The Karnataka High Court has granted interim protection against proceedings initiated under Section 74 of the Central Goods and Services Tax Act, 2017 and the Karnataka Goods and Services Tax Act, 2017, after observing that a jurisdictional issue arises when the alleged turnover discrepancy was already known to the tax authorities during earlier proceedings under Section 73.
The bench of Justice B.M. Shyam Prasad observed that the Court must examine whether the extended limitation period under Section 74 can be invoked by alleging fraud, misrepresentation or suppression of facts when the authorities were already aware of the unreconciled turnover reflected in Form 26AS.
The dispute relates to the assessment year 2018-19. Earlier proceedings were initiated against the petitioner under Section 73 of the CGST/KGST Act based on information appearing in Form 26AS.
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According to the department, the petitioner had disclosed an unreconciled turnover of ₹3,56,12,621. Those proceedings culminated in an adjudication order confirming the demand.
The petitioner challenged the adjudication, but its writ petition was dismissed. The dismissal was subsequently upheld in a writ appeal, bringing the earlier round of litigation to an end.
After the disposal of the earlier proceedings, the GST department issued fresh show cause notices proposing action under Section 74 of the CGST/KGST Act. These notices were also based on turnover appearing in Form 26AS.
Section 74, as applicable to the relevant period, dealt with cases involving tax not paid, short-paid, erroneously refunded or input tax credit wrongly availed or utilised due to fraud, wilful misstatement or suppression of facts. It also permitted the department to invoke an extended period of limitation.
The petitioner questioned the jurisdiction of the authorities to initiate the subsequent proceedings under Section 74 when the alleged turnover discrepancy had already formed the basis of proceedings under Section 73.
The central question before the High Court was whether the department could invoke the extended limitation period by alleging fraud, misrepresentation or suppression when the relevant Form 26AS figures and the resulting turnover mismatch were already within its knowledge.
The Court noted that the earlier Section 73 proceedings had specifically been initiated on the basis of the unreconciled turnover found in Form 26AS.
It was only after those proceedings, including the writ proceedings, had concluded that fresh notices under Section 74 were issued on the basis of turnover reflected in the same Form 26AS.
Against this background, the Court formulated the issue as to whether the extended limitation period could be invoked on allegations of misrepresentation, fraud or suppression when the authorities already knew about the unreconciled turnover.
The High Court found prima facie that the petitioner’s challenge raised a question concerning the jurisdiction of the GST authorities.
The Court observed, “If it was within the authorities’ knowledge that there was an unreconciled turnover based on the figures in Form 26AS, can the extended period of limitation be invoked alleging misrepresentation of facts or fraud or suppression.”
In view of this issue, the Court held that the question relating to jurisdiction required examination and granted the interim order sought by the petitioner.
The interim protection will continue until further orders. However, the respondents have been granted liberty to complete their pleadings and apply for vacation of the interim order.
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