Facts of the Case

  • The petitioner, M/s. Prince Seafoods Exports, is a proprietary concern represented by its proprietor, S. Irudayaraj, dealing in seafood exports out of Thoothukudi, Tamil Nadu.
  • The respondent, The State Tax Officer (Roving Squad 1), Tirunelveli, initiated proceedings against the petitioner and subsequently passed an ex-parte assessment order dated February 27, 2026, under Section 74A of the TNGST Act, 2017, for the tax period 2024–25.
  • The ex-parte order was passed because the petitioner failed to respond to the opportunities, notices, and communications issued by the department.
  • Consequent to the final assessment order, actions including the attachment of the petitioner’s operational bank account were implemented by the tax authorities to recover the outstanding demand.
  • Aggrieved by the lack of opportunity and the ex-parte nature of the order, the petitioner approached the Madurai Bench of the Madras High Court via a Writ Petition challenging the jurisdiction and procedural validity of the order.

Issues Involved

  • Whether the ex-parte assessment order passed under Section 74A of the TNGST Act, 2017, violated the principles of natural justice when all notices, communications, and summons were uploaded strictly on the GST web portal without alternative physical intimations.
  • Whether the respondent authority was legally justified in demanding a higher tax rate of 18% under the Reverse Charge Mechanism (RCM) on freight charges instead of the 5% applicable rate for Goods Transport Agency (GTA) services.
  • Whether interest under Section 50 and severe penalties under Section 74A could be sustained in the absolute absence of fraud, willful misstatement, or intentional suppression of facts by the taxpayer.

Petitioner’s Arguments

  • Lack of Effective Notice: The petitioner contended that the respondent chose to upload all notices, summons, and communications exclusively to the online web portal. The petitioner's part-time accountant failed to track the online dashboard updates, resulting in the petitioner completely missing the proceedings until the ex-parte order was issued.
  • Incorrect Tax Rate on RCM Freight: On merits, the petitioner argued that the alleged discrepancy regarding tax due under the Reverse Charge Mechanism (RCM) on freight charges was miscalculated. The freight related entirely to Goods Transport Agency (GTA) services, which legally attract a 5% tax rate under RCM rather than the 18% demanded by the officer.
  • Absence of Intentional Tax Evasion: The petitioner asserted that there was no fraud, willful misstatement, or suppression of facts on their part. Consequently, the invocation of penal provisions under Section 74A and interest obligations under Section 50 was legally unsustainable under the facts of the case.

Respondent’s Arguments

  • The revenue department, represented by the Government Standing Counsel, argued that ample statutory opportunities were extended to the taxpayer through the online portal as prescribed under the GST framework.
  • The respondent maintained that since the dealer consistently failed to utilize the windows provided to file explanations or present books of accounts, the assessing officer had no option but to finalize the assessment ex-parte based on the available material discrepancies.

Court Order / Findings

  • The Court took note of the distinct discrepancies highlighted, the explanation given by the assessee on merits, and the core operational reason (oversight by a part-time accountant regarding portal entries) that prevented them from utilizing the personal hearing opportunities.
  • Observing that the High Court routinely provides relief on equitable grounds to ensure justice is served, the Hon'ble Judge decided that the petitioner deserved a fair chance to present their defense and place relevant documentation before the assessing officer.
  • To balance equity and secure revenue interests, the Court allowed the writ petition on a conditional basis, ordering the petitioner to deposit 25% of the disputed tax amount within four weeks of receiving the order’s web copy.
  • The Court ruled that upon the completion of this 25% pre-deposit, the impugned assessment order dated February 27, 2026, would stand officially set aside, and the entire matter would be remanded back to the respondent for fresh evaluation.
  • The petitioner was strictly directed to appear before the respondent without fail, submit a comprehensive reply, and supply all supporting evidence. The respondent is required to review the submissions fresh and pass a lawful order.
  • Crucially, because the original assessment order was set aside, the Court directed that any active attachment on the petitioner’s bank account made pursuant to the impugned order must be lifted immediately.

Important Clarification

  • Portal Monitoring Diligence: Taxpayers cannot completely absolve themselves of statutory liabilities by citing an accountant's failure to check the web portal. However, courts may grant equitable relief and remand matters back if the taxpayer demonstrates a bonafide defense on merits (such as proving a lower tax bracket like 5% RCM vs 18%).
  • Pre-deposit for Remand: Getting an ex-parte GST order set aside on the grounds of natural justice via a Writ Petition frequently comes with a court-mandated condition to deposit a portion (in this case, 25%) of the disputed tax demand.
  • Bank Attachment Dissolution: Once an underlying assessment order is set aside by a High Court order, any consequential recovery actions, including bank account freezings, lose their legal foundation and must stand raised.

Section Involved

  • Section 74A of the Tamil Nadu Goods and Services Tax (TNGST) Act, 2017 / CGST Act, 2017: Deals with the determination of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilized by reason of fraud, willful misstatement, or suppression of facts.
  • Section 50 of the GST Act: Pertains to the levy of interest on the delayed payment of tax.
  • Article 226 of the Constitution of India: Invoked by the petitioner to seek a Writ of Certiorari to quash the impugned assessment order.

Link to download the order - https://mytaxexpert.co.in/uploads/1783057469_302compressed.pdf

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