Court highlights failure of proper communication via GST portal notices alone, directs fresh hearing after petitioner deposits 10% tax demand
In a significant ruling on September 11, 2026, the Karnataka High Court, presided over by Justice T.M. Nadaf, quashed the adjudication order and penalty of Rs. 91,00,384 imposed on M/s. King Enterprise by the Assistant Commissioner of Commercial Taxes (Audit). The case involved a dispute over reversal of Input Tax Credit under the Goods and Services Tax (GST) regime for the period April 2023 to March 2024.
The petitioner, a proprietorship engaged in ferrous waste and scrap trade, argued that the show cause notice and subsequent communications were uploaded solely on the GST common portal. Due to a change in the petitioner's GST consultant, these notices went unnoticed, resulting in the petitioner not responding or appearing for adjudication hearings. Consequently, the respondent passed the order ex-parte imposing tax and a 100% penalty.
The Court found that the respondent failed to prove any additional communication through email or postal services to ensure that the petitioner received effective notice. This lack of proper communication violated the principles of natural justice, which require an opportunity to be heard before imposing penalties. The Court emphasized that mere uploading of notices on the GST portal does not constitute sufficient service if it remains unnoticed by the taxpayer.
Relying on a precedent from a Coordinate Bench in M/s. Zeal Group vs. Deputy Commissioner of Commercial Taxes (2026), the Court directed that the adjudication proceedings be restored to the respondent for fresh consideration. The petitioner was required to deposit 10% of the tax demand by October 5, 2026, as a condition for restoration of the case. The petitioner was also permitted to submit a detailed response along with documentary evidence to reconcile mismatches between GSTR-3B and GSTR-2A returns, which were central to the tax demand.
The Court ordered the respondent to consider the petitioner's submissions and documents and pass a reasoned order within two months of receipt. The ruling reiterates the importance of effective communication and adherence to natural justice in tax adjudication processes.
This judgment serves as a critical reminder to tax authorities about the necessity of ensuring that taxpayers receive notices through reliable channels beyond portal uploads, especially when penalties are involved. It also offers taxpayers an opportunity to rectify discrepancies in GST returns with adequate procedural safeguards.
Bottom Line:
Goods and Services Tax (GST) - Failure to respond to notices uploaded on the GST portal due to administrative oversight - Adjudication order and penalty of 100% of tax liability quashed - Matter remanded for fresh adjudication after granting a reasonable opportunity for hearing and allowing the petitioner to submit documents and reconciliation.
Statutory provision(s):
Goods and Services Tax Act, 2017 Sections 74(9), 16(2)(c); Rule 36(4) of CGST/KGST Rules
