Facts of the Case

The petitioner, M/s M. Kasiviswanathan, bearing GSTIN 33AULPK1021A1ZH, approached the Madurai Bench of the Madras High Court under Article 226 of the Constitution of India.

The petitioner challenged the assessment order dated 02.01.2025 relating to Assessment Year 2020-21 and sought issuance of a Writ of Certiorari to quash the order as:

  • without jurisdiction; and
  • in clear violation of statutory provisions.

The impugned assessment order was expressly passed under Section 74 of the TNGST Act, 2017.

The assessment was made ex parte because the petitioner did not utilise the opportunities provided during the proceedings.

The judgment identifies two principal grounds/discrepancies:

  • difference between contract receipts reported in Form GSTR-7 and Form GSTR-3B return; and
  • penalty under Section 74 and interest under Section 50 of the GST Act.

The detailed three-column table on page 3 of the judgment records the department’s discrepancies, the assessee’s explanation on merits and the reason for not availing the opportunity.

Issues Involved

The principal issues involved were:

  1. Whether the ex parte assessment order dated 02.01.2025 passed under Section 74 of the TNGST Act, 2017 could be sustained.
  2. Whether the difference between contract receipts appearing in GSTR-7 and GSTR-3B necessarily established tax suppression.
  3. Whether timing differences caused by government departments reporting transactions in GSTR-7 upon release of funds could explain the alleged mismatch.
  4. Whether the petitioner had already properly reported the work executed and paid the applicable tax.
  5. Whether invocation of Section 74 required establishment of:
    • fraud;
    • wilful misstatement; or
    • suppression of facts with intent to evade tax.
  6. Whether penalty under Section 74 and interest under Section 50 could be sustained without fresh consideration of the underlying discrepancy.
  7. Whether the petitioner’s reliance on GR Infra Projects Ltd., Ratlam vs State of Madhya Pradesh and Others, SLP No. 33594 of 2025 required consideration.
  8. Whether the petitioner’s non-participation could be reconsidered where a part-time accountant allegedly failed to notice proceedings and communications were uploaded on the web portal.
  9. Whether any further deposit condition should be imposed when 14% of the CGST demand and 38% of the SGST demand had already been recovered.
  10. Whether any bank account attachment made pursuant to the impugned assessment should continue after the order was set aside.

Petitioner’s Arguments

The petitioner submitted that, insofar as the discrepancy identified by the respondent was concerned, whatever work had been executed was properly reported and tax was paid.

The petitioner explained the GSTR-7 vs GSTR-3B difference on the basis of the timing and reporting practices of government departments.

According to the petitioner:

  • work executed for government departments would normally be reported in the relevant years;
  • government departments, in many cases, report the transactions in Form GSTR-7 only upon release of their funds;
  • at that stage, they pay/deduct TDS at 2%; and
  • this timing difference was the reason for the alleged variation.

The petitioner therefore disputed the inference that the mismatch justified proceedings under Section 74.

Petitioner’s Section 74 Argument

The petitioner specifically contended that for invocation of Section 74 of the GST Act, the following must be established:

  • fraud;
  • wilful misstatement; or
  • suppression of facts;
  • with intent to evade tax.

The petitioner’s case was that a mere difference between GSTR-7 and GSTR-3B, explained by the timing of government-department reporting and fund release, should not by itself be treated as sufficient to invoke Section 74.

Reliance on GR Infra Projects Ltd. Case

The petitioner relied upon:

GR Infra Projects Ltd., Ratlam vs State of Madhya Pradesh and Others, SLP No. 33594 of 2025

The judgment records the petitioner’s submission that the Supreme Court had stayed further proceedings arising out of a show cause notice issued under Section 74 of the Act in that matter.

This case-law reliance is expressly captured in the table on page 3 of the judgment.

Reason for Non-Participation

The petitioner explained that:

  • the part-time accountant failed to notice the issuance of proceedings;
  • the respondent had chosen to upload communications, summons, notices and orders only on the web portal;
  • because of these circumstances, the petitioner was unable to access the web portal; and
  • this resulted in issuance of the ex parte impugned order.

These explanations are expressly recorded in the page 3 table.

Respondent’s Arguments

The respondent was represented by the learned Government Standing Counsel.

The judgment records that the High Court heard both:

  • learned counsel for the petitioner; and
  • learned Government Standing Counsel for the respondent.

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

  • the precise reason for the GSTR-7 vs GSTR-3B difference;
  • the petitioner’s claim that all executed work was properly reported and tax paid;
  • the timing of government fund release;
  • GSTR-7 reporting and 2% TDS;
  • the ingredients necessary for invocation of Section 74;
  • the petitioner’s reliance on GR Infra Projects Ltd.; or
  • the merits of penalty and interest.

Therefore, no additional departmental contention should be attributed to the respondent beyond what is expressly recorded in the judgment.

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 it had been extending such opportunities on equitable grounds, though under appropriate conditions.

However, the present case involved an important factual circumstance concerning prior recovery.

The Court expressly recorded that:

  • 14% of the CGST demand had already been recovered; and
  • 38% of the SGST demand had already been recovered.

Considering these recoveries, the Court held that:

No additional condition is imposed.

Accordingly, the writ petition was allowed on the following terms:

  • since 14% towards the CGST demand and 38% towards the SGST amount had already been recovered, the impugned order dated 02.01.2025 shall stand set aside;
  • the matter shall stand remanded back to the respondent;
  • within four weeks from receipt of a web copy of the order, the assessee shall appear before the respondent without fail;
  • the assessee shall submit its reply and documents in support of its claim;
  • the respondent shall reconsider the matter afresh and pass orders in accordance with law;
  • the petitioner need not wait for a certified copy of the order;
  • because the impugned assessment order was set aside, any attachment of the bank account made pursuant to the impugned order shall stand raised;
  • no costs were awarded; and
  • the connected miscellaneous petition was closed.

The Court’s finding that no additional condition should be imposed because of prior recovery appears on page 4, while the remaining operative directions continue on page 5 of the judgment.

Important Clarification

This judgment does not finally hold that every GSTR-7 vs GSTR-3B difference is merely a timing mismatch.

It also does not conclusively determine that:

  • the petitioner had correctly reported every work contract receipt;
  • all applicable tax had been fully paid;
  • government departments had, in fact, delayed reporting each disputed transaction until release of funds;
  • Section 74 was legally inapplicable on the merits;
  • penalty under Section 74 was invalid;
  • interest under Section 50 was not payable; or
  • the petitioner had conclusively established absence of fraud, wilful misstatement or suppression.

Those matters were part of the petitioner’s merits explanation and remain for fresh adjudication.

The High Court’s actual holding is narrower:

  • the nature of the discrepancy and the assessee’s explanation justified a fresh opportunity;
  • the petitioner should be allowed to submit its reply and supporting documents;
  • the matter should be reconsidered afresh in accordance with law; and
  • because 14% CGST and 38% SGST had already been recovered, no additional condition was necessary.

A further important clarification concerns GR Infra Projects Ltd. The present judgment records the petitioner’s reliance on that case and the submission that the Supreme Court stayed further proceedings arising from a Section 74 show cause notice. The Madras High Court did not independently reproduce a final ratio from that Supreme Court matter, nor did it declare that the stay order automatically decides the petitioner’s Section 74 dispute.

Therefore, the case should be described accurately as relied upon by the petitioner, not as a final precedent conclusively deciding the present merits.

Sections Involved

Section 74 of the TNGST/GST Act:
The impugned assessment order dated 02.01.2025 was expressly passed under this provision. The petitioner argued that invocation of Section 74 requires establishment of fraud, wilful misstatement or suppression of facts with intent to evade tax.

Section 50 of the GST Act:
The discrepancy table expressly refers to interest under this provision.

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

Form GSTR-7:
Central to the mismatch dispute concerning contract receipts and government-department TDS reporting.

Form GSTR-3B:
The petitioner’s return was compared with GSTR-7 reporting, resulting in the alleged discrepancy.

GST TDS at 2%:
The petitioner’s explanation recorded that government departments, in many cases, report transactions in GSTR-7 upon release of funds and pay/deduct TDS at 2%.

Link to download the order -

https://mytaxexpert.co.in/uploads/1783060639_365compressed.pdf 

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