The Karnataka High Court has quashed a show cause notice (SCN) issued under Section 74 of the CGST Act against M/s NCS Pearson Inc., a U.S.-based company registered under GST in India. The company, which conducts computer-based tests including the GMAT in India, was accused of willful suppression of facts regarding the classification of its services. The case arose after the Appellate Authority for Advance Rulings (AAAR) reversed an earlier ruling, deciding that even tests involving human intervention (Type-III) fall under the category of Online Information Database Access and Retrieval (OIDAR) services, subject to GST.

Despite the company's challenge to this ruling being sub judice in the Karnataka High Court, the Directorate General of GST Intelligence (DGGI) issued the SCN alleging willful suppression and demanding tax payments for Type-III tests conducted between July 2017 and June 2021. The petitioner argued that the SCN was issued without jurisdiction since the issue was already under judicial consideration, and all relevant facts had been disclosed during the AAR and AAAR proceedings.

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The court ruled that the tax authorities cannot invoke Section 74 to reopen classification disputes that are already pending in court without clear evidence of suppression or fraud. As all pertinent facts had been disclosed, the extended limitation period under Section 74 was deemed inappropriate. The issuance of the SCN, despite the pending writ petition and interim relief, was found to be contrary to law and violative of Article 265 of the Constitution. Consequently, the SCN and related circulars were quashed to the extent they were found ultra vires.