The Karnataka High Court stated that proceedings under section 74 of the Central Goods and Services Tax (CGST) Act, 2017, cannot commence unless the Show Cause Notice specifically alleges fraud, wilful misstatement, or suppression of facts.
The bench of Justice B.M. Shyam Prasad holds that such allegations are a jurisdictional requirement for invoking the extended limitation and penal provisions u/s 74, and it thus set aside the adjudication order passed against the taxpayer for the absence of jurisdiction.
On February 24, 2026, the applicant contested the adjudication order and the related summary order in Form GST DRC-07 issued by the Commercial Tax Officer u/s 74(9) of the CGST, KGST, and IGST Acts for the tax period from April 2019 to March 2020.
The dispute has arisen post-issuance of the summons to the petitioner on January 20, 2025, by the Joint Commissioner of Commercial Taxes, which asked the petitioner to explain an alleged mismatch between the taxpayer’s GSTR-3B returns and GSTR-2A. The counsel of the applicant appeared before the authorities, but no reply was submitted. Afterwards, the department issued an SCN in Form GST DRC-01 dated September 30, 2025, proposing action u/s 74 of the GST Act. Subsequently, an adjudication order confirming the tax demand was passed on February 24, 2026.
The applicant before the High Court claimed that section 74 could not be invoked because the SCN contained no allegation of fraud, wilful misstatement, or suppression of facts. It mentioned that while proceedings for the following fiscal year had been initiated u/s 73, the department had invoked section 74 for the corresponding assessment year only to overcome the limitation mentioned under the GST law.
HC considered the taxpayer’s claim and noted that the SCN was silent on any allegation of fraud or deliberate suppression. The Court outlined that these are not only procedural provisions but jurisdictional facts that should exist before the authorities can correctly assume jurisdiction u/s 74.
The Court observed that the State could not contest the fact that the show-cause notice lacked any allegations that would allow for a reasonable inference of fraud or deliberate suppression. Without these crucial allegations, the proceedings initiated u/s 74 were fundamentally lacking in jurisdiction.
Additionally, the High Court noted that the petitioner’s representative had requested extra time to file a response and had promised to submit documents by February 7, 2026, but failed to do so. However, the Court said that this failure did not rectify the inherent jurisdictional defect resulting from an invalid show-cause notice.
The Court said that even though the taxpayer had not submitted a detailed reply before the adjudicating authority, the lack of statutory ingredients essential for invoking section 74 rendered the complete proceedings unsustainable.
Therefore, the Karnataka High Court permitted the writ petition and set aside the adjudication order dated February 24, 2026, and the summary order issued in Form GST DRC-07.
| Case Title | M/S Pokala Malleswara Reddy vs. Commercial Tax Officer Audit |
| Case No. | WRIT PETITION NO. 10090 OF 2026 |
| For Petitioner | Sri. Sandeepani A. Neglur, Advocate |
| For Respondent | Sri.k. Hema Kumar, AGA |
| Karnataka High Court | Read Order |
