In a significant ruling, the Karnataka High Court has quashed a show-cause notice issued by the Directorate General of GST Intelligence (DGGI), Chennai, against NCS Pearson Inc., a Minnesota-based corporation that conducts GMAT exams in India. The court said the notice, alleging tax evasion through “wilful suppression,” was legally unsustainable.
Background
Pearson, which runs the Pearson Vue division, has long been administering computer-based tests, including the GMAT for the Graduate Management Admission Council (GMAC). The controversy arose over whether “Type-III” GMAT tests, which involve human scorers, should be treated as Online Information Database Access and Retrieval (OIDAR) services under GST.
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The company first sought clarity from the Authority for Advance Rulings (AAR) in 2020. While the AAR ruled that Type-III tests did not qualify as OIDAR, the Appellate Authority (AAAR) later overturned that finding. Pearson then approached the High Court, where proceedings are still pending. Despite this, the DGGI issued a show-cause notice in February 2024, demanding tax for the period between July 2017 and June 2021.
Court’s Observations
Justice S.R. Krishna Kumar examined the long trail of litigation and noted that the Revenue Department had full knowledge of Pearson’s services, given its participation before both AAR and AAAR.
“When the authorities themselves had access to all relevant details, it cannot be said that the petitioner suppressed information,” the court remarked.
The bench further underlined that for Section 74 of the CGST Act to apply, there must be clear evidence of “wilful suppression” with intent to evade tax. “Mere omission or difference of opinion on classification does not amount to wilful suppression,” the court observed.
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The judge also stressed that the issue of classification of Type-III tests is still sub judice before a Division Bench. Issuing a fresh show-cause notice while the matter was pending amounted to “arbitrary exercise of power.”
Decision
Concluding that the show-cause notice lacked jurisdictional basis and violated Article 265 of the Constitution (which prohibits tax collection without authority of law), the court quashed it. The ruling effectively shields Pearson from immediate tax recovery proceedings on Type-III tests until the broader classification issue is finally decided.
Case: M/s NCS Pearson Inc. v. Union of India & Ors.
Date: Judgment dated 16 July 2025
Case Number: Writ Petition No. 7635 of 2024 (T-RES)
