The Karnataka High Court has held that proceedings under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017 cannot be initiated unless the show cause notice specifically alleges fraud, wilful misstatement, or suppression of facts. 

Holding that these allegations are jurisdictional prerequisites for invoking the extended limitation and penal provisions under Section 74, the bench of Justice B.M. Shyam Prasad quashed the adjudication order passed against the taxpayer for lack of jurisdiction. 

The petitioner challenged the adjudication order dated February 24, 2026, and the corresponding summary order in Form GST DRC-07 issued by the Commercial Tax Officer under Section 74(9) of the CGST, KGST, and IGST Acts for the tax period from April 2019 to March 2020. 

Buy Now: Customs Duty Judgements E-Compilation – June 2026

The dispute originated after the Joint Commissioner of Commercial Taxes issued summons to the petitioner on January 20, 2025, seeking an explanation regarding an alleged mismatch between the taxpayer’s GSTR-3B returns and GSTR-2A. Although the petitioner’s representative appeared before the authorities, no substantive response was filed. Consequently, the department issued a show cause notice in Form GST DRC-01 dated September 30, 2025, proposing action under Section 74 of the GST Act. Thereafter, an adjudication order confirming the tax demand was passed on February 24, 2026. 

Before the High Court, the petitioner contended that Section 74 could not be invoked because the show cause notice failed to contain any allegation of fraud, wilful misstatement, or suppression of facts. It was also argued that while proceedings for a subsequent financial year had been initiated under Section 73, the department had invoked Section 74 for the relevant assessment year merely to overcome the limitation prescribed under the GST law. 

The High Court accepted the taxpayer’s principal contention and observed that the show cause notice was completely silent regarding any allegation of fraud or deliberate suppression. The Court emphasized that these are not mere procedural requirements but jurisdictional facts that must exist before authorities can validly assume jurisdiction under Section 74.

The Court noted that the State was unable to dispute the fact that the show cause notice contained no allegations from which an inference of fraud or deliberate suppression could reasonably be drawn. In the absence of these essential allegations, the proceedings initiated under Section 74 suffered from a fundamental lack of jurisdiction. 

The High Court also took note of the fact that the petitioner’s representative had sought additional time to file a reply and had undertaken to submit documents by February 7, 2026, but failed to do so. Nevertheless, the Court clarified that such failure could not cure the inherent jurisdictional defect arising from an invalid show cause notice.

The Court made it clear that even though the taxpayer had not filed a detailed response before the adjudicating authority, the absence of the statutory ingredients necessary for invoking Section 74 rendered the entire proceedings unsustainable. 

Accordingly, the Karnataka High Court allowed the writ petition and quashed both the adjudication order dated February 24, 2026, and the summary order issued in Form GST DRC-07.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: GST SCN Generated Using AI Tool Quashed: Punjab & Haryana High Court