₹7.35 Lakh GST Intimation Became ₹1.3 Lakh Demand Without Explanation; Karnataka HC Quashes Order, Gives Firm Fresh Hearing

In brief

The question

1. Whether the adjudication order and recovery notice should be quashed and the proceedings restored to allow the petitioner to respond to the show-cause notice

The court held

The petition was allowed in part.

It also directed

The adjudication order dated 29 February 2024 and recovery notice dated 3 August 2026 were quashed.

The petitioner was directed to appear before the first respondent on 30 November 2026 without further notice and was permitted to file a certified copy of the judgment and documents supporting the genuineness of its transactions.

The first respondent was directed to consider the petitioner’s reply and documents in light of the Court’s observations.

01Facts

The petitioner, a registered partnership firm, challenged an adjudication order dated 29 February 2024 under Section 73 of the KGST Act, 2017, and a recovery notice dated 3 August 2026 under Section 79.

p. 3

The assessment concerned tax period 2018–19 and an alleged mismatch between Forms GSTR-3B and GSTR-2A.

p. 3

The petitioner said it had been unable to verify the portal notices because of personal circumstances and sought an opportunity to respond to the show-cause notice dated 20 December 2023.

pp. 3–6

It also pointed to an unexplained difference between the alleged excess ITC of ₹7,35,894 in Form GST DRC-01A and the demand of ₹1,30,148 in the adjudication order.

pp. 3–6

02Issues

i.1. Whether the adjudication order and recovery notice should be quashed and the proceedings restored to allow the petitioner to respond to the show-cause notice

pp. 3–4

ii.2. Whether the petitioner should be given an opportunity to substantiate the genuineness of its ITC claim, including in light of the difference between the amount stated in the DRC-01A intimation and the adjudicated demand

pp. 5–6

03Law Applied

The proceedings arose under Sections 73 and 79 of the KGST Act, 2017, respectively concerning the adjudication of tax liability and recovery.

p. 3

The Court also exercised its jurisdiction under Articles 226 and 227 of the Constitution.

p. 2

The petitioner relied on a circular said to permit recipients to produce documents to justify transactions despite a mismatch between Forms GSTR-3B and GSTR-2A; the judgment does not identify the circular or set out a separate legal rule derived from it.

pp. 4–5

The Court cited no precedent and stated no broader statutory test; its decision turned on providing the petitioner an opportunity to respond and on the unexplained difference between the amounts.

pp. 5–7

04Reasoning

The Court noted that the petitioner sought to substantiate the ITC claim with documents and that the adjudication order demanded ₹1,30,148, whereas the DRC-01A intimation alleged excess ITC of ₹7,35,894.

pp. 4–6

Neither the petitioner had explained that difference nor had the first respondent explained the outcome in the adjudication order.

pp. 4–6

In those circumstances, and considering the personal circumstances advanced by the petitioner, the Court found it appropriate to set aside the adjudication and recovery orders and require the first respondent to consider the petitioner’s response and supporting documents.

pp. 5–7