub-section (1), the proper officer may serve a
statement, containing the details of tax not paid or short
paid or erroneously refunded or input tax credit wrongly
availed or utilised for such periods other than those
covered under sub-section (1), on the person chargeable
with tax.
(4) The service of statement under sub-section (3)
shall be deemed to be service of notice under sub-section
(1) of Section 73, subject to the condition that the
grounds relied upon in the said statement, except the
ground of fraud, or any wilful-misstatement or
suppression of facts to evade tax, for periods other than
those covered under sub-section (1) are the same as are
mentioned in the earlier notice.
(5) The person chargeable with tax may, before
service of notice under sub-section (1), pay the amount
of tax along with interest payable under Section 50 and a
penalty equivalent to fifteen per cent. of such tax on the
basis of his own ascertainment of such tax or the tax as
ascertained by the proper officer and inform the proper
officer in writing of such payment.
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(6) The proper officer, on receipt of such
information, shall not serve any notice under sub-section
(1), in respect of the tax so paid or any penalty payable
under the provisions of this Act or the rules made
thereunder.
(7) Where the proper officer is of the opinion that
the amount paid under sub-section (5) falls short of the
amount actually payable, he shall proceed to issue the
notice as provided for in sub-section (1) in respect of
such amount which falls short of the amount actually
payable.
(8) Where any person chargeable with tax under
sub-section (1) pays the said tax along with interest
payable under Section 50 and a penalty equivalent to
twenty five per cent. of such tax within thirty days of
issue of the notice, all proceedings in respect of the said
notice shall be deemed to be concluded.
(9) The proper officer shall, after considering the
representation, if any, made by the person chargeable
with tax, determine the amount of tax, interest and
penalty due from such person and issue an order.
(10) The proper officer shall issue the order under
sub-section (9) within a period of five years from the due
date for furnishing of annual return for the financial year
to which the tax not paid or short paid or input tax credit
wrongly availed or utilised relates to or within five years
from the date of erroneous refund.
(11) Where any person served with an order issued
under sub-section (9) pays the tax along with interest
payable thereon under Section 50 and a penalty
equivalent to fifty per cent. of such tax within thirty days
of communication of the order, all proceedings in respect
of the said notice shall be deemed to be concluded.
(12) The provisions of this section shall be
applicable for determination of tax pertaining to the
period upto Financial Year 2023-24.
Explanation 1 .—For the purposes of Section 73 and
this section, —
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( i ) the expression “all proceedings in respect of the
said notice” shall not include proceedings under Section
132;
( ii ) where the notice under the same proceedings is
issued to the main person liable to pay tax and some
other persons, and such proceedings against the main
person have been concluded under Section 73 or Section
74, the proceedings against all the persons liable to pay
penalty under Sections 122 and 125 are deemed to be
concluded.
Explanation 2 .— *”
Section 74 of the GST Act is a power that stretches beyond
limitation as obtaining under Section 73 of the GST Act. Section
73 of the GST Act mandates limitation of 3 years for scrutiny
returns to be done and the notice to be issued to the assessee.
Section 74 of the GST Act being an exception is only in
circumstances where the notice can be issued on fraud or willful
misstatement.
10. In the tenor of the provision of law, the show-cause
notice is required to be considered. The show-cause notice is
bereft of any reasoning or any indication of what fraud or
misstatement the assessee has committed for him to submit a
reply. The notice clearly indicates that it is not the assessee,
but the supplier who has indulged in commission of fraud or
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willful misstatement which has come into light 3 years after the
transaction with the appellant. Therefore, the notice itself
admittedly does not indicate directly anything against the
appellant.
11. In the light of the Order-in-Original not even
looking into the factum whether the reply was submitted by the
appellant or otherwise, the endorsements of personal hearing
though is mentioned in the Order-in-Original, what has
happened therein is neither clearly indicated nor appropriately
considered. The issue is not with regard to the
Order-in-Original. The issue is, initiation of proceedings being
invoked against the appellant under Section 74 of the GST Act.
Section 74 of the GST Act as observed hereinabove can be
invoked only on fraud or misstatement by the assessee, as it is
de hors limitation. The interpretation of Section 74 of the GST
Act need not detain us for long or delve deep into the matter.
11.1. The Apex Court in the case of GR INFRA
1
PROJECTS LIMITED v. STATE OF MADHYA PRADESH ,
observes that allegations of fraud under Section 74 of the
1
2026 SCC OnLine SC 2084
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Central Goods and Services Act, 2017, which is pari materia to
Section 74 of the GST Act, must indicate fraud or concealment
of facts in the show-cause notice and holds as follows:
“…. …. ….
3. The assessee, who is the appellant herein,
would submit that a notice issued under section 74
can only be issued when there is a fraud/wilful mis-
statement/suppression of facts alleged; which
allegation has to come out from the notice itself.
4. The learned Counsel appearing for the appellant
submits that the SCN is beyond the time of three years
provided under section 73 for determination of tax, inter
alia , short paid, for any reason other than fraud, wilful
mis-statement or suppression of facts. The learned
Government Advocate, however, attempts to take us
through the counter-affidavit in which according to him
the allegations of fraud and suppression of facts have
been elaborated, justifying the proceedings under section
74 and not under section 73.
5. We refused to look at the counter-affidavit on
the trite principle that when an authority has issued a
notice or an order, the requirements to make the notice
or order valid should be contained in such notice or order
and cannot be supplanted by a counter-affidavit in court,
where the notice or order is alleged to be invalid for
reason to non-application of mind, the requirements
having not met and so on and so forth.
6. As far as the CGST Act is concerned, sub-
section (2) of section 73 mandates that the proper
officer shall issue notice under sub-section (1) at
least three months prior to the time-limit specified
in sub-section (10). Sub-section (10) provides that
the proper officer shall issue the order under
section 9 within three days from the due date for
furnishing of annual return for the financial year
relevant to such proceedings. Sub-section (1) of
section 44 provides for furnishing an annual return
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within such time and in such form and in such
manner as is prescribed. Rule 80 of the CGST Rules
prescribes the furnishing of an annual return for every
financial year as specified under section 44 electronically
on or before the 31st day of December following the end
of such financial year. Hence, for the relevant assessment
year 2018-2019, the annual returns were to be filed on or
before December 31, 2019.
7. The CGST Act came into force on July 1, 2017
and initially for reason of fresh introduction of the
electronic systems, the last date for filing annual returns
was extended for the years commencing from 2017-2018
onwards by notifications issued under section 44(1). In so
far as the assessment year 2018-2019 is concerned,
successive notifications, extended the time to furnish
annual return and eventually it stood at December 31,
2020. Hence, the limitation for issuing a notice under
section 73 expires on December 31, 2023.
8. In the meanwhile, COVID struck and this court
in Writ Petition (C) No. 3/2020 registered as Cognizance
for Extension of Limitation, In re [(2022) 441 ITR 722
(SC); (2022) 230 Comp Cas 423 (SC); (2022) 3 SCC
117; (2022) 1 SCC (Cri) 580; (2022) 2 SCC (Civ) 46;
(2022) 1 SCC (L&S) 501; 2022 SCC OnLine SC 27.]
extended the limitation as provided in the various
statutes, in the wake of the pandemic and eventually by
order dated January 10, 2022, the Suo Motu writ petition
was disposed of with directions, inter alia, providing for
exclusion of limitation for the period between March 15,
2020 to February 28, 2022. While computing
limitation, the period excluded by this court coming
within the three-year period for 2018-2019 is one
year and two months, which has to be excluded and
further time provided from December 31, 2023 in
lieu of the excluded period. Hence, the extended
period of limitation falls on February 28, 2025. The
SCN issued in this case on June 13, 2025 for the
assessment year 2018-2019 definitely hit by
limitation under section 73. Now the question is as
to whether section 74 can be invoked.
9. The present proceedings were initiated by
summons issued dated March 3, 2022 relating to
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the business for the years 2017-2018 to 2020-
2021. From the counter-affidavit filed by the State,
it is seen that the petitioner sought time initially,
but did not produce the required documents before
the assessing officer. An inspection was conducted
in the premises of the assessee and statements
were recorded from the Accountant, Authorized
Signatory and the Director of the assessee on
various dates. It is alleged that in the very many
hearings scheduled between September 1, 2022
and February 7, 2025; on 20 occasions, the
assessee did not appear. A draft notice-cum-
investigation report dated March 3, 2025 was
prepared and an intimation under section 142(1A)
dated April 29, 2025 was issued to the petitioner.
The petitioner raised preliminary objections by
response dated May 14, 2025 specifically pointing
out that the draft notice has not been served on
them. The draft notice was served on May 27, 2025
based on which additional response was submitted
by the petitioner. It was later that SCN dated June
13, 2025 was issued under section 74.
10. A bare reading of the notice would
indicate that but for a bland statement of “ fraud or
concealment of facts ” nothing is stated as to how
fraud was inferred or concealment of facts were
detected. In fact, the “or” employed indicates that
even the assessing officer was not sure that the
assessment was proceeded by reason of fraud or on
the ground of concealment of facts. What is
required for the extended time to be applied are the
allegations, which lead to the inference of a fraud
or the concealment as attempted by the assessee
resulting in suppression of facts, should emanate
from the notice itself. It cannot be a mechanical use
of the words “fraud, wilful mis-statement or
suppression of facts” without listing out the aspects
which persuades the assessing officer to conclude
that there has been employed either of these
surreptitious devices by the assessee.
11. We find absolutely no reason to sustain the
SCN issued and find the High Court to have erroneously
upheld the same. We set aside the impugned order as
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also the SCN and direct the respondent-State to desist
from taking any further proceedings in pursuance of the
SCN challenged before the High Court, which is set aside
by this order.”
The Apex Court holds that a bare reading of the notice would
indicate that but for a blind statement of fraud or concealment
of facts nothing is stated as to how fraud was inferred or
concealment of facts were detected. The Apex Court holds a
bald statement in of fraud and misstatement would not suffice
to the tenor of the statute.
11.2. Again, the Apex Court in the case of TATA STEEL
2
LIMITED v. UNION OF INDIA , observes that limitation as
obtaining in Section 74 cannot be extended by invoking general
allegations of fraud and suppression and that the show-cause
notice is required to specify foundational facts. The Apex Court
holds as follows:
“…. …. ….
5. In so far as limitation is concerned, section
73 of the CGST Act mandates that the proper officer
shall issue notice under sub-section (1), at least
three months prior to the time-limit specified in
sub-section (10); section 73 being the provision
enabling such notice, in cases where there is no
2
2026 SCC OnLine SC 1702
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allegation of fraud/wilful
misrepresentation/suppression of facts. Sub-
section (10) provides that the proper officer shall
issue the order under section 9 within three years
from the date of furnishing of the annual return. For
the financial year relevant to such proceedings, it is
section 44 which provides for furnishing of annual return
and sub-section (1) requires the annual return to be
furnished within such time and in such form and in such
manner as is prescribed. The Goods and Services Tax
Rules, 2017 by rule 80 prescribes the furnishing of an
annual return for every financial year as specified under
section 44 electronically, on or before the 31st day of
December, following the end of such financial year.
Relevant in the above case are the financial years 2018-
2019, 2019-2020 and 2020-2021. As per the provisions
above noted, the annual returns have to be filed on or
before December 31, 2018, December 31, 2020 and
December 31, 2021 respectively.
6. The CGST Act having come into force on July 1,
2017 coupled with the introduction of electronic systems,
there were teething problems reckoning which the last
date for filing annual return was extended for the years
commencing from 2017-2018 onwards. Such extensions
were made by notifications issued under section 44(1). In
so far as the assessment year 2018-2019, by virtue of
successive notifications, the time to furnish the annual
return eventually stood at December 31, 2020, after a
number of short extensions. In so far as the assessment
years 2019-2020 and 2020-2021, the notifications issued
under section 44(1) extended the time-limit for furnishing
the returns and the last of such extensions enabled
annual returns to be filed before March 31, 2021 and
February 28, 2022 respectively for the said years.
Consequently, the limitation for issuing a notice under
section 73 was pushed further, to expire on December
31, 2023 for assessment year 2018-2019 and
respectively March 31, 2024 and February 28, 2025 for
the assessment years 2019-2020 and 2020-2021.
7. While matters stood thus, the pandemic struck,
paralyzing every activity, world over and this court took
suo motu cognizance of the difficulties of the litigants,
due to the rigor of limitation and that of the statutory
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authorities, enjoined with time-lines provided under the
various enactments. Suo Motu Writ Petition (C) No. 3 of
2020 registered as Cognizance for Extension of
Limitation, In re , extended the period of limitation as
provided in various statutes and eventually by order
dated January 1, 2022, the writ petition was disposed of
with directions, inter alia , providing for exclusion of
limitation for the period between March 15, 2020 to
February 28, 2022. Hence, the said exclusory period
coming within the limitation period of three years had to
be excluded and the limitation pushed further to that
extent. As noticed above the last date for furnishing the
annual returns of 2018-2019, 2019-2020 and 2020-2021
as per the various notifications under section 44 were
respectively December 31, 2020, March 31, 2021 and
February 28, 2022. The limitation ought to have expired
at three years, respectively on December 31, 2023,
March 31, 2024 and February 28, 2025. One year and
two months within the period of limitation of 2018-2019
and eleven months within the period of three years
limitation of 2019-2020 falls within the period relaxed by
this court. Thus, the limitation from the last date of
furnishing of annual returns stands extended to
February 28, 2025 for the above two years and for
the year 2020-2021, it remains unchanged at
February 28, 2025, since even as per the statute
and notifications period of limitation only
commenced on February 28, 2022, the extension
granted by this court being inapplicable. The SCN
dated June 13, 2025 is past the extended limitation
period.
8. Now the question arises as to whether the
SCN can be sustained based on the extended period
of five years as available under section 74 which
can be availed by the Department only if there is an
allegation of fraud/wilful
misrepresentation/facts/suppression.
9. That allegation, if available, the Department can
seek to sustain the notice under section 74, which is what
they attempted to do. The proceedings which led to the
SCN commenced with annexure P1 dated May 27, 2024;
issued with respect to audit observations regarding
mismatch of input-tax credit (ITC) for the three financial
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years and for the short payment of tax for the financial
year 2019-2020. Replies were submitted and on June 27,
2024 by annexure P5, documents were sought in support
of the explanations offered. Communications were
exchanged between the assessee and the seventh
respondent and eventually the SCN was issued on June
13, 2025 produced as annexure P11. Subsequently, the
Additional Commissioner, respondent No. 5 intimated, by
annexure P12 dated June 27, 2025, that the SCN has
been transferred to “call book” meaning thereby “kept in
abeyance”. It was also intimated that the Department has
contested the issue raised as an audit objection, before
the Public Accounts Committee.
10. Later, a fresh notice was issued on July 1,
2025, reviving the earlier notice and proposing a
protective demand since the proceedings are time bound
under the GST law, there being no such measure of
protective assessment statutorily permitted under the
GST Act.
11. At the outset we have to notice that the
proceedings under section 73/74 can be initiated
only on the satisfaction of the assessing officer.
Even if observations/objections are made on audit,
the assessing officer should enter his satisfaction
before a notice is issued. In so far as a notice under
section 74, the satisfaction should be not only of
mismatch of ITC and short payment of tax having
occurred, as is alleged in this case, the Officer
should be satisfied that either fraud/wilful
misrepresentation/suppression had led to such
mismatch or short payment of tax.
12. We are unable to countenance the
argument of the learned ASG that Explanation 2 to
section 74 applies, since even according to him it
stood omitted with effect from November 1, 2024.
Equally fallacious is the argument that the
proceedings were initiated prior to the expiry of
limitation under section 73. The limitation under
section 73(10) is also to issue the order under
section 73(9) and not to issue a notice and sub-
section (2) of section 73 provides for a notice, at
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least three months before the time-limit under
section 73(10).
13. The fact that the Department had taken
up the objections on audit with the Public Accounts
Committee itself indicates that there was no
satisfaction at the end of the Department, meaning
the assessing officer; as to the mismatch or the
short fall of payment of tax having occurred, not to
say anything about the suppression alleged.
Further, but for a bland statement of availing of ITC
for the three years “ without documentary evidence
and suppress the facts ” (sic), the SCN did not
contain any foundational facts to validate such
allegation of suppression.
14. It is not mere lip service to the provisions
that is intended when an extended limitation period
is provided for recovering an excess benefit availed,
short payment or excess refund, from the assessee,
especially when the allegation is of fraud/wilful
misrepresentation/suppression. The foundational
facts which led to the inference arrived at of
fraud/wilful misrepresentation/suppression should
be evident from the notice itself. The mere
employment of such words will not indicate an
application of mind, upon which alone the
satisfaction can be arrived at. The words are not to
be mechanically recited in the notice to enable
recovery outside the normal limitation provided
under the statute.
15. In the facts of the above case, we do not
find any such factual facts having been stated to
make out a case of a deliberate device employed to
evade tax or avail excess ITC, as coming out from
the SCN. The bland statement made at some places
of suppression of facts, merely to avail the
extended period of limitation would barely suffice
and puts to peril the notice under section 74. The
SCN on the above reasoning, cannot be sustained
and the consequential order-in-original dated
December 26, 2025 too is put in peril and both are
set aside. However, the extended period of two
years is not yet over, for all the three years since
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the three year limitation expired only on February
28, 2025 for all the subject financial years. It would
be open for the Department, if it is thought fit, to initiate
an appropriate proceeding under section 74, but with the
foundational facts, coming out from the notice itself and
an order being passed before February 28, 2027.”
(Emphasis supplied at each instance)
The Apex Court was examining the Order-in-Original of
imposition of penalty. The Apex Court notwithstanding the
Order-in-Original being passed travels back to the show-cause
notice accepting the contention of the counsel therein and holds
that unless the foundational facts with regard to fraud or
misstatement is explicitly depicted in the notice, it would
become a proceeding in violation of principles of natural justice.
12. If the facts obtaining in the case at hand as
narrated hereinabove is considered on the bedrock of the
principles elucidated by the Apex Court, the unmistakable
inference would be that the Order-in-Original or the initiation of
the proceedings by issuance of the show-cause notice would be
contrary to law as it flies foul of the judgments rendered by the
Apex Court as quoted supra .
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13. In that light, the Order-in-Original becomes
unsustainable and is to be obliterated reserving liberty to the
revenue to initiate the proceedings if needed or if permissible in
law at the stage from the stage of the reply of the appellant to
the show cause notice.
14. In the light of the obliteration of the
Order-in-Original and in success of the appeal, the deposit
pursuant to the orders passed by this Court with the
Department shall be refunded to the appellant.
15. For the aforesaid reasons, the following:
ORDER
(i) The writ appeal is allowed.
(ii) The order of the learned Single Judge dated
23.07.2026 in Writ Petition No.105869 of
2026 is set aside.
(iii) The Order-in-Original dated 27.03.2026
passed by Respondent No.4 – Assistant
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Commissioner of Commercial Taxes stands
obliterated.
(iv) The respondents are at liberty to initiate
proceedings if they are wanting to at this
stage, which shall be from the stage of
answering the reply of the appellant to the
first show-cause notice dated 17.04.2023 and
take the issue to its logical conclusion only if
it is available in law.
Sd/-
(M.NAGAPRASANNA)
JUDGE
Sd/-
(HEMA KULKARNI)
JUDGE
PMP: paras 1 to 5
RSH: para 6 onwards
CT:VH / List No.: 1 Sl No.: 38