Karnataka HC Quashes GST Order, Gives Manpower Contractor Another Chance To Back School-Supply Exemption Claim After 10% Deposit

The petitioner, a manpower supplier, asserted that its services to an educational institution were exempt from GST under Notification No. 12/2017 dated 28 June 2017.

The Assistant Commissioner passed an adjudication order under Section 73(9) of the KGST/CGST Acts, recording that the petitioner had not responded to the audit communications, intimation or show-cause notice.

The petitioner said it had not known of the proceedings because its Chartered Accountant had not informed it, and sought to challenge the adjudication order and the resulting tax, interest and penalty demands.

The Court considered whether to quash the order and restore the proceedings to allow a response to the show-cause notice dated 28 November 2024.

Section 73(9) of the KGST/CGST Acts provides for an adjudication order in proceedings concerning tax not paid or short-paid.

The Court exercised its jurisdiction under Article 226 of the Constitution to set aside the order and restore the proceedings for reconsideration.

It reasoned that where the taxpayer asserts a specific exemption claim that could be substantiated with documents, an opportunity to respond may prevent protracted litigation; the Court made that opportunity conditional on compliance with its directions.

The Court considered the petitioner’s specific claim that its manpower supplies to a residential school were exempt, together with its explanation for failing to respond during the assessment proceedings.

Because supporting documents could potentially establish the exemption and avoid further litigation, the Court concluded that the petitioner should have another opportunity to answer the show-cause notice.

It balanced that opportunity by requiring a timely reply and supporting documents, as well as a 10% deposit of the tax covered by the adjudication order.

The adjudication order dated 31 January 2025 was quashed, and the proceedings were restored to the stage of the petitioner’s reply to the show-cause notice dated 28 November 2024.

The petitioner was directed to file its reply and supporting documents by 6 November 2026 and, by that date, deposit 10% of the tax covered by the order, subject to the outcome of the restored proceedings.

The second respondent was directed to consider the petitioner’s material and decide, by cogent reasons, whether to affirm the proposal in the show-cause notice.