The Karnataka High Court has quashed a GST adjudication order after finding that the same commercial tax officer had conducted the audit, issued the show-cause notice and subsequently adjudicated the proceedings.
The bench of Justice Jyoti M observed that an officer who initiated and completed the audit proceedings under Section 65 of the Karnataka Goods and Services Tax Act, 2017, could not thereafter issue the notice and decide the resulting adjudication proceedings.
“The respondent having initiated the audit proceedings could not have issued notice and adjudicated the proceedings,” the Court held while remanding the matter for fresh consideration by another proper officer.
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The writ petition was filed challenging a show-cause notice issued for the financial year 2017-18. The petitioner also sought the quashing of the consequential order dated December 26, 2023, passed under Section 73(9) of the KGST Act.
Section 73 deals with the determination of tax that has allegedly not been paid, has been short-paid or erroneously refunded, or where input tax credit has allegedly been wrongly availed or utilised for reasons other than fraud, wilful misstatement or suppression of facts.
The petition was heard by the Dharwad Bench of the Karnataka High Court. Advocate Shashank S. Hegde appeared for the petitioner, while Additional Government Advocate Nandini B. Somapur represented the tax department.
After examining the records and hearing the parties, the High Court noted that the respondent commercial tax officer had initiated an audit under Section 65 of the GST law and completed the audit report.
The same officer subsequently issued the show-cause notice, conducted the adjudication proceedings and passed the final order under Section 73(9).
The Court found this procedure impermissible. It held that the officer who initiated the audit proceedings could not also issue the notice and adjudicate the matter arising from that audit.
On this limited procedural ground, the Court concluded that the matter required remand to another officer.
The High Court quashed the adjudication order.
Although the petitioner had also sought the quashing of the show-cause notice, the operative directions specifically set aside the final adjudication order and restored the proceedings to the stage at which the petitioner was required to submit a reply to the notice.
The Court did not decide the substantive allegations contained in the audit report or the merits of the proposed tax liability.
The High Court directed the Joint Commissioner for Commercial Taxes to assign the matter to a proper officer other than the respondent who had passed the impugned order.
The newly assigned officer must reconsider the proceedings afresh from the stage of submission of the petitioner’s reply to the show-cause notice.
The Court also granted the petitioner liberty to raise all available contentions, including objections concerning the audit report. Those contentions must be examined by the newly assigned proper officer in accordance with law.
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