Facts of the Case

  • The petitioner, Tvl. T. Sivakumar, operates as a small-scale contractor subject to GST compliances.
  • For the Assessment Year (AY) 2020-21, the Respondent authority (The Deputy State Tax Officer - 1, Thanjavur) initiated assessment proceedings under Section 73 of the TNGST Act, 2017.
  • The Revenue department detected an alleged discrepancy by matching the data available in Form GSTR-07 (TDS returns filed by Government deductors who made payments to the contractor) against Form GSTR-09 (Annual Return).
  • The Assessing Officer assumed that the petitioner had filed a "Nil" turnover GSTR-09 return or failed to account for the revenue reflected in the TDS certificates. Based entirely on this numerical mismatch, the department presumed that the differential turnover constituted suppressed outward taxable supplies.
  • Consequently, a tax demand totaling Rs. 8,32,130/-, along with applicable interest and penalties, was raised. Since the petitioner did not respond to the online alerts or participate in the personal hearings, the Assessing Officer passed an ex parte assessment order dated 29.01.2025.

Issues Involved

  • Whether an assessment order treating the entire turnover gap between Form GSTR-07 and Form GSTR-09 as "suppressed outward supply" is legally sustainable when the assessee is legally exempted from filing Form GSTR-09 under Section 44.
  • Whether the ex parte assessment order violated the core principles of natural justice given that the notices were merely uploaded on the digital portal without ensuring successful real-world communication to a small-scale dealer.
  • Whether data from a TDS return (GSTR-07) can be automatically treated as the final taxable turnover of a contractor without factoring in retention money, running bills, and timing differences.

Petitioner’s Arguments

  • Exemption from GSTR-09: The petitioner argued that being a small contractor, he was legally exempted from filing the annual return in Form GSTR-09 for AY 2020-21 under the provisions of Section 44 of the Act read with specific statutory notifications. Therefore, comparing GSTR-07 data against a non-filed or non-applicable GSTR-09 return is a fundamentally flawed approach.
  • Nature of GSTR-07 Data: The petitioner emphasized that Form GSTR-07 is simply a compilation of TDS withheld by government departments. It reflects cash flows, advances, running bills, or retention money that could span multiple financial periods and cannot blindly be equated with the actual taxable outward turnover of a specific financial year.
  • Reason for Non-Compliance: The petitioner explained that he is a small contractor who completely relied on a part-time accountant to manage his GST portal dashboard. The accountant failed to check the portal, missed the dynamic links, and did not notify the petitioner about the ongoing show-cause notices or show-cause hearing schedules.
  • Lack of Direct Communication: The entire communication took place via the portal dashboard. Due to a lack of technical knowledge and direct personal alerts, the petitioner remained completely unaware of the adverse tax proceedings until the final ex parte order was issued. He expressed total readiness to submit a thorough reconciliation statement mapping his books of accounts with Form GSTR-1 and Form GSTR-3B.

Respondent’s Arguments

  • The Revenue, represented by the Government Advocate, supported the validity of the impugned order.
  • It was argued that the department had strictly complied with the law by providing multiple, successive opportunities to the taxpayer via the official GST portal.
  • The respondent maintained that since the petitioner chose not to utilize the statutory windows provided to file objections or attend the personal hearings, the assessing officer was left with no option but to pass an order on merits based on the data available on record.

Court Order / Findings

  • The Hon'ble Madras High Court (Madurai Bench), presided over by Justice D. Bharatha Chakravarthy, reviewed the summary details of the mismatch alongside the explanations given by the contractor.
  • The Court recognized that while the department had technically provided digital opportunities, the dealer's failure to respond was rooted in a genuine dependency on an irresponsible part-time accountant and an overall lack of awareness regarding portal alerts.
  • On equitable grounds, the Court deemed it appropriate to grant the assessee a fresh opportunity to prove his case on merits, but balanced the revenue's interest by imposing a monetary check.
  • The writ petition was allowed with the following operational directions:
    1. The petitioner must deposit 25% of the disputed tax amount with the respondent department within four weeks of receiving the web copy of the judgment.
    2. Promptly upon making this 25% pre-deposit, the impugned ex-parte assessment order dated 29.01.2025 stands set aside, and the entire matter is remanded back to the assessing officer for a fresh look.
    3. The petitioner is mandated to appear before the assessing officer without fail to present his complete books, GSTR-1, GSTR-3B reconciliation, and supporting documentation.
    4. Consequent to the setting aside of the assessment order, any consequential bank account attachments executed by the department shall stand raised (quashed) immediately.

Important Clarification

  • Flawed Mismatch Methodology: This ruling underscores that the tax department cannot establish a sustainable case of "tax suppression" simply by running automated data matches between GSTR-07 (TDS) and GSTR-09. If a taxpayer is legally exempt from filing an annual return (GSTR-09), drawing adverse inferences from its non-filing or a mismatch is an arbitrary and legally unsustainable practice.
  • Conditional Relief for Portal Failures: The judgment reinforces a growing judicial trend: where taxpayers miss notices due to portal oversight or technical errors by intermediaries, courts are willing to restore their right to be heard under Article 226. However, this relief is usually conditional upon a partial pre-deposit (25% in this case) to ensure the bona fides of the taxpayer.

Section Involved

  • Section 73 of the Central Goods and Services Tax (CGST) Act, 2017 / Tamil Nadu Goods and Services Tax (TNGST) Act, 2017: Deals with the determination of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilized for any reason other than fraud or willful misstatement.
  • Section 44 of the CGST Act, 2017: Governs the filing of Annual Returns (Form GSTR-09), providing exemptions to specific classes of taxpayers based on threshold limits and applicable government notifications.

Link to download the order - https://mytaxexpert.co.in/uploads/1783062025_337compressed.pdf

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