The Karnataka High Court has granted interim relief in a writ petition raising significant questions on the validity of common GST notices issued for multiple tax periods and the eligibility of Input Tax Credit (ITC) on commercial construction used for generating rental income.
Justice B. M. Shyam Prasad stayed the immediate effect of an adjudication order issued under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017, subject to specified conditions. The matter has been listed for further hearing on August 18, 2026.
The challenge pertains to an adjudication order dated March 30, 2026, covering the tax periods from 2019-20 to 2022-23. The petitioner has questioned both the adjudication order and the consequential tax demand on three principal grounds.
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The first issue concerns the legality of issuing a single show cause notice for multiple assessment years. Although a Division Bench of the Karnataka High Court has previously upheld such notices, the petitioner argued that the issue is presently pending before the Supreme Court. It was submitted that if the apex court ultimately rules in favour of taxpayers, proceedings initiated through such common notices could become jurisdictionally invalid.
The second issue relates to denial of ITC based on discrepancies between Forms GSTR-2A and GSTR-3B. The petitioner contended that the transactions were genuine and that tax had been paid to suppliers. Relying on the Karnataka High Court’s decision in Instakart Services Private Limited v. Union of India, it was argued that bona fide recipients should not be denied ITC solely because of defaults or non-compliance by suppliers.
The third issue concerns the availability of ITC on machinery and equipment used in constructing commercial buildings that are leased out. According to the petitioner, such expenditure qualifies for ITC as it is directly linked to taxable rental income. Reference was made to an earlier interim order of the High Court in a similar matter where relief had been granted subject to maintenance of 10% of the disputed ITC in the Electronic Credit Ledger.
After considering the submissions, the Court granted interim protection on the condition that the petitioner maintains a minimum of 10% of the disputed ITC relating to rental income in its Electronic Credit Ledger until further orders. The respondents have been granted liberty to complete their pleadings and seek vacation of the interim order.
The case is expected to have wider implications for GST litigation, particularly on three recurring issues: the legality of common notices spanning multiple tax periods, denial of ITC due to GSTR-2A/GSTR-3B mismatches arising from supplier defaults, and the eligibility of ITC on construction-related inputs used for commercially leased properties.Â
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