Facts of the Case

  • The Petitioner: Tvl.V.N.S.Construction is a proprietary concern engaged in execute-level contract works.
  • Nature of Operations: The petitioner rendered operations and maintenance services to the Tamil Nadu Water Supply and Drainage (TWAD) Board specifically tied to public water supply schemes.
  • The Assessment: The Respondent (State Tax Officer, Intelligence, Trichy) initiated proceedings under Section 74 of the TNGST Act for the Assessment Year 2019-20.
  • Revenue Allegations: The department alleged suppression of taxable turnover by comparing the figures reported in the petitioner's GSTR-3B/GSTR-9 returns with the TDS data reflected in Form GSTR-7. The department treated the TDS figures as undisclosed additional taxable turnover.
  • The Impugned Action: On January 29, 2026, the respondent passed a cryptic, ex-parte assessment order creating a tax liability demand of Rs. 19,15,554/-, supplemented by interest and heavy penalties. Consecutively, the petitioner's bank accounts were attached by the tax authorities to recover the demand.

Issues Involved

  1. Whether the respondent was legally justified in passing a cryptic, non-speaking, ex-parte assessment order under Section 74 by assuming that the petitioner failed to submit relevant records, even though detailed replies were filed.
  2. Whether Form GSTR-7 (TDS deductions) can serve as an absolute, independent metric to establish the taxability or alleged suppression of turnover without analyzing the underlying contract terms.
  3. Whether services related to the operation and maintenance of public water supply schemes under the TWAD Board qualify for absolute tax exemption under Notification No. 12/2017-Central Tax (Rate).
  4. Whether the mechanical rejection of the assessee's evidentiary documents constituted a patent violation of the principles of natural justice, warranting an unconditional remand under Article 226.

Petitioner’s Arguments

  • Exemption Status: The petitioner strongly argued that the services rendered to the TWAD Board are inherently immune to GST under Notification No. 12/2017-Central Tax (Rate) as they involve essential public utility operations (water supply).
  • Contractual Terms: Attention was drawn to Clause 4.12 of the bid document, which explicitly declared that GST was completely inapplicable to the contract.
  • Flawed Data Reliance: The petitioner contended that Form GSTR-7 represents nothing more than tax deducted at source by the deductor and cannot be mechanically extrapolated to classify an entire transaction as standard taxable turnover or deliberate suppression.
  • Active Participation Ignored: The petitioner proved that they had actively participated in the adjudication proceedings and submitted complete work orders, bid documents, and exemption records. The respondent erroneously recorded that documents were not provided and failed to apply its mind to the submissions.

Respondent’s Arguments

  • Failure to Avail Opportunity: The revenue argued that the assessment order was structurally made ex-parte because the petitioner failed to fully utilize the administrative opportunities extended to them during the standard assessment timeline.
  • Turnover Mismatch: The respondent justified the tax demand, interest, and penalty under Section 74 by pointing out the clear, unresolved arithmetic discrepancies between the formal turnover declared in GSTR-3B/GSTR-9 and the taxable streams mapped via GSTR-7 TDS records. Court Order / Findings
  • Denial of Natural Justice: The Hon’ble Madras High Court (Madurai Bench), presided by Mr. Justice D. Bharatha Chakravarthy, noted that the petitioner had actively submitted written objections and documents, which the respondent completely overlooked or mechanically rejected without reasons. This process effectively denied the petitioner a fair hearing.
  • Order Quashed & Remanded: The Court formally set aside the impugned assessment order dated January 29, 2026, and remanded the matter back to the respondent for a fresh, de novo assessment.
  • Unconditional Relief Granted: While the Court generally imposes pre-deposit conditions on equitable remands, it explicitly granted an unconditional remand in this case because the underlying commodity/service is prime facie completely exempt from GST.
  • Bank Attachment Lifted: Consequent to the setting aside of the assessment order, the Court directed the immediate lifting of all bank attachments executed against the petitioner's bank accounts. The petitioner was instructed to appear before the assessing authority to present their case afresh.

Important Clarification

  • TDS is Not Taxability: The judgment clarifies that Form GSTR-7 TDS data cannot be utilized as a standalone or conclusive proof of taxability or revenue suppression. The tax authorities must independently investigate the contractual nature, terms, and applicable exemption notifications of a transaction before creating demands under Section 74.
  • Conditional vs. Unconditional Remand: In normal cases, courts require a partial deposit to remand a matter back to the officer. However, if the transaction is clearly covered under an exemption notification (such as public water utility services), an unconditional relief is justified.

Section Involved

  • Section 74 of the Tamil Nadu Goods and Services Tax (TNGST) Act, 2017 (and the corresponding Central Goods and Services Tax Act, 2017).
  • Article 226 of the Constitution of India (Writ Jurisdiction for violation of the Principles of Natural Justice).
  • Exemption Notification No. 12/2017-Central Tax (Rate).

Link to download the order - https://mytaxexpert.co.in/uploads/1783063036_345compressed.pdf

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