Facts of the Case

The petitioner, M/s. Tvl. Narumanam Spices, is a partnership firm engaged in business at Bodinayakanur, Madurai. For the Assessment Year (AY) 2021-22, the respondent department detected a discrepancy concerning the excess availment of Input Tax Credit (ITC). Specifically, the IGST claimed by the petitioner in Form GSTR-3B exceeded the auto-populated figures in Form GSTR-2A by an amount of ₹6,71,212.

A Show Cause Notice (SCN) was subsequently issued by the respondent on September 9, 2025. Upon acting on professional advice, the petitioner promptly paid and reversed the entire quantified ITC differential of ₹6,71,212 via Form GST DRC-03 (vide ARN No. AD3310250473398) on October 30, 2025.

However, the petitioner had fully entrusted its GST compliance, routine return filings, and departmental communications to a part-time accountant. Following the payment made via DRC-03, the part-time accountant completely failed to file a formal reply to the SCN on the portal. Furthermore, the accountant failed to monitor the portal or apprise the petitioner regarding the subsequent issuance of the Summary of Order in Form GST DRC-07 (Ref No. ZD331225193262L) and the main assessment order dated December 12, 2025. Consequently, because the petitioner was unaware of these digital communications and lacked actual access to the portal during that period, an ex-parte assessment order was passed against them.

Issues Involved

  1. Whether an ex-parte assessment order passed under Section 73 of the GST Act deserves to be set aside on equitable grounds when the entire tax discrepancy has already been paid by the taxpayer via Form GST DRC-03.
  2. Whether the principles of natural justice were violated when a taxpayer failed to participate in the assessment proceedings due to the operational negligence of their authorized professional/accountant.
  3. Whether interest under Section 50 can be automatically levied on gross tax liability when discrepancies are cleared and whether penalties under Section 122(2)(a) survive in the absence of an active wrong or excess claim.

Petitioner’s Arguments

  • Payment Already Deposited: The petitioner argued that they acted in bona fide compliance with the department’s initial observations by depositing the entire disputed ITC amount of ₹6,71,212 through Form GST DRC-03 on October 30, 2025, well before the final assessment order was drawn.
  • Reason for Non-Participation: It was contended that the failure to respond to the SCN and the subsequent ex-parte proceedings was not deliberate. The firm was entirely reliant on a part-time accountant who failed to track the online portal notifications and did not file the formal replies as instructed, rendering the petitioner completely unaware of the active proceedings.
  • Contestation on Interest and Penalty: On merits, the petitioner argued that interest under Section 50 is legally restricted to the "net tax liability"—meaning amounts paid through the Electronic Cash Ledger—and cannot be sustained on amounts adjusted or maintained through the Electronic Credit Ledger. They further submitted that since there was no intentional wrong or invalid claim surviving after the voluntary payment, the levy of penalty under Section 122(2)(a) read with Section 73(9) was inapplicable.

Respondent’s Arguments

  • Sufficient Opportunity Provided: The Senior Standing Counsel appearing for the respondent submitted that the department followed the statutory track completely. Multiple opportunities were extended to the taxpayer via the online portal to clarify the differences between GSTR-3B and GSTR-2A.
  • Justification of Ex-Parte Order: Because the petitioner routinely failed to access the web portal, did not utilize the given opportunities, and failed to submit any supporting documentary evidence or formal objections to the SCN, the assessing officer had no choice but to finalize the demand and pass an ex-parte order on the basis of available records.

Court Order / Findings

  • Restoration on Equitable Grounds: The Hon’ble High Court observed that the principal reason the taxpayer could not participate in the assessment or submit replies was the systemic failure of their part-time accountant. Recognizing that the High Court routinely extends opportunities to clear out factual discrepancies on equitable grounds, the Court deemed this a fit case for a fresh hearing, subject to reasonable conditions.
  • No Pre-Deposit Condition: While the Court usually imposes strict pre-deposit conditions for remanding a matter, it took judicial note that the entire principal tax liability of ₹6,71,212 had already been fully paid and realized via Form GST DRC-03. Thus, no further monetary conditions were imposed on the petitioner.
  • Final Directions:
    1. The impugned ex-parte assessment order dated December 12, 2025, was officially set aside, and the matter was remanded to the file of the respondent assessing officer for fresh consideration.
    2. The petitioner was directed to appear before the respondent within four weeks from the receipt of the web copy of the order, without waiting for a physical certified copy, to submit their comprehensive reply along with supporting documents.
    3. The respondent was directed to consider the submissions afresh and pass a speaking order in accordance with the law.
    4. Consequent to the setting aside of the assessment order, any bank account attachments initiated pursuant to the demand were ordered to be lifted immediately.

Important Clarification

This judgment reaffirms that while online portal notifications constitute legal service, genuine clerical or professional failure by an outsourced accountant can be condoned by High Courts under writ jurisdiction to prevent miscarriage of justice. Crucially, it highlights that if a taxpayer has already regularized the basic tax demand through Form GST DRC-03 during the notice period, appellate or writ courts will lean favorably toward providing a full, unconditional hearing on merits to dispute additional consequential levies like interest and penalties.

Sections Involved

  • Section 73 of the TNGST / CGST Act, 2017: Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful misstatement or suppression of facts.
  • Section 50 of the TNGST / CGST Act, 2017: Interest on delayed payment of tax.
  • Section 122(2)(a) of the TNGST / CGST Act, 2017: Penalty for short payment of tax or erroneous refund or wrong availing/utilization of ITC.
  • Article 226 of the Constitution of India: Writ jurisdiction invoked for violation of the principles of natural justice.

Link to download the order - https://mytaxexpert.co.in/uploads/1783067662_453compressed.pdf

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