The Karnataka High Court has granted interim protection to a taxpayer contesting GST proceedings initiated u/s 74 of the Central Goods and Services Tax Act, 2017, after stating that the petition raises a question of the jurisdiction of the adjudicating authority to invoke the provision for imposing interest and penalty despite the prior reversal of Input tax credit.
The bench of Justice B.M. Shyam Prasad passed the interim order while hearing a writ petition, which had approached the HC after its regulatory appeal against the adjudication order was quashed on limitation grounds.
The applicant contested the adjudication order and the tax authorities’ jurisdiction to initiate proceedings under section 74, claiming that the proceedings were contrary to the regulatory structure and breached the principles of natural justice.
The dispute began with a search performed at the premises of the applicant on 10 November 2020. After the search, the taxpayer reversed ITC of Rs 3.58 crore on 2 December 2020. Therefore, on 18 March 2021, the department issued an intimation in Form GST DRC-01A, referring to the search proceedings and the ITC reversal.
The applicant had said to the department earlier that ITC had been reversed, including with the applicable interest and a penalty computed at 15%. Even after that, the department had issued a show-cause notice proposing interest and penalty recovery for the amount, including the already reversed GST ITC, culminating in the impugned adjudication order.
The applicant’s representative, Senior Advocate V. Raghuraman, has said that the proceedings had been started only to levy interest and penalty even though the ITC had earlier been voluntarily reversed. He claimed that such a measure was not aligned with the regulatory scheme included in Section 74 of the CGST Act.
The applicant put reliance upon Sections 74(6) and 74(7) of the Act, claiming that if the adjudicating authority had any jurisdiction at all in the facts of the matter, it could have exercised powers merely u/s 74(7) rather than u/s 74(6).
The applicant mentioned that the adoption of the wrong regulatory norms rendered the proceedings without jurisdiction and thus obligated to be quashed. The Court has considered the submissions and examined the record and has determined that the case warrants interim protection.
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The Court grants the sought interim relief to the applicant, directing that the interim order shall remain in force until further orders. Meanwhile, the Court upheld the respondents’ liberty to finish their pleadings and seek vacation of the interim order or request an early disposal of the writ petition.
The HC called the respondent’s standing counsel to consider the notice and directed the counsel of the applicant to provide copies of the petition papers to the respondents’ counsel as soon as possible. The case will be re-listed on 29 July 2026 for further consideration.
| Case Title | Athreya Constructions Vs Additional Commissioner of Central Tax |
| Case No. | Wp No. 21982/2026 (T – Res) |
| Counsel For Appellant | Raghavendra C.R. |
| Counsel For Respondent | Jeevan J. Neeralgi |
| Karnataka High Court | Read Order |
