Karnataka High Court Quashes GST Demand On Solar Plant For Lack of Personal Hearing, Remands Matter

The Karnataka High Court has held that the denial of Input Tax Credit (ITC) on capital goods and input services used for setting up a captive solar power plant is unsustainable where the adjudicating authority acted without jurisdiction and in violation of the mandatory requirement of granting a personal hearing under Section 75(4) of the CGST Act.

A Single Judge Bench of Justice Lalitha Kanneganti, passed the order on 21 January 2026, setting aside the GST demand raised against Shri Keshav Cements and Infra Ltd. The Bench noted that once a binding advance ruling existed in favour of the taxpayer, any adverse order passed without affording an opportunity of personal hearing stood vitiated. The Court also noted that though an appellate remedy existed under the Act, it was not applicable in the case at hand, given the binding nature of the advance ruling.

Justice Kanneganti clarified:

“When it comes to the effective alternative remedy, this Court finds force in the argument of the learned counsel appearing for the petitioner that, when the authority who has refused the advance rulings is superior to the Appellate Authority, in the facts and circumstances, it cannot be termed as an effective alternative.”

The petitioner, a cement manufacturing company, had set up a 20 MW captive solar power plant in Karnataka pursuant to authorisation granted by the State Government. The plant became operational from 1 April 2018. The electricity generated was used exclusively for captive consumption in its cement manufacturing units. The petitioner later obtained permission for an additional 10 MW solar plant at the same location.

After commissioning of the solar plant, the petitioner approached the Karnataka Authority for Advance Ruling, seeking clarification on eligibility to claim ITC on capital goods and input services used for erection, installation and commissioning of the solar power plant. The Authority allowed ITC on inputs and input services where the electricity generated was captively consumed and clarified that ITC on plant and machinery would be available subject to statutory exclusions relating to land, buildings and civil structures.

Despite this advance ruling, the Department, during audit proceedings for the period April 2021 to March 2022, disallowed ITC on insurance and financial services related to the solar power plant, as well as on works contract services, construction and vehicle repairs. It issued a show cause notice and later, by an order dated 12 November 2025, the Deputy Commissioner of Commercial Taxes confirmed a demand of Rs. 7.23 crore against the petitioner.

The petitioner contended that the impugned order was passed without granting a personal hearing as mandated under Section 75(4) of the CGST Act, despite an adverse decision being contemplated. It also argued that the appellate remedy under Section 107 was not efficacious since the Authority for Advance Ruling, whose decision was binding, was superior to the Appellate Authority. Opposing the writ petition, the Department made submissions on maintainability.

The High Court rejected the objections by the Department holding that the failure to grant a personal hearing went to the root of jurisdiction. It quashed the GST demand and remanded the matter to the adjudicating authority for fresh consideration after affording the petitioner an opportunity of personal hearing in accordance with Section 75(4) of the CGST Act.

Accordingly, the Court disposed of the writ petition.

For Petitioner: Advocate Sangram S. Kulkarni