Facts of the Case

  • The Petitioner's Profile: The Petitioner, Tvl.V.N.S. Construction, is a small-scale contractor represented by its Proprietor, K. Vetrivel, engaged in civil construction and maintenance contracts.
  • Nature of Operations: The petitioner executed operation and maintenance contracts for public water supply schemes awarded by the Tamil Nadu Water Supply and Drainage (TWAD) Board. The bid documents and work orders explicitly recorded that GST was not applicable to these transactions.
  • The Dispute: The Revenue authorities initiated proceedings alleging suppression of taxable turnover for the Assessment Year 2024-25. This allegation was formulated solely based on the structural differences between the figures reflected in Form GSTR-7 (TDS deductions submitted by the deductor) and Form GSTR-3B (filed by the petitioner).
  • Assessment Conclusion: The Respondent treated the entire amount appearing in Form GSTR-7 as taxable additional turnover and passed an ex-parte assessment order dated 29.01.2026 under Section 74 of the TNGST Act, raising a total demand of Rs. 31,39,032/- along with applicable interest and penalty.
  • Reason for Non-Compliance: The petitioner failed to reply to notices or attend personal hearings as the notices were only uploaded online to the GST Portal. The petitioner was fully dependent on a part-time accountant who failed to communicate these intimations, while the proprietor was simultaneously undergoing medical treatment for severe cervical health complications. Consequently, the petitioner's bank account was attached by the department.

Issues Involved

  1. Whether an ex-parte assessment order passed under Section 74 of the TNGST/CGST Act without an effective personal hearing violates the principles of natural justice when the taxpayer has plausible reasons for non-compliance?
  2. Whether differences between Form GSTR-7 (TDS returns) and Form GSTR-3B can automatically be construed as suppressed taxable turnover without evaluating the intrinsic nature of the underlying contract and applicable statutory exemptions?
  3. Whether the services rendered to the TWAD Board fall within the ambit of exemption under Entry No. 3 of Notification No. 12/2017-Central Tax (Rate) as "pure services"?

Petitioner’s Arguments

  • Violation of Natural Justice: The petitioner argued that due to an unreliable part-time accountant and severe health issues (cervical complications), they were completely unaware of the notices uploaded to the GST portal, resulting in an institutional breakdown of the right to be heard.
  • Statutory Exemption on Merits: The petitioner contended that the services provided to the TWAD Board consisted of operation and maintenance contracts for public water supply schemes. These are "pure services" provided to a governmental authority in relation to functions entrusted to a municipality/panchayat under Articles 243G and 243W of the Constitution of India, making them fully exempt under Entry No. 3 of Notification No. 12/2017-Central Tax (Rate).
  • Evidentiary Invalidity of GSTR-7 Alone: The petitioner argued that Form GSTR-7 is merely a TDS reporting statement compiled by a third party and cannot independently serve as conclusive proof to determine the taxability of a transaction or establish deliberate suppression of turnover.

Respondent’s Arguments

  • Failure to Avail Opportunities: The Revenue argued that multiple notices and systemic opportunities for personal hearings were duly provided to the assessee via the common GST portal.
  • Validity of Ex-Parte Action: Since the petitioner failed to utilize the statutory opportunities or file detailed objections within the prescribed timelines, the assessing officer was legally justified in passing an ex-parte order based on the best judgment using available GSTR-7 TDS data.

Court Order / Findings

  • Unconditional Remand: The Hon'ble Madras High Court, presided by Mr. Justice D. Bharatha Chakravarthy, noted that while courts regularly extend opportunities to taxpayers on equitable grounds subject to certain financial conditions, an exception was warranted here.
  • Recognition of Exemption: The Court observed that the services rendered by the petitioner appeared to be genuinely exempted from GST under the law. Therefore, the Court granted the opportunity to the petitioner without imposing any pre-deposit condition.
  • Setting Aside Impugned Order: The Court set aside the impugned assessment order dated 29.01.2026 and remanded the matter back to the file of the Respondent for fresh adjudication.
  • Lifting of Bank Attachment: As a natural consequence of setting aside the assessment order, the Court directed that any attachment placed on the petitioner’s bank account pursuant to the impugned order stands raised immediately.
  • Direction to Co-operate: The petitioner was directed to appear before the assessing officer without fail and submit all necessary replies and supporting documents to allow the respondent to pass a fresh order in accordance with the law.

Important Clarification

This judgment clarifies an essential legal principle: Data discrepancies between GSTR-7 (TDS returns) and GSTR-3B cannot be automatically treated as taxable turnover without looking at the underlying nature of the transaction. Furthermore, when a prima facie perusal of the contract documents indicates that the service is completely exempt from GST (such as pure services given to governmental bodies under Notification No. 12/2017), the High Court can exercise its writ jurisdiction to bypass the strict rule of pre-deposits and grant an unconditional remand to protect the taxpayer against arbitrary ex-parte demands.

Section Involved

  • Section 74 / Section 74A of the Tamil Nadu Goods and Services Tax (TNGST) Act, 2017 / Central Goods and Services Tax (CGST) Act, 2017 (Determination of tax unpaid or short paid by reason of fraud or any willful-misstatement or suppression of facts).
  • Article 226 of the Constitution of India (Writ Jurisdiction for violation of principles of natural justice).

Link to download the order - https://mytaxexpert.co.in/uploads/1783063152_346compressed.pdf

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