Karnataka High Court Holds Taxpayer Entitled to Opportunity to Produce Records Before Adverse GST Order Is Passed

Karnataka High Court has ruled that a taxpayer must be afforded a meaningful opportunity to produce relevant documents and be heard before an adverse order is passed in GST adjudication proceedings. The decision came in a writ petition challenging an adjudication order that confirmed reversal of input tax credit (ITC), interest, and penalty on grounds of excess and wrongful availment of ITC and short declaration of turnover.

The petitioner contended that although a reply to the show-cause notice was filed, no personal hearing was granted, and the opportunity to present necessary records was denied. The adjudicating authority had observed that the petitioner failed to produce mandatory records such as loan agreements, board resolutions, ITC ledgers, and supporting documents required under Section 35(1) of the CGST Act and Rules 56 and 57. The authority concluded that the taxpayer did not discharge the burden of proof under Section 155 and confirmed the proposed reversal of ITC, interest, and penalty.

The High Court, after examining the adjudication order, noted that the issues involved were factually dense and required the furnishing of detailed records. The Court observed that the authority itself had highlighted the absence of specific documents and that the burden of proof lay on the taxpayer. However, the Court found it appropriate to grant the petitioner an opportunity to produce the necessary documents, especially in light of the authority’s own observations regarding the lack of evidence.

Accordingly, the Court set aside the adjudication order and remitted the matter for reconsideration by the respondent authority. The petitioner was directed to appear without further notice and to produce all relevant documents to substantiate its case. The Court emphasized that the burden remains on the petitioner to demonstrate its claims with proper documentation. The authority was directed to afford a personal hearing and consider the records produced before passing a fresh order.

Additionally, the Court set aside related recovery proceedings and imposed costs of Rs. 15,000 to be paid by the petitioner to the Karnataka Advocate’s Clerks Benevolent Trust. The judgment reinforces the principle that fair opportunity and adherence to principles of natural justice are essential before confirming adverse tax orders, particularly where the factual matrix is complex and documentary evidence is crucial.