The Karnataka High Court has passed an important interim order that could significantly influence future GST litigation across India. In M/s Velankani Information Systems Private Limited vs. Joint Commissioner of Central Tax & Others (WP No. 19603/2026), the Court has granted interim protection to the taxpayer while examining three critical GST issues that frequently arise during assessments and adjudication proceedings.
The order addresses the validity of issuing a single Show Cause Notice (SCN) covering multiple financial years, the denial of Input Tax Credit (ITC) due to GSTR-2A and GSTR-3B mismatches, and the eligibility of ITC on construction-related machinery and equipment used for commercial rental properties.
Justice B. M. Shyam Prasad stayed the immediate implementation of the adjudication order dated 30 March 2026, subject to specified conditions. The matter has been listed for further hearing on 18 August 2026.
Background of the Case
The petitioner challenged an adjudication order passed under Section 74 of the Central Goods and Services Tax (CGST) Act, 2017, covering tax periods from FY 2019-20 to FY 2022-23. The order resulted in a substantial tax demand, prompting the taxpayer to approach the Karnataka High Court.
The petitioner raised three major legal issues, each of which has wider implications for taxpayers facing GST investigations and assessments.
Issue 1: Validity of a Common Show Cause Notice for Multiple Financial Years
The primary issue before the Court is whether the GST department can issue a single Show Cause Notice (SCN) covering several assessment years instead of issuing separate notices for each tax period.
The petitioner argued that such common notices are legally questionable because each financial year involves independent tax liabilities, factual circumstances, and statutory limitations. According to the petitioner, combining multiple years into one notice may violate the procedural safeguards available under GST law.
The petitioner also pointed out that this issue is already pending before the Supreme Court. Earlier, a Division Bench of the Karnataka High Court had examined similar proceedings, and the legality of such common notices is yet to attain finality.
If the Supreme Court ultimately rules that common notices covering multiple tax periods are invalid, proceedings initiated through such notices may become jurisdictionally defective, potentially affecting numerous GST assessments across the country.
Issue 2: Denial of ITC Due to GSTR-2A and GSTR-3B Mismatch
The second issue relates to one of the most litigated aspects of GST compliance—the denial of Input Tax Credit because of differences between GSTR-2A and GSTR-3B.
The petitioner submitted that all purchases were genuine business transactions, the goods and services were actually received, and the applicable GST had been paid to the suppliers. Therefore, the recipient should not be penalised merely because certain suppliers failed to comply with their statutory filing obligations.
Reliance was placed on the Karnataka High Court’s earlier judgment in Instakart Services Private Limited v. Union of India, where the Court observed that a bona fide purchaser should not automatically lose ITC solely due to supplier defaults, provided the recipient has fulfilled all statutory conditions and acted in good faith.
This issue continues to affect thousands of taxpayers across India, especially where genuine businesses face ITC reversals because of supplier non-compliance beyond their control.
Issue 3: ITC on Construction Inputs Used for Commercial Rental Income
The third issue concerns the availability of Input Tax Credit on machinery and equipment used in constructing commercial buildings that are subsequently leased for taxable rental income.
The petitioner argued that these capital assets are directly connected with the generation of taxable outward supplies in the form of commercial leasing. Consequently, the related Input Tax Credit should be available under the GST framework.
The petitioner also relied upon an earlier interim order of the Karnataka High Court involving similar facts, where interim protection had been granted subject to maintaining 10% of the disputed ITC in the Electronic Credit Ledger.
The question of whether construction-related inputs qualify for ITC when the completed property is used for taxable leasing continues to be an important and evolving area of GST jurisprudence.
Karnataka High Court Grants Interim Protection
After considering the submissions made by both sides, Justice B. M. Shyam Prasad granted interim relief to the petitioner.
The Court stayed the operation of the adjudication order, subject to the condition that the petitioner maintains at least 10% of the disputed Input Tax Credit relating to rental income in its Electronic Credit Ledger until further orders.
The respondents have been permitted to file their detailed objections and may seek modification or vacation of the interim relief during the next hearing.
The matter is now scheduled to be heard on 18 August 2026.
Why This Order is Significant
Although this is only an interim order, it highlights three recurring legal controversies under the GST regime that affect businesses across sectors.
First, the decision keeps alive the debate on whether the GST department can legally issue one common Show Cause Notice for multiple assessment years.
Second, it reinforces judicial scrutiny over the practice of denying ITC merely because suppliers default in filing returns or paying tax, despite the recipient having acted bona fide.
Third, it revisits the contentious issue of ITC eligibility on construction-related machinery and equipment used for creating commercial properties that generate taxable rental income.
The final outcome of this case, along with the Supreme Court’s decision on common GST notices, is likely to shape future GST assessments and litigation involving Input Tax Credit across India.
Case Title: M/s Velankani Information Systems Private Limited vs. Joint Commissioner of Central Tax & Others
Case No.: WP No. 19603/2026
Court: Karnataka High Court
Coram: Justice B. M. Shyam Prasad
Next Date of Hearing: 18 August 2026