“GST Audit Report u/s 65 (Form ADT-02) Cannot Be Revised U/S 108 of the GST Act: Karnataka High Court in NL Tile Art Pvt Ltd”.​

The Karnataka High Court has held that a GST audit report cannot be revised by invoking revisional powers under Section 108; if tax issues are found in audit, the department must proceed only under Sections 73 or 74 of the KGST/CGST Act.​

M/s. NL Tile Art Private Limited Versus Additional Commissioner of Commercial Taxes(Smr-2), Bangalore. 2026 (1) TMI 631 - KARNATAKA HIGH COURT No.- WRIT PETITION NO. 38051 OF 2025 (T-RES) Order Dated:- December 18, 2025

Background of the case

• The petitioner, M/s NL Tile Art Private Limited, challenged a show cause notice issued by the Additional Commissioner of Commercial Taxes (SMR-2), Bangalore under Section 108 of the KGST/CGST Act.​
• The notice proposed to “revise” an already issued GST audit report (ADT-02), without initiating any proceedings under Section 73 or Section 74 of the Act.​

Statutory framework and core issue

• Section 65(7) of the KGST Act provides that where, in the course of audit, instances of short payment, non-payment, erroneous refund or wrong ITC are detected, the proper officer shall initiate action under Section 73 or Section 74.​
• The core question before the Court was whether the department can bypass Sections 73/74 and instead use Section 108 (revisional powers) to “revise” the audit report itself.​

Court’s reasoning and reliance on precedent

• The Court noted that as on the date of the Section 108 notice, no proceedings under Section 73 or 74 had been initiated against the petitioner at all.​
• Relying on its earlier judgment in M/s Navayuga Engineering Company Limited v. Joint Commissioner of Commercial Taxes (order dated 18.11.2025), the Court reiterated that revisional powers under Section 108 cannot be invoked to revise an audit report; the only permissible course after an audit report is to proceed under Section 73/74, if warranted.​

Key findings of the Karnataka High Court

• A plain reading of Section 65(7) makes it incumbent upon the department to initiate action under Section 73 or Section 74 once an adverse audit position is crystallised in the audit report.​
• Initiating revisional proceedings under Section 108 merely to revise an audit observation/audit report is impermissible in law, arbitrary and without jurisdiction, when no Section 73/74 proceedings are on foot.​
• The Court also rejected the department’s objection that the writ was premature (being only at SCN stage), holding that a notice issued without jurisdiction under Section 108 can be quashed in writ despite the availability of an alternative remedy, following the principles laid down in Radha Krishan Industries v. State of Himachal Pradesh.​

Operative part of the order and practical implications

• The High Court allowed the writ petition and quashed the impugned revisional show cause notice issued under Section 108, holding it to be without authority of law.​
• However, liberty was expressly reserved to the department to initiate proceedings under Sections 73 or 74 in accordance with law, subject to all statutory limitations and defences available to the taxpayer.​

Takeaways for taxpayers and professionals

• Audit reports under GST (Form ADT‑02) are not “quasi-assessment orders” open to revision under Section 108; they are only a trigger for possible action under Section 73/74.​