No Hearing given to Clarify GST ITC availed u/s. 16(2) despite Reply Filed: Karnataka HC orders Fresh Adjudication [Read Order]

The Karnataka High Court has ruled that a GST demand order passed without granting a personal hearing despite the taxpayer having filed a reply explaining the ITC availed under Section 16(2) violates principles of natural justice. Holding that the authorities failed to consider the petitioner’s clarification before concluding ineligibility of ITC, the Court set aside the order and directed fresh adjudication.

The GST authorities initiated proceedings on M/s Sri Lakshmi Agencies, a partnership firm based in Bengaluru, under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST) and the Karnataka Goods and Services Tax Act, 2017 (KGST) alleging that the Input Tax Credit (ITC) claimed by the petitioner was ineligible under Section 16(2) of the CGST Act, 2017.

The petitioner submitted its reply, providing explanations and supporting documents. However, without granting the mandatory personal hearing required under Section 75(4) of the CGST Act, 2017, the department proceeded to pass the impugned order confirming the demand.

Aggrieved by the non-consideration of its reply and the violation of principles of natural justice, the petitioner approached the Karnataka High Court seeking quashing of the notices and the consequential adjudication order.

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The Karnataka High Court observed that it was undisputed that the petitioner had filed a reply to the show-cause notice, yet the adjudicating authority proceeded to pass the order without granting a personal hearing or allowing the petitioner to produce the necessary documents. The Court noted that such conduct amounted to a violation of Section 75(4) of the CGST Act, 2017, which mandates a reasonable opportunity of hearing when an adverse decision is contemplated.

Justice S.R. Krishna Kumar held that the failure to consider the reply and the absence of a hearing rendered the order legally unsustainable. Accordingly, the Court set aside the impugned order and directed the petitioner to appear before the adjudicating authority to submit a fresh reply and supporting documents.

Therefore, the writ petition was allowed and the matter was ruled to be freshly adjudicated.

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