Facts of the Case

The petitioner, Tvl. Shri Ram Agencies (represented by its Proprietor R. Rajakumar), is a registered taxpayer under the GST regime engaged in distinct business operations, including a taxable recharge business and an exempt charcoal business. For the Assessment Year 2020-21, the Respondent authority (The Assistant Commissioner (ST)-1, Tuticorin) initiated assessment proceedings alleging a substantial mismatch between the returns filed.

Specifically, the department alleged an excess availment of Input Tax Credit (ITC) amounting to ₹20,49,702/-. This demand was framed based on inconsistencies discovered across the portal data, specifically contrasting forms GSTR-1, GSTR-2A, and the annual return GSTR-9. Additionally, the department alleged that the petitioner failed to execute the mandatory reversal of common credit under Rule 42 concerning its exempt charcoal business. Treating the duplicated invoices appearing on the portal as unaccounted taxable turnover, the Respondent passed an ex parte assessment order dated 01.09.2025 under Section 73, levying the tax demand along with applicable interest and penalties. The petitioner approached the High Court via a Writ Petition challenging the validity of this order.

Issues Involved

  1. Whether the Respondent authority was justified in passing a cryptic, ex parte assessment order solely relying on automated portal data discrepancies without conducting a meaningful verification of the physical books and external reconciliation statements submitted by the assessee?
  2. Whether a technical portal glitch causing a duplication of GSTR-1 invoices (pertaining to Tata Play Limited) can be automatically treated as suppressed taxable turnover without cross-verifying the actual tax discharge through Form GSTR-3B and subsequent credit note rectifications?
  3. Whether the mechanical demand for a Rule 42 ITC reversal is legally sustainable when the taxpayer maintains entirely separate accounts for taxable operations and exempt supplies, thereby claiming no common input tax credit?
  4. Whether the impugned assessment order violated the fundamental principles of natural justice, necessitating a remand for de novo adjudication under equitable conditions.

Petitioner’s Arguments

  • Technical Glitch and Invoice Duplication: The learned counsel for the petitioner, Mr. N. Sudalai Muthu, vehemently argued that the alleged turnover discrepancy did not represent actual hidden revenue but was the outcome of a systemic technical glitch on the GST portal. Invoices relating to Tata Play Limited, which were already reported and properly taxed during the period from April 2021 to July 2021, were automatically duplicated by the portal into the GSTR-1 generated for August 2021.
  • No Loss to Revenue: It was emphasized that the actual tax liability for the genuine invoices had already been fully discharged via Form GSTR-3B filings. The accidental duplication was later rectified systematically via the issuance of credit notes and captured transparently during the annual reconciliation in Form GSTR-9; hence, there was zero suppression of turnover or revenue loss to the government exchequer.
  • Maintenance of Separate Accounts: Regarding the Rule 42 allegations, the petitioner asserted that they strictly maintained separate books of accounts for the taxable recharge business and the exempt charcoal business. Because no common ITC was ever claimed or utilized for the exempt segment, the question of reversing credit under Rule 42 does not arise.
  • Failure to Verify Records: The petitioner stated that they had actively participated in the adjudication process by filing detailed replies, invoice-wise breakdowns, sales registers, and ITC workings. They argued that the respondent completely failed to apply their mind to these documents, acting mechanically on the false assumption that portal data is final and absolute.

Respondent’s Arguments

  • Failure to Utilize Portal Opportunities: The learned Government Advocate, Mr. R. Parthiban, appearing on behalf of the revenue, submitted that the department had provided ample opportunities to the taxpayer to clarify the anomalies. Because the petitioner failed to adequately resolve the system-generated mismatches within the statutory timeframe, the authority was fully justified in finalizing the assessment ex parte.
  • Sanctity of GSTR-1 Data: The revenue contended that the primary basis of the assessment was the data uploaded by the taxpayer/vendors themselves in Form GSTR-1. Since the portal displayed clear mismatches between GSTR-1, GSTR-2A, and GSTR-9, the department had to act on the official figures to prevent potential revenue leakages. It was maintained that the onus lay strictly on the assessee to prove the systemic error at the initial stage.

Court Order / Findings

The Hon'ble Judge D. Bharatha Chakravarthy reviewed the records and observed that the dispute centered heavily on technical portal anomalies and specific accounting divisions that required meticulous factual verification. The Court found that the respondent officer had mechanically rejected the assessee’s explanations by blindly treating GSTR-1 portal figures as final without validating the transaction history with the third-party entity (Tata Play Limited) or analyzing the submitted credit notes.

Acknowledging that the High Court routinely extends opportunities on equitable grounds to ensure a fair trial, the Court passed the following directions:

  1. The Writ Petition was allowed, and the impugned assessment order dated 01.09.2025 was set aside on the condition that the petitioner deposits 25% of the disputed tax amount with the respondent within four weeks of receiving the order copy.
  2. Upon confirmation of the 25% pre-deposit, the entire matter stands officially remanded back to the assessing officer for fresh consideration.
  3. The petitioner is directed to appear before the respondent without fail, presenting all supporting documentation, sales registers, and reconciliation statements, which the respondent must evaluate afresh in accordance with the law.
  4. Consequent to the setting aside of the demand order, any bank account attachments executed by the department pursuant to the impugned order were ordered to be lifted immediately.

Important Clarification

This ruling reinforces a vital legal principle in contemporary tax jurisprudence: GST Portal data entries are not absolute truths. Automated system mismatches (GSTR-1 vs. 2A/3B/9) are merely flags for inquiry and cannot serve as the sole conclusion for a tax demand under Section 73. If a taxpayer produces corroborative evidence demonstrating portal duplication, credit notes, or the segregation of accounts for exempt businesses, the tax authorities are legally obligated to execute a substantive, manual verification of the books rather than passing mechanical, cryptic ex parte orders.

Section Involved

  • Primary Section: Section 73 of the Central Goods and Services Tax (CGST) Act, 2017 and the Tamil Nadu Goods and Services Tax (TNGST) Act, 2017 (pertaining to the determination of tax not paid, short paid, erroneously refunded, or Input Tax Credit wrongly availed or utilized for reasons other than fraud, willful misstatement, or suppression of facts).
  • Procedural Provision: Article 226 of the Constitution of India (Writ Jurisdiction for Certiorarified Mandamus).
  • Rules Triggered: Rule 42 of the CGST/TNGST Rules, 2017 (Reversal of common Input Tax Credit on inputs and input services attributable to exempt supplies).

Link to download the order - https://mytaxexpert.co.in/uploads/1783061898_336compressed.pdf

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