Facts of the Case

  • The Petitioner, Tvl. Punitha Antony Store (represented by its Proprietor Rajaprakash), is a registered taxpayer under GST operating from Tirunelveli, Tamil Nadu.
  • The Respondent, the State Tax Officer (Roving Squad-2), initiated assessment proceedings against the petitioner for the Assessment Year 2023-24.
  • The Respondent raised a heavy tax demand amounting to ₹76,76,650/- under Section 74 of the TNGST Act, 2017.
  • This massive tax demand was computed based on alleged GSTR-2A vs GSTR-3B discrepancies, non-reversal of input tax credit (ITC) on supplier credit notes, purchase omissions, and gross bank credits.
  • Due to an acute lack of advanced GST portal knowledge, the petitioner completely relied on a part-time accountant. During the critical assessment phase, the regular accountant became unavailable and the proprietor had to travel outside the station for urgent business requirements.
  • Realizing the volume of documentation needed (including purchase notes, bank statements, books of accounts, and detailed GSTR reconciliations), the petitioner submitted a formal, written adjournment request dated August 18, 2025, seeking reasonable time to file a comprehensive reply.
  • Ignoring the adjournment request, the Respondent passed a highly cryptic, mechanical, and non-speaking assessment order dated February 5, 2026, without evaluating the merits or allowing effective production of records. Consequently, the petitioner's bank accounts were attached to recover the demand, forcing the petitioner to approach the High Court via a Writ Petition.

Issues Involved

  1. Whether the impugned assessment order passed under Section 74 of the TNGST Act, 2017, was arbitrary, cryptic, non-speaking, and unsustainable due to total denial of a reasonable opportunity of being heard, thereby violating the Principles of Natural Justice.
  2. Whether the Respondent revenue authority was justified in legally treating gross bank credits (which purely comprised financial assistance and bank loans) as taxable business turnover under GST without verifying source documents.
  3. Whether the tax department can simultaneously penalize an assessee for lesser availment of ITC while making duplicate, overlapping demands under heads like excess ITC availment, purchase omissions, and non-reversal of supplier credit notes for the very same transactions.

Petitioner’s Arguments

  • Violation of Natural Justice: The petitioner argued that the impugned order was passed mechanically without considering their written adjournment letter dated August 18, 2025. No effective opportunity was granted to reconcile complex figures.
  • Erroneous Inflation of Taxable Turnover: The petitioner strongly contended that the department wrongfully included absolute bank credits, financial loans, advances, and non-GST assistance under the ambit of taxable turnover. A bank loan cannot be structurally categorized as an outward supply or taxable business turnover.
  • Overlapping and Double Taxation: The petitioner pointed out that the revenue department duplicated identical transactions under multiple conflicting labels (such as lesser availment of ITC vs excess claim of ITC, purchase omission, and turnover suppression). It is logically impossible to concurrently accuse a dealer of under-availing ITC and over-claiming ITC on the exact same pool of transactions.
  • Automatic ITC Adjustments: Regarding the non-reversal of supplier credit notes, the petitioner submitted that corresponding ITC modifications are automatically captured dynamically on the GST portal, and forcing a manual double reversal amounts to unfair double taxation.

Respondent’s Arguments

  • Failure to Utilize Opportunities: The Respondent revenue authority, represented by the Government Standing Counsel, argued that the department followed due statutory process and provided multiple opportunities to the taxpayer during the assessment phase.
  • Lack of Documentary Submission: The revenue contended that the petitioner failed to furnish the required documentary evidence, reconcile their books, or clear the discrepancies matching GSTR-2A with GSTR-3B on the portal within the stipulated timeline.
  • Validity of the Assessment: The department maintained that in the absence of verified accounting books, reconciliations, or direct evidence distinguishing the bank credits, the officer was legally sound in computing the tax liabilities under Section 74 based on visible systemic mismatches.

Court Order / Findings

  • The Single Bench of Hon'ble Justice D. Bharatha Chakravarthy reviewed the nature of the tax discrepancies, the explanation provided by the assessee, and the real difficulties faced in managing the portal due to the absence of the accountant.
  • Equitable Relief Granted: The High Court observed that this was a fit case to grant the taxpayer a fair and conditional opportunity to place all source documents and reconciliations on record before the assessing officer.
  • No Pre-deposit Condition: Generally, the Court attaches monetary conditions (like pre-depositing a percentage of the disputed tax) when remanding matters. However, noting that the discrepancy predominantly related to a verified bank loan obtained by the petitioner being wrongly taxed as turnover, the Court chose not to impose any additional monetary condition.
  • Final Directions:
    1. The impugned assessment order dated February 5, 2026, was officially set aside, and the entire matter was remanded back to the Respondent for fresh reconsideration.
    2. The petitioner was directed to appear before the assessing authority without fail, submit a thorough written reply, and produce all necessary supporting books and bank records.
    3. As the main assessment order was quashed, the High Court directed that any consequential attachment made on the petitioner's bank accounts stands raised immediately.
    4. The writ petition was allowed with no orders as to costs, and connected miscellaneous petitions were closed.

Important Clarification

Key Legal Takeaway: This judgment clarifies that tax authorities cannot blindly treat gross bank credits or bank loans as "taxable turnover" without examining financial realities. Furthermore, passing an assessment order by ignoring an assessee's written request for time to compile extensive accounting records constitutes a fatal procedural flaw that renders the final order invalid under Section 74.

Section Involved

  • Section 74 of the Tamil Nadu Goods and Services Tax (TNGST) Act, 2017 / Central Goods and Services Tax (CGST) Act, 2017 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful-misstatement or suppression of facts).
  • Article 226 of the Constitution of India (Writ jurisdiction exercised for violation of principles of natural justice).

Link to download the order - https://mytaxexpert.co.in/uploads/1783059804_320compressed.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.