On 19th September 2025, Kirloskar Oil Engines Limited (KOEL) informed the stock exchanges, BSE and NSE, that it has received a Show Cause Notice under FORM GST DRC–01 from the Office of the Deputy Commissioner of State Tax, Pune, Maharashtra. This notice was issued under the provisions of the Central Goods and Services Tax Act, 2017, the Maharashtra Goods and Services Tax Act, 2017, and the Integrated Goods and Services Tax Act, 2017. The subject matter relates to the misclassification in outward supply due to HSN (Harmonized System of Nomenclature).

Details of the GST Show Cause Notice

The notice alleges that the company has engaged in misclassification of outward supply and, as a result, the tax authorities have raised a demand consisting of three components:

• Penalty of ₹76,47,755/-

• Interest of ₹3,20,37,279/-

• Tax demand of ₹4,05,52,111/-

In total, the amount demanded from the company stands at over ₹8 crore. This action comes under the regulatory framework aimed at ensuring that companies maintain compliance with accurate tax classification and reporting.

Company’s Statement and Regulatory Disclosure

The disclosure was made in compliance with Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR), including amendments and relevant SEBI circulars such as SEBI/HO/CFD/PoD2/CIR/P/0155 dated 11th November 2024 and SEBI/HO/CFD/CFD-PoD-2/CIR/P/2024/185 dated 31st December 2024.

The company clarified that while the notice involves significant monetary amounts, there is no material impact expected on its financial, operational or other business activities. This statement is significant as it reassures shareholders and stakeholders that the company’s day-to-day functioning will remain unaffected.

Implications for Kirloskar Oil Engines

Receiving a GST show cause notice can have multiple implications:

• Reputational Risk: Even if the company believes there is no material impact, regulatory actions often affect investor sentiment.

• Financial Exposure: The demand raised is above ₹8 crore, which, though not material for a company of KOEL’s size, still reflects compliance issues that need addressing.

• Regulatory Scrutiny: The fact that the notice is issued for misclassification under HSN indicates stricter oversight of compliance practices.

SEBI LODR and Corporate Governance Compliance

By disclosing the notice under Regulation 30 of SEBI LODR, KOEL has demonstrated adherence to corporate governance norms. SEBI mandates that all material events or information which may have a bearing on the performance or financial position of a company must be promptly disclosed to stock exchanges.

This transparency helps investors make informed decisions and ensures that the market is not misled by withholding critical information. In this case, the disclosure also included Annexure A, which clearly lays out:

1. The name of the authority issuing the notice.

2. Nature and details of the action.

3. Date of receipt of the communication.

4. The violation or contravention alleged.

5. The expected impact on the company’s operations.

Broader Context of GST Notices in India

Since the introduction of GST in 2017, the Indian tax system has undergone significant reforms. Companies are required to carefully classify their supplies under the HSN Code system, which ensures uniformity and accuracy in taxation.

Misclassification in HSN can lead to short payment of taxes, penalties, and interest. In recent years, several corporates have faced show cause notices for errors in classification, undervaluation, or ineligible input tax credit claims. The Kirloskar Oil Engines case is part of a wider trend where tax authorities are tightening enforcement to ensure higher compliance.

Investor Perspective

For investors, the key point is that Kirloskar Oil Engines has stated there will be no material impact. However, investors often remain cautious whenever regulatory or tax disputes arise. The ₹8 crore demand, while relatively small compared to KOEL’s revenues, still represents a risk factor that will be monitored until resolution.

The management’s stance that there is no significant effect on finances or operations helps maintain confidence in the company’s stability. Nevertheless, the resolution of the issue with tax authorities will be closely watched by analysts and shareholders.

Conclusion

The GST Show Cause Notice issued to Kirloskar Oil Engines highlights the importance of accurate tax classification and compliance in India’s GST framework. While the notice involves a tax demand, penalty, and interest totalling more than ₹8 crore, the company has clarified that its financial and operational stability remains unaffected.

By promptly disclosing the development under SEBI LODR requirements, KOEL has ensured transparency with the exchanges and its stakeholders. Moving forward, the focus will be on how the company addresses the notice, whether through clarification, litigation, or settlement with the tax department.

This development underlines a broader message for Indian corporates: compliance with GST and accurate classification under HSN codes is critical to avoid regulatory action.

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