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M/S R K R Exports v. State of Karnataka

Karnataka HC9 Jun 2025WP/11169/2025

Case brief

AI extract

What is this about?

KGST Act Section 73 assessment order quashed; wrongful availment and utilization of excess Input Tax Credit; GSTR-3B versus GSTR-2A difference; audit observations versus Final Audit Report in assessee's favour; show cause notice only uploaded on portal, not served; order dated 21.03.2024 and Form GST DRC-07 dated 22.03.2024 set aside; demand of Rs.16,81,246/-; writ petition under Article 226 Constitution of India allowed; Karnataka High Court; Assistant Commissioner of Commercial Taxes LGSTO-015.

What did the court decide?

Quashing of the impugned order dated 21.03.2024 (Annexure-A) passed under Section 73 of the KGST Act, along with its summary in Form GST DRC-07 dated 22.03.2024. ¶51

M/S R K R Exports Vs State of Karnataka — GST and Indirect Tax | Karnataka HC (2025)

What the court decided

AI extract

Outcome

Quashing of the impugned order dated 21.03.2024 (Annexure-A) passed under Section 73 of the KGST Act, along with its summary in Form GST DRC-07 dated 22.03.2024.

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Issue for consideration

Whether the third respondent could validly commence and maintain proceedings under Section 73 of the KGST Act culminating in the order dated 21.03.2024 demanding Rs.16,81,246/- for alleged wrongful availment and utilization of excess Input Tax Credit, when the Final Audit Report had opined there was no wrongful availment or excess utilization.

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Court's answer

On the admitted position that the Show Cause Notice and the impugned order rested on initial audit observations while the Final Audit Report opined there was no wrongful availment or excess utilization, the petitioner must succeed notwithstanding the contention that the third respondent could not have assumed jurisdiction; the impugned order dated 21.03.2024 (Annexure-A) is quashed.

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Detailed headnote1 paragraphs

High Court of Karnataka at Bengaluru (B M Shyam Prasad, J.), W.P. No. 11169 of 2025 (T-RES), decided 09.06.2025. M/s R K R Exports challenged the order dated 21.03.2024 passed by the Assistant Commissioner of Commercial Taxes, LGSTO-015 (third respondent) under Section 73 of the Karnataka Goods and Services Tax Act, 2017, together with its summary in Form GST DRC-07 dated 22.03.2024, demanding Rs.16,81,246/- for alleged wrongful availment and utilization of excess Input Tax Credit arising from an asserted GSTR-3B/GSTR-2A difference flagged in audit observations. After the petitioner's response, the Final Audit Report opined there was no wrongful availment or excess utilization, yet Section 73 proceedings were commenced; the Show Cause Notice was only uploaded on the portal and not served otherwise. The learned High Court Government Pleader did not deny these factual assertions. Holding that on this circumstance the petitioner must succeed, the Court quashed the impugned order and allowed the writ petition filed under Article 226 of the Constitution of India.

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NC: 2025:KHC:19368 WP No. 11169 of 2025

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HC-KAR

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 9^TH DAY OF JUNE, 2025

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BEFORE

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THE HON'BLE MR JUSTICE B M SHYAM PRASAD

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WRIT PETITION NO. 11169 OF 2025 (T-RES)

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BETWEEN:

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M/S R K R EXPORTS MS. KAVYA VISHWANATH, PROPRIETRESS, FF-02, INCLOVER TULIP, 1ST FLOOR, 5TH MAIN ROAD, VIVEK NAGAR, BENGALURU-560047

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…PETITIONER

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(BY SRI. CHERIAN PUNNOOSE, ADVOCATE)

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AND:

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Digitally signed by VANAMALA N

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Location: High Court of Karnataka

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STATE OF KARNATAKA THROUGH ITS PRINCIPAL SECRETARY, FINANCE DEPARTMENT, VIDHANA SOUDHA, BENGALURU-560001

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THE COMMISSIONER OF COMMERCIAL TAXES IN KARNATAKA, VANIJYA THERIGE KARYALAYA, GANDHINAGAR, BENGALURU-560009

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THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES, LGSTO-015, NO.201, 2ND FLOOR, VTK-2, KORAMANGALA, BENGALURU-560047

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THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES

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NC: 2025:KHC:19368 WP No. 11169 of 2025

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HC-KAR

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(AUDIT)-4.4, DGSTO-4, 5TH FLOOR, TTMC BUILDING, BMTC BUS STOP, 80FT ROAD, 6TH BLOCK, KORAMANGALA, BENGALURU-560095

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…RESPONDENTS

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(BY SMT. JYOTI M.M., HCGP)

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THIS W.P. IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED ORDER DTD. 21.03.2024 AND SUMMARY OF THE ORDER IN FORM GST DRC-07 DTD. 22.03.2024 PASSED BY THE R-3 DEMANDING RS.16,81,246/VIDE ANNX-A TO THE WRIT PETITION.

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THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER:

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CORAM: HON'BLE MR JUSTICE B M SHYAM PRASAD

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ORAL ORDER

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The petitioner has called in question the third respondent's order dated 21.03.2024 under Section 73 of the Karnataka Goods and Services Tax Act, 2017 [for short, ' the KGST Act '].

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Mr. Cherian Punnoose, the learned counsel for the

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NC: 2025:KHC:19368 WP No. 11169 of 2025

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HC-KAR

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petitioner, while arguing in support of the petitioner's grievance with this order on 05.06.2025, has emphasized the following.

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[a] The impugned order is because of alleged wrongful availment and utilization of excess Input Tax Credit.

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[b] This allegation is because of a certain asserted difference between GSTR-3B and GSTR-2A.

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[c] This is based on Audit Observations, but ultimately with the petitioner's response, the Final Audit Report is filed opining that there is no wrongful availment or excess utilization, and

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[d] The audit observation in this regard is wrong.

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Mr. Cherian Punnoose emphasizes

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that the proceedings under Section 73 of the KGST Act are commenced despite the conclusion in the Final Audit Report and that the petitioner did not respond to the Show Cause Notice as it was only

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NC: 2025:KHC:19368 WP No. 11169 of 2025

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HC-KAR

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uploaded on the portal and not served otherwise. The learned counsel also emphasizes that the third respondent could not have passed the impugned order after having started the audit proceedings.

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Ms. Jyoti, M. M., the learned High Court Government Pleader, who is called upon to respond, submits that she cannot deny the factual assertion that the Show Cause Notice and the impugned order are based on which audit observations are initially made. The audit proceedings have resulted in the Final Audit Report in favour of the petitioner.

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In the light of this circumstance, and notwithstanding the petitioner's case that the third respondent could not have assumed jurisdiction which may not be justified, this Court is of the considered view that the petitioner must succeed and the impugned order dated 21.03.2024 [ Annexure -A ] is quashed.

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NC: 2025:KHC:19368 WP No. 11169 of 2025

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HC-KAR

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The petition is allowed accordingly.

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SD/(B M SHYAM PRASAD) JUDGE

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