Facts of the Case

  • The Petitioner's Business Profile: The Petitioner, M/s. KSPS Natarajan and Co. (represented by its partner Mr. M. Vairavel), is a partnership firm engaged in trading activities.
  • Nature of Turnovers: The entire operations and supplies dealt with by the petitioner consist strictly of exempted goods under the Goods and Services Tax framework, making their turnover entirely immune to tax liabilities.
  • The Assessment Proceeding: The Respondent authority initiated assessment proceedings against the petitioner for the Assessment Year (AY) 2021-2022 under Section 73 of the TNGST Act, 2017.
  • Omission to Respond: Due to pressing and unforeseen personal as well as business adversities, the petitioner could not file an appropriate reply to the dynamically issued Show Cause Notice (SCN) and failed to upload the crucial supporting documentary evidence on the portal to establish the tax-exempt status of their goods.
  • The Ex-Parte Orders: Because no response or supporting evidentiary documents were submitted, the State Tax Officer proceeded to pass an adverse, ex-parte assessment order dated December 17, 2025, along with Form GST DRC-07. A subsequent rectification order dated April 21, 2026, was also passed by the respondent, validating the original demand.
  • Consequential Recovery Action: Following the adjudication orders, the respondent commercial taxes department aggressively pursued recovery actions, resulting in the freezing/attachment of the petitioner’s operational bank accounts.

Issues Involved

  1. Whether the ex-parte assessment order passed under Section 73 of the TNGST Act, 2017, and the subsequent rectification order violate the principles of natural justice when the taxpayer failed to submit documentary evidence due to bona fide personal and business hardships?
  2. Whether an assessee whose transactions deal completely with tax-exempted goods can be burdened with an ex-parte tax liability merely on account of a procedural failure to upload supporting exemption certificates/documents within the stipulated timeline?
  3. Whether the High Court should entertain a writ petition under Article 226 without insisting on the mandatory statutory pre-deposit (typically 25% or 10%) when the matter falls within the limitation period and deals explicitly with zero-rated/exempted items under special circumstances?

Petitioner’s Arguments

  • Violation of Natural Justice: The learned counsel appearing for the petitioner, Mr. M. N. Bharathi, forcefully argued that the impugned orders were passed in gross violation of the principles of natural justice and judicial discipline, depriving the firm of a fair opportunity to defend its case.
  • Bona Fide Hardship: It was submitted that the failure to respond to the Show Cause Notice or upload the documentation was entirely unintentional and resulted purely from severe personal and business disruptions faced by the partner during the relevant period.
  • Absolute Tax Exemption: The petitioner maintained that the underlying goods are fully and unconditionally exempt from the levy of GST. Therefore, creating an artificial tax liability along with interest and penalties simply because of a digital upload omission is highly arbitrary, perverse, and violative of Articles 14 and 19(1)(g) of the Constitution of India.
  • Writ Maintainability: The petitioner emphasized that they are well within the permissible limitation window to file an appeal. They approached the High Court to seek a remand so that the true nature of their tax-exempt transactions could be placed before the evaluating authority.

Respondent’s Arguments

  • Due Procedural Process Followed: The learned Government Standing Counsel, Mr. R. Parthiban, appearing on behalf of the Commercial Tax Department, countered that the department had scrupulously followed the law. The department provided adequate and multiple opportunities to the taxpayer via notices on the GST portal.
  • Failure to Discharge Onus: The respondent argued that the statutory burden of proof to claim an exemption lies squarely on the shoulders of the assessee. Since the petitioner maintained complete silence and failed to upload any statutory records or proof of exemption during the adjudication phase, the officer had no alternative but to pass an ex-parte best-judgment assessment based on available records.
  • Alternative Remedy: While not aggressively contesting the remand under the court's discretion, the department implied that standard procedures require taxpayers to prefer statutory appeals and satisfy regular pre-deposit norms to contest tax demands.

Court Order / Findings

  • Recognition of Special Circumstances: The Hon'ble Madurai Bench of the Madras High Court, presided over by Mr. Justice D. Bharatha Chakravarthy, observed that in typical ex-parte tax remands, the court routinely directs the petitioner to deposit a percentage (normally 25%) of the disputed tax demand.
  • Dispensation of Pre-deposit: However, taking note of the unique and peculiar circumstances of this case—namely that the petitioner is well within the legal limitation period to agitate the issue and the goods handled are entirely exempted from tax—the Court explicitly waived the condition of making any prior monetary deposit.
  • Setting Aside of Impugned Orders: The High Court set aside the impugned assessment order dated December 17, 2025, alongside the consequential rectification order dated April 21, 2026.
  • De Novo Remand: The entire matter has been remanded back to the file of the Respondent State Tax Officer for comprehensive reconsideration.
  • Mandate to Taxpayer: The Court directed the petitioner to strictly appear before the respondent authority without fail, submit a detailed reply, and produce all relevant documentary proofs supporting their claim of exemption. The respondent must examine this fresh submission and pass an order in accordance with the law.
  • Lifting of Bank Attachment: Crucially, because the underlying assessment orders creating the demand were set aside, the High Court directed that any consequential attachment or freezing of the petitioner's bank accounts executed by the department stands lifted immediately. No costs were imposed.

Important Clarification

  • No Blanket Pre-Deposit Rule for Exempted Goods: This ruling clarifies that the standard judicial practice of demanding a 25% pre-deposit as a condition precedent for remanding ex-parte GST assessments back to the department can be completely bypassed by High Courts under Article 226. If a taxpayer can prima facie demonstrate that the goods are entirely tax-exempt and that the writ was moved within the statutory limitation timeframe, demanding a pre-deposit is deemed unjust.
  • Automatic Reversal of Recovery Actions: When an impugned assessment order is quashed and remanded by a constitutional court, all consequential recovery protocols (including bank account attachments under Section 79 of the GST Act) become legally unsustainable and must be raised immediately to protect the taxpayer’s right to carry on business.

Section Involved

  • Section 73 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 for any reason other than fraud or any willful-misstatement or suppression of facts).
  • Article 226 of the Constitution of India (Writ jurisdiction for enforcement of fundamental rights and principles of natural justice).

Link to download the order - https://mytaxexpert.co.in/uploads/1783060055_321compressed.pdf

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