Facts of the Case

The petitioner, Tvl. VARS Enterprises, represented by its partner A. Ramanathan, approached the Madurai Bench of the Madras High Court under Article 226 of the Constitution of India.

The petitioner challenged the assessment order dated 29.08.2024 relating to Assessment Year 2019-20 and sought a Writ of Certiorari to quash the order as illegal and in gross violation of the principles of natural justice.

The impugned order was passed under Section 73 of the TNGST Act, 2017. The assessment was completed ex parte because the petitioner had not utilised the opportunities provided.

The detailed table reproduced on page 3 of the judgment identifies four separate discrepancies and records the assessee’s corresponding explanation:

  • Reconciliation of GSTR-1 with GSTR-3B
  • Input mismatch – GSTR-3B vs GSTR-2A
  • Declaration of ineligible ITC
  • Invalid ITC under Section 16(4)

The petitioner explained that it was ready to submit replies and connected records if one more opportunity was granted. It also stated that the impugned order had been uploaded on the GST portal without its knowledge and that its accountant had not informed it about the order.

Issues Involved

The principal issues before the High Court were:

  1. Whether the ex parte assessment order dated 29.08.2024 passed under Section 73 of the TNGST Act, 2017 could be sustained without considering the petitioner’s proposed explanations and supporting records.
  2. Whether there was any actual difference between GSTR-1 and GSTR-3B.
  3. Whether the alleged GSTR-3B vs GSTR-2A input mismatch resulted in excess ITC liability.
  4. Whether the petitioner was entitled to rely upon Circular No. 183/15/2022 dated 27.12.2022 in support of its ITC mismatch explanation.
  5. Whether the ITC claimed by the petitioner was genuinely ineligible or was attributable only to related business goods.
  6. Whether the ITC treated as invalid under Section 16(4) could be claimed as eligible by invoking Section 16(5).
  7. Whether the petitioner’s failure to participate was sufficiently explained by lack of knowledge of the GST portal-uploaded order and failure of its accountant to communicate the same.
  8. Whether the usual condition requiring deposit of 25% of the disputed tax amount should apply to the entire dispute or should exclude the portion claimed to be covered by Section 16(5).
  9. Whether any bank account attachment made pursuant to the impugned assessment should continue after setting aside of the assessment order.

Petitioner’s Arguments

The petitioner advanced separate explanations for each discrepancy.

1. GSTR-1 vs GSTR-3B Reconciliation

The petitioner contended that there was no difference between GSTR-1 and GSTR-3B.

It stated that it was ready to file:

  • a detailed reply; and
  • connected supporting records,

if granted one more opportunity.

2. Input Mismatch – GSTR-3B vs GSTR-2A

The petitioner contended that there was no excess claim of ITC under Section 16 of the Act.

It further stated that it was ready to file a reply with connected records in accordance with Circular No. 183/15/2022 dated 27.12.2022.

The petitioner’s position was that once the requirements of the said circular were complied with, no liability would arise under the GST Act.

3. Declaration of Ineligible ITC

The petitioner argued that ITC had been claimed only in relation to business-related goods.

Accordingly, it contended that the question of ineligible ITC did not arise.

4. Invalid ITC under Section 16(4)

The petitioner contended that its ITC claim was eligible under Section 16(5) of the GST Act.

The table in the judgment further records the petitioner’s statement that Section 16(5) was “introduced as per Section 128A of the Act.” On that basis, the petitioner contended that the question of belated ITC claim did not arise.

For accurate reporting, this is stated as the petitioner’s contention recorded in the judgment, without expanding or altering it.

5. Reason for Non-Participation

The petitioner explained that:

  • the impugned order had been uploaded on the GST portal;
  • the petitioner had no knowledge of it; and
  • the accountant had not informed the petitioner about the impugned order.

These submissions are specifically set out in the table on page 3 of the judgment.

Respondent’s Arguments

The respondent was represented by the learned Government Standing Counsel.

The judgment records that the Court heard both the learned counsel for the petitioner and the learned Government Standing Counsel for the respondent.

However, the order does not separately reproduce any detailed independent counter-submissions made by the respondent concerning:

  • GSTR-1 vs GSTR-3B reconciliation;
  • GSTR-3B vs GSTR-2A mismatch;
  • Circular No. 183/15/2022 dated 27.12.2022;
  • declaration of ineligible ITC;
  • Section 16(4);
  • Section 16(5); or
  • the petitioner’s request for a modified deposit condition.

Therefore, no additional argument should be attributed to the respondent beyond what the judgment expressly records.

Court Order / Findings

The Madras High Court considered:

  • the nature of the discrepancies;
  • the explanation provided by the assessee; and
  • the reason given before the Court for not availing the earlier opportunity.

The Court held that an opportunity could be granted to the assessee to:

  • present its submissions; and
  • produce relevant supporting documents before the respondent assessing officer.

The Court observed that such opportunities had been extended on equitable grounds, though under appropriate conditions.

Special Finding on the 25% Deposit Condition

The Court recorded that normally it imposes a condition requiring the petitioner to deposit 25% of the disputed tax amount.

However, learned counsel for the petitioner contended that a substantial portion of the disputed tax amount was covered by the ground raised with reference to the amendment to Section 16 through Section 16(5).

In view of that contention, the Court directed that, with reference to the portion claimed to come within the exemption under Section 16(5), the 25% deposit would apply only to the balance portion.

Accordingly, the Court ordered:

  • within four weeks from receipt of a web copy of the order, the petitioner shall deposit 25% of the disputed tax amount except the issue raised under Section 16(5) of the GST Act;
  • the petitioner need not wait for a certified copy;
  • upon such deposit, the impugned order dated 29.08.2024 shall stand set aside;
  • the matter shall stand remanded back to the respondent;
  • the assessee shall appear before the respondent without fail;
  • the assessee shall submit its reply and supporting documents;
  • the respondent shall reconsider the matter afresh and pass orders in accordance with law;
  • any bank account attachment made pursuant to the impugned assessment order shall stand raised;
  • no costs were awarded; and
  • the connected miscellaneous petition was closed.

The modified deposit reasoning appears on page 4, and the operative remand and bank-attachment directions continue on page 5.

Important Clarification

This judgment does not finally decide that the petitioner’s entire ITC claim is eligible.

It also does not conclusively determine that:

  • there was no GSTR-1 vs GSTR-3B difference;
  • there was no GSTR-3B vs GSTR-2A mismatch;
  • all disputed ITC related exclusively to eligible business goods;
  • Circular No. 183/15/2022 automatically eliminates the liability; or
  • every disputed ITC amount falls within Section 16(5).

Those propositions were part of the assessee’s explanation and contentions, which must now be considered afresh by the assessing authority.

The most important operative distinction is that the Court did not waive the 25% condition altogether. Instead, it modified the condition:

25% of the disputed tax amount is to be deposited, except in relation to the issue raised under Section 16(5).

Therefore, this is a conditional remand with a Section 16(5)-specific exclusion from the deposit base, not an unconditional setting aside of the assessment.

A further clarification is necessary regarding the phrase “exemption granted under Section 16(5).” The Court used that formulation while addressing the petitioner’s claim. The final eligibility and exact extent of any Section 16(5) benefit remain matters for fresh consideration; the High Court’s remand order should not be presented as a final merits determination of the entire ITC claim.

Sections Involved

Section 73 of the TNGST Act, 2017:
The impugned assessment order dated 29.08.2024 was expressly passed under this provision.

Section 16 of the GST Act:
The petitioner relied upon this provision while disputing the allegation of excess ITC.

Section 16(4) of the GST Act:
One of the discrepancies in the assessment was described as “Invalid ITC under Section 16(4)”, involving alleged belated ITC.

Section 16(5) of the GST Act:
The petitioner contended that the disputed ITC was eligible under this provision. The High Court expressly excluded the issue raised under Section 16(5) while calculating the portion on which the 25% disputed-tax deposit condition would apply.

Section 128A of the Act:
The assessee’s explanation, as reproduced in the judgment’s table, referred to this provision in connection with its Section 16(5) contention. This should be understood as a reference to the petitioner’s recorded submission.

Article 226 of the Constitution of India:
The writ petition was filed under this provision seeking a Writ of Certiorari.

Circular No. 183/15/2022 dated 27.12.2022:
The petitioner relied upon this circular in relation to the GSTR-3B vs GSTR-2A mismatch issue and proposed to furnish connected records in accordance with it.

Link to download the order -

https://mytaxexpert.co.in/uploads/1783068632_460compressed.pdf 

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