The Karnataka High Court has granted interim protection to taxpayers in a batch of GST proceedings by staying further proceedings arising from show cause notices issued after departmental audits, while examining a significant jurisdictional challenge regarding the validity of audit-based proceedings initiated after the alleged completion of statutory audits.
The bench of Justice B.M. Shyam Prasad directed that all the petitions be tagged together since they raise common questions concerning GST show cause notices issued for multiple financial years following audit proceedings conducted under the Central Goods and Services Tax Act, 2017.
The controversy relates to show cause notices issued for the period spanning Financial Years 2017-18 to 2022-23 after issuance of Audit Notices in Form ADT-01. According to the Court’s order, the impugned notices were based on grouped audit observations covering multiple assessment years.
Senior Advocate G. Shivadass, appearing for the petitioner, raised several legal challenges against the proceedings. One of the principal contentions was that a consolidated show cause notice could not be issued covering different financial years. Although the issue had reportedly been decided against taxpayers by a Division Bench, it was argued that the matter is currently pending consideration before the Supreme Court.
A major jurisdictional argument advanced by the petitioner concerned the completion of earlier audit proceedings.
The petitioner submitted that audits for Financial Years 2017-18 and 2018-19 had already culminated in a final audit report dated May 29, 2021. Subsequently, an Audit Notice in Form ADT-01 was issued covering Financial Years 2017-18 to 2021-22, to which the taxpayer furnished books of account and relevant records for each financial year.
According to the petitioner, the audit should be deemed to have been completed because no action was taken within the time prescribed under Section 65(4) of the CGST Act. It was further argued that another audit notice for the same tax period was issued on January 19, 2024. When the taxpayer informed the authorities about the earlier audit proceedings initiated in 2022, the department allegedly continued the proceedings while informing the petitioner that the earlier audit notice had been withdrawn.
The petitioner argued that once the statutory audit stood concluded by operation of law, the authorities lacked jurisdiction to subsequently issue closure information or continue proceedings beyond the prescribed period.
It was specifically contended that the department could not revive or continue audit proceedings after the expiry of the statutory timeline contemplated under Section 65 of the CGST Act. On this basis, the petitioner asserted that the resulting show cause notices were without jurisdiction and liable to be quashed.
Another important submission before the Court was that the impugned show cause notices did not contain allegations of fraud or wilful suppression, a factor which the petitioner relied upon while seeking interim protection.
After considering the submissions, Justice B.M. Shyam Prasad found the matter fit for interim protection and stayed all further proceedings pursuant to the impugned notices and orders.
The Court ordered that the stay would continue until further orders while granting liberty to the tax authorities to complete their pleadings and seek vacation of the interim order or early disposal of the petitions.
Recognizing that identical legal questions arise in multiple petitions, the High Court directed the matters to be heard together. The petitions have been listed for further hearing on August 12, 2026.
